Embracing Ownership: The Power of Generic Financial Planning Advice

The UK Financial Conduct Authority (FCA) regulates a market dominated by large manufacturers and distributors of regulated investments. While the financial services industry has facilitated the entry of millions of individuals into the investment landscape, a small group of distributors hold significant control over assets and data. In response to this, generic financial planning advice offers a solution by embracing decentralisation and empowering individual investors. Instead of relying on large investment companies, the generic model aims to build, operate, and be owned by end-users, placing power in the hands of individuals rather than corporations. But before we delve into generic advice, let's examine how we arrived at this point.

The Early Market

The retail investment market, as we know it today, has undergone significant changes since its inception. To better understand these changes, it's helpful to divide the market's history into two periods: Provider-Led and Distributor-Led.

Provider-Led: No Service (1985-2003)

The regulation of the UK retail investment market dates back several decades. The establishment of the Securities and Investments Board Ltd (SIB) in 1985 marked an important milestone, granting it regulatory powers under the Financial Services Act 1986. In 2001, the SIB was replaced by the Financial Services Authority (FSA). During this period, client data was owned by companies, and there was minimal interaction between users and their investments. This led to the industry being known as the "financial no-services industry."

In 2003, while serving as the head of wrap and innovation at Abbey, I was involved in developing protocols for the democratisation of regulated investments, which involved shifting the control from life and pension companies to platforms. Subsequently, in 2005, I replicated this process in the asset management sector by introducing auto-rebalancing multi-asset funds as the business development director for Berkeley Independent Advisers, launching Tactica. I also developed the protocols for the first intermediary platform, Nexus. My idea was to make the same level of service available to retail investors that were previously accessible to private clients and institutions, enabling consumers to take greater control of their own finances. However, the service still stopped at the distributor level, with limited control being passed on to consumers for fear of jeopardising the client relationship.

Distributor-Led: Asset Gathering (2003 – present)

The Retail Distribution Review (RDR) program, introduced by the FSA in June 2006, aimed to enhance consumer confidence in the retail investment market. The RDR came into effect on December 31, 2012, and led to the establishment of two new regulatory bodies in April 2013: the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). The FCA regulates financial firms that provide services to consumers and maintains the integrity of the UK's financial markets. Despite these regulatory changes, the empowerment of consumers through the RDR has been limited, prompting further shifts in favour of end consumers being required in the FCA's consumer duties regulations in 2023.

During this period, the advent of intermediary platforms in 2004 marked the beginning of an era where the investment market became distributor-serviced. Companies shifted their focus from providing content to users inefficiently, to offering platforms for distributors to engage with users and share distributor-generated content. As more investors adopted platforms, a few top distributors gained disproportionate control over a significant portion of the assets and value generated in the retail investment market. Additionally, platforms introduced the asset-driven revenue model, whereby users could choose distributors but didn't have ownership of asset placement or benefit from its monetisation.

Decentralisation: Client Ownership

The concept of client-led generic financial planning advice, also known as non-intermediating financial planning, emerged shortly after the Academy of Life Planning launch in 2012. It was a response to the concerns of early tech-savvy self-directed investors who felt that the investment market demanded too much trust. The generic financial planning advice model offers a solution by enabling asset and data ownership to be distributed among users. It utilises customer-centric financial planning apps integrated with open banking and comprehensive financial education libraries to activate and empower consumers, giving them control over their assets and data.

Core ideas of Generic Financial Planning Advice

While it's challenging to provide a rigid definition of generic financial planning advice, several core principles underpin its creation:

1. Decentralisation: Large centralised entities, such as product providers and their agent distributors, will no longer control and own significant portions of the retail investment market. Asset and data ownership is distributed among end-users, aligning with the principles of GDPR (General Data Protection Regulation, a set of EU rules on data protection and privacy).
2. Permissionless: Generic financial planning advice ensures equal access for all individuals, regardless of their wealth. It aims to be inclusive and open to everyone.
3. Paymentless: The model doesn't involve the handling or placement of money. Instead, it directs consumers to publicly available surveys and impartial expert publications to educate them on how to manage their finances. The focus is on providing educational content written with a clear separation between authors and the retail investment industry to avoid conflicts of interest and improve market integrity. And signposting either intermediary or D2C platform services post planning, as appropriate.
4. Trustworthiness: Generic financial planning advice operates by avoiding incentives and economic mechanisms that can distort consumer outcomes. It reduces the need for individuals to place trust in conflicted third parties.

Why is Generic Financial Planning Advice Important?

Generic financial planning advice offers key benefits, which we'll outline below:

Ownership: Generic financial planning advice provides unprecedented ownership of assets and data. In traditional models, if you produce a financial plan through a distributor-owned app, your plan is tied directly to the distributor. If you switch providers or distributors, you risk losing your plan and the value invested in it. In contrast, generic financial planning advice allows for direct ownership through a consumer-centric, open banking-powered financial planning app (HapNav). No one, including the generic financial planning adviser, can take away your ownership. If you decide to switch providers or distributors, you can easily transfer your plan to another interface that aligns better with your values.

Censorship: In traditional models, distributors can lock you out of your entire financial picture with a single click. They often require access to personally identifiable information to create an account, leading to concerns about privacy and control. Generic financial planning advice addresses these issues by giving you full control over your financial plan. You have the only application programming interface (API), ensuring that your data remains secure and anonymous. You no longer need to reveal your data to anyone, not even your planner. With generic financial planning advice, you become the planner, benefiting from a secure, censorship-resistant, and anonymous single-login solution.

Limitations of Generic Financial Planning Advice

While generic financial planning advice offers numerous benefits, it also has limitations that the ecosystem must address for its full potential to be realised:

Accessibility: While certain features, such as Life Plan Templates, are already available to users at no cost, the relative cost of tools and libraries may still pose a barrier to entry for some individuals. The full support package is currently priced at just under ￡20 per month, which may be prohibitive to those with very limited financial means. Generic financial planning advice may be less accessible in less wealthy, developing nations until greater adoption drives down costs through economies of scale. Technology is ready, but higher levels of adoption are needed to make it accessible to everyone.

User Experience: The technical requirements for using generic financial planning advice are currently high, making it challenging for some users to navigate security concerns, understand complex technical documentation, and navigate unintuitive user interfaces. Ongoing efforts are underway to improve the user experience, but further progress is needed for widespread adoption.

Education: Generic financial planning advice introduces new paradigms that require individuals to learn different mental models from those used in traditional distributor-centric approaches. Education initiatives are crucial to informing seasoned investors of these empowered paradigms, facilitating a smoother transition and promoting the success of generic financial planning advice.

A Decentralised Future

The generic financial planning advice ecosystem is still in its early stages and continues to evolve. While I coined the term in 2012, many of the ideas associated with it have only recently become a reality. In the past year alone, there has been a significant surge of interest in end-user financial planning apps, open banking apps for portable planning, financial activation drives, financial well-being programs, experiments with new governance forms, and data ownership revolutions.

We are at the beginning of creating a better financial services industry with generic financial planning advice. As we improve the infrastructure to support this model, the future of personal finance looks promising. If you would like to get involved or learn more, please visit www.genericfinancialplanning.com.