Open Banking begins tomorrow - should advisers care?
'Revolutionise financial planning'
A new dawn of financial data sharing will begin on 13 January as five of the UK's biggest banks have to offer consumers the opportunity to share their financial data with third parties.
But how will this new age of open data trickle down to financial advice?
Previously, consumers' banking information was privy to them and their bank only, but this does not have to be the case as of 13 January.
Open Banking will operate through the theory that consumers' data is owned by the consumer and not their bank, and so the incoming rules are set to give consumers the opportunity to gather all of their financial data together into one place.
If consumers give their permission, their data will be shared with third parties. In theory, they can fetch better deals on a wide range of financial products.
The data will be shared and available through major banks operating on a common Application Program Interface (API).
The first financial institutions to embark on the Open Banking journey - the nine largest banks in Great Britain in Northern Ireland - were ordered by the Competition Markets Authority to be ready for Open Banking on 13 January. Although five of them - Bank of Ireland, Barclays, HSBC, RBS and Santander - have said they will not be ready in time and have been given an extended deadline.
The other four major banks - Allied Irish Bank, Danske, Lloyds Banking Group and Nationwide - will step out into the unknown on 13 January.
The Financial Conduct Authority said its rules around Open Banking - its Payments Services Directive (PSD2) - aimed to "improve consumer protection, make payments safer and more secure, and drive down the costs of payment services".
"Competition in the retail banking and payments sector is vital to UK consumers and the wider economy," said executive director of strategy and competition Christopher Woolard. "PSD2 builds on this by giving consumers more choice around how they manage their payments and bank accounts."
The Open Banking website said the rules would "enable companies to give more accurate personal financial guidance, tailored to your particular circumstances and delivered securelyand confidentially".
‘Revolutionise financial planning'
So what does this financial data revolution mean for financial advice? After all, this overhaul is only beginning with major banks.
According to wealth and asset management consultancy Alpha FMC director Kevin O'Shaughnessy, the changes will "revolutionise" the way holistic financial planning is carried out.
"PSD2, when combined with emerging trends such as robo advice will cause significant disruption to the way people approach long-term investing," he argued. "Asset managers must prepare for a more open financial services world, while catering to millennial audiences who expect better digitally delivered experiences."
It has also been suggested the changes could improve the advice process. In a column for Professional Adviser, Space creative director Paul Lindsell said Open Banking could provide a huge opportunity for firms across the financial services landscape, including mortgage lenders, insurers, wealth managers and, yes, financial advisers.
It could revolutionise the provision of mortgages and protection insurance, he explained, potentially reducing the number of questions, especially around income and outgoings, as businesses would be able to access the data directly if customers and clients gave their permission.
Additionally, he suggested, the new legislation could feed into fact-finds and increase the efficiency of all sorts of advice - whether for face-to-face advisers, digital advisers or hybrid offerings.
"More broadly," he added, "it should increase choice and competition in personal and business banking, which is neither bad news for clients or for advisers."
For Hargreaves Lansdown personal financial analyst Sarah Coles, the new rules offer the opportunity for innovation "limited only by the fertile imaginations of the developers".
"The change is likely to spark a boom in apps that will help people manage their money, and our data shows being able to use an app to engage with your money has a transformational effect," she continued.
"So far we have had more than 677,000 downloads of our own app and we can see that people who have downloaded it check their investments twice as often as those who haven't.
"People turn to an app at all kinds of times when they wouldn't dream of tracking down a computer or phoning a company. And it's not just that an app makes it so much handier to check your financial position, it also makes it easier to change that position."
Despite the excitement from innovators, however, there will inevitably be challenges. Lindsell suggested both advisers and clients would worry about the safety of the data - and he suggested regulators were attuned to this as well.
Some experts, he added, have suggested open banking and access to this data will require a new set of regulations - and perhaps even an oversight body to ensure it does not get into the wrong hands.