OpenMoney is an online financial advice business, and the idea behind it is to provide a service to those people for whom advice is either unaffordable or inaccessible.
As a profession, we tend to define advice in the way FCA does, that is, a personal recommendation relating to a range of products or funds. But in the real world, people understand financial advice as anything to do with money.
Our business stems from the recognition that our target audience, who typically don’t have a lot of money, just want to be told what to do with their finances.
For some, that will mean regulated advice, but for a high proportion it won’t involve regulated advice at this stage.
Our aim is to help these people make the right choices with regards to their money and, at some point in the future, be in the right position for making long-term investments.
The RDR, and the apparent lack of progress on the Financial Advice Market Review, are often bandied around as the reasons why the advice gap has widened over recent years. But the reality is there just aren’t enough advisers.
There is enough demand from those clients who have plenty of assets and who are willing to pay, so there’s actually no incentive for the existing advice market to find a solution here.
I am a huge advocate for financial advice and feel strongly that the current craze for non-advised solutions as an answer to this advice gap is a disaster waiting to happen. The decision as to whether someone can access advice shouldn’t come down to profitability.
The way our model works is an initial fact-find which will lead to an appropriate recommendation that may or not involve regulated advice.
Within our app we can help people with things like paying down debt or building up a cash buffer, and setting up or transferring an Isa or a pension. Behind the technology we have our own advisers to help with validation and to reassure people that they’re doing the right thing.
Where the FCA came in
When we were setting up OpenMoney and applying for our regulatory permissions, we had to submit our business plan as part that.
Somewhere along the way this caught the FCA’s attention - given the role of technology and our approach to doing things a bit differently, it was suggested our model would be a good fit for the FCA’s regulatory sandbox. This initiative allows firms to test more innovative propositions, products and services in a live but controlled environment.
Being part of the sandbox sounded good to us, as we’d always much rather work with the regulator than against it.
During the first meeting we realised our business wasn’t quite what the FCA had in mind – they were asking about things like blockchain and artificial intelligence, which aren’t really what OpenMoney is about.
So we ended up being referred to the FCA’s advice unit, which is the next tier down from the sandbox. The advice unit was championship league and the sandbox was more Premier League – I think we ended up in the right place!
We were in the first cohort so the advice unit was evolving as we were in it.
It was a really small team we were working with, with big ambitions for what they wanted to achieve. The size of the team meant things could sometimes take a long time to progress, which as a start-up can be really frustrating.
That said, what being in the advice unit did allow us to do was discuss our thoughts and ideas with the FCA, and push on with these.
We went in with our eyes wide open. We knew the FCA was never going to rubber-stamp anything, or endorse it as ‘FCA-approved’. But if you go in with a clear idea and understanding of what it is you want to get their view on, then it’s a really helpful process.
It’s worth remembering you have to be a really big firm to warrant close regulatory supervision, so getting that one-on-one time with the FCA was crucial.
Some of the areas we were looking to build out and get feedback on were around issues such as risk discussions with our customers, our charging structure and the timing and delivery of particular documents.
I came to this with a fair bit of industry experience, so felt it was much better to have the FCA on your side of the table rather than sitting opposite you. But having been through the advice unit doesn’t equate to a ‘get out of jail free’ card, where you get treated any differently.
There were no outright rejections or vetoes on what we were doing, but the FCA did sometimes push back and encourage us to refine certain aspects.
One example would be around risk and capacity for loss, which we cover in three screens, but which the regulator is used to seeing as a more complicated process. We spoke to them at length about our rationale for that.
For me, capacity for loss is all about understanding what people want from their money, and helping them to visualise what any losses could mean for them.
Taking a pragmatic approach
Overall, I’d highly recommend working with the FCA in this way.
As more advice firms look to involve technology in their business, the advice unit is a really good way of getting a kind of pre-emptive validation on particular points, as well as helping to iron out any ambiguities.
We’ve gone back to them with some questions we had around an at-retirement solution we’re building at the moment, and may even go back into the advice unit more formally when we’re a bit more advanced in our thinking.
As an aside, the FCA loved that there are times (currently around 70 per cent) when we’re telling people not to invest because it’s not right for them. That contrasts with a lot of the services they see, which are just about getting assets.
I’m generally fairly pragmatic about the regulator.
We work in a regulated environment, so there has to be a regulator overseeing things as part of that.
It’s a really difficult job that the FCA has, with such a broad remit. A successful regulator doesn’t mean an organisation that simply does what everyone wants it to do – that’s just not going to happen.
Ultimately, a good relationship with the regulator is infinitely better than one when you’re pushing against them the whole time. Ideally we can try to find a way of working with the FCA rather against it – to me that’s just good business sense.
This article is based on a talk Anthony Morrow gave at this year's NextWealth Live conference. For more information on next year's NextWealth Live event, click here