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British fund firms are falling behind in the so-called 'fintech' revolution, fearing that a boom in investment via phone apps could spawn the next financial mis-selling scandal. With smartphone apps already transforming the way people bank, tech-savvy savers are impatient for similar software to aid easier and cheaper 'on-the-move' investment.
But while fund managers are eager to innovate to win new business, they are concerned that offering full-service money management at the touch of a screen could lead to customers choosing unsuitable products. That could land firms in trouble with regulators, who require strict financial checks on potential clients. "We have all embraced mobile banking and many of us wouldn't be without it but increasing ease of consumption in investment funds in a similar way isn't necessarily in everyone's best interests," said Sri Chandrasekharan, global head of HSBC Global Asset Management.
"I have concerns about how technology of this kind could compromise fiduciary safeguards if a client buys into a fund via a mobile phone app without a full understanding of the attendant risk-reward," he added. The Financial Conduct Authority (FCA) requires fund managers to gather numerous facts on clients before any investment recommendation, such as inheritance tax or retirement planning, existing investments and how they intend to manage portfolios.
In doing so, the managers are expected to build a picture of a client's financial health, how much they understand about the fund they are buying and the potential for losses. Crucially, this duty of care extends beyond the point of sale but also over the life of the investment or relationship with the client - a responsibility fund firms could struggle to discharge if their products are bought and sold through an app.
"Our rules and guidance are what we call media-neutral, which means that irrespective of the way a service is delivered, consumers receive the same level of protection," an FCA spokesman said. "As a result, if a fintech firm is offering a regulated service, they need to abide by the same rules." Britain is an established hub for fund management, and embracing technology is viewed as critical to helping fund managers connect with a younger generation of savers known as millennials, many of whom have fallen into an 'advice gap' after a shake-up in how financial advisers are paid.
UK-based investors must pay upfront fees for advice and fund firms are no longer allowed to pay commission to the advisers who recommend and sell their funds. But earlier this month, just two years after the reforms were introduced, Britain's finance ministry opened consultation on consumer access to financial advice due to fears the perceived expense of using advisers had deterred prudent retirement planning.
Some fund firms are already responding to the demand for investment without recourse to an adviser. Online investment 'supermarket' Hargreaves Lansdown has attracted a loyal following of savers who want to invest with little or no interaction with advisers - but only if they are willing to make independent investment decisions.

Copyright Reuters, 2015

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