Technology is changing society more than ever before. The way we shop, socialise and communicate have all changed radically due to the rise of digital.
The financial advice sector is in many ways behind the curve, with many product lines unchanged in decades.
We are likely to enter an online and digital age as financial advisors and IFAs are evolving into robo advisors.
With the robo advice sector forecast to expand in size tenfold in the next decade, maybe it’s time to create a robo advisor.
Here’s my quick guide on how to look at regulation. As once you have begun developing the product, mundane matters of operations and compliance become more and more relevant.
The first question: does your robo advisor deliver advice or guidance?
Where you sit on the spectrum between advice or guidance may not be clear. Here is my guide.
Now to market
Here are the three routes to market for a digital advice proposition.
- Project Innovate. The Financial Conduct Authority (FCA) as part of its mandate of stimulating competition and lowering consumer prices has been at the forefront of stimulating innovation within its markets. As such it has created the Regulatory Sandbox to aid novel propositions to market. The sandbox is a way for companies to test propositions in the real world, which makes it easier for younger companies to go to consumers and with more clarity. Current robo advice concepts in the scheme include major banks and the startup Fountain.Money
- Full Authorisation: the traditional approach. Direct authorisation has the advantage that FCA employees will have taken to analyse your advisory model and given feedback on the appropriateness of your recommendations. The drawback can be the cost and the lack of control over timings. Authorisation can often take up to a year, with little control over costs or timeframes.
For this reason many start-ups and even established firms entering new markets choose.
- Becoming an Appointed Representative: To accelerate their route to market, some fintechs utilise an ‘FCA Umbrella’. Here they don’t apply for authorisation direct. Instead they are supervised by another regulatory firm (such as RiskSave) which has the relevant permissions. The regulator will hold the principal (FCA Umbrella) accountable for failings in the AR’s activities. The process for becoming an AR is measured in weeks rather than months, and the regulatory hosting firm will often advise on compliance and operational issues lowering the fintech firms’ employees requirements and costs.
In practice the most appropriate approach will vary from concept to concept. But then once the MVP is complete and you are authorised (directly or indirectly), then it’s time to see if the how popular your concept is. Good luck!
RiskSave Technologies Ltd is authorised and regulated by the Financial Conduct Authority (No. 775330).