In a note out on Thursday that follows an inaugural one out in May on the long term impact of this nascent sliver of the wealth management sector, McCann writes that the regulators are frustrating the industry.
While a significant number of incumbent players have entered the market between May and October, including: BlackRock and Aberdeen (through acquisition) as well as new launches by Hargreaves Lansdown and Bestinvest, McCann says firms are unlikely to do more than “show interest in the idea and build half-hearted solutions” until there is more regulatory certainty because “they will not be able to justify significant investment in a solution which might turn out to be non-compliant”
For McCann, there is a disjuncture between what the Financial Conduct Authority says about financial innovation and its inaction to promote it. For example, he says, in the joint project with the Treasury on Financial Advice Market Review, robo-advice is held up as one of the more promising ways of addressing the burgeoning advice gap, but despite this it has yet to adequately address what is and is not advice and whether or not there ever can be a middle ground.
“This lack of clarity will ultimately mean a slower pace of innovation and robo-advice AuM growth in our view,” he said.
On a more positive note, however, he said, “it sounds to us like new entrants may in the future be given a regulatory advantage over the incumbents, as the FCA plans to allow “genuinely innovative” startups access to a “sandbox” – their way of describing allowing new entrants immunity from certain regulations to encourage innovation.”
While he believes this could be a positive development for new entrants, as it might enable them to enter the market without fear of incurring too many liabilities around the question of what exactly is defined as advice, there is a question about who will end up funding such a scheme.
“Ultimately it will be the incumbent industry through the FSCS levies / FCA charges if something goes wrong in our view,” he said.
