Written by Kevin Okell on Tuesday 18 March 2014
In case you missed it, we’ve just released a white paper on the future of D2C investing. In parallel with writing the paper we’ve been busy speaking to lots of hi-tech firms about various bits of the investor journey and planning an event for later in the year to share a vision of how technology could transform investing. The paper got lots of press coverage, 200 downloads in a couple of days and some nice reviews. All very positive and exciting and I was feeling suitably upbeat about the whole D2C future. Then two things happened.
First, I went to a meeting where we discussed all things D2C. I shared some of our futuristic ideas which were generally viewed as appealing to generation Y but quickly generated a lot of debate about the definition of advice. The bottom line was that, whilst we’d like to help consumers in their buying decisions, we can’t be seen to give advice for fear of future FCA mis-selling claims. In fact, even providing tools to narrow down a funds list was enough to worry several people.
Second, I read an article in the FT.com about an FCA letter to the Retail Derivatives Committee which suggests that trading platforms which offer a facility to follow other traders and mirror their trades are likely to need advice permissions and had better stop doing this until they’ve got those permissions.
Now I understand that the FCA has a job to do, policy objectives to meet and a rulebook to enforce but those rules are looking increasingly outdated to me. Insisting that someone carries the can for pretty well every retail investment decision may have made sense in an era when information asymmetry was weighted heavily against the consumer and where providers could influence advice in return for commission. But a combination of the Internet and RDR has changed this landscape completely and surely it’s time to treat investors as responsible adults the way every other sector does.
Prescribing that any service which actually helps investors to decide on an investment must be classified as advice and, crucially, that the provider is forever liable for that advice is choking innovation in the D2C investment sector.
I’m not advocating regulatory anarchy and I’m happy to concede that there are real risks in the rosy picture of a D2C future painted by our white paper but I genuinely believe the FCA are looking at this through the wrong end of the telescope. Instead of starting, like religious scholars, from interpretations of a bible written for a different era, the FCA needs to step back and start from a view of where the world is heading and design regulations which deal with the risks future investors will face rather than those we grew up with.
Otherwise the FCA risks looking very much like King Canute in the face of an inexorably rising technology tide.