Change: Glimpse of wealth management future from banks?

Mark De Ste Croix MCSI, head of compliance & legal at Raymond James Investment Services, highlights some key points about the upcoming changes in the second Payment Services Directive (PSD2)


Most wealth managers have probably not paid too much attention to the EU's upcoming changes in the second Payment Services Directive (PSD2). This is understandable as most will be unaffected and blissfully unaware of what it means. However, it heralds some changes in banking that it doesn't take much imagination to see happening along similar lines in the investment world and it's not necessarily legislation that may be the driver in wealth management. When the Treasury starts making bold comments about what the future holds, it makes sense for other connected industries to listen and consider how it might shape its own future rather than wait to have it imposed.

So what is PSD2 doing and is it evolutionary or revolutionary? The key part of PSD2 is the requirement for banks to share their customer data with third parties when requested to do so by the customer. On the face of it no big deal. However, that data contains a mine of information that until now has been closely guarded by the banks. For starters, it contains information about income, spending habits (including exactly where that money is being spent), use of credit, online services used, travel patterns and so on. With that sort of information it should be relatively simple for tech companies to develop apps that provide real time financial information and assistance, such as warning customers when they have reached their monthly food budget, projecting end of month surplus or deficit, and suggesting charitable donations. The potential uses in helping customers manage their finances are far-reaching and open up opportunities to tech firms, whether they are currently engaged in a financial capacity or not.

The Treasury recognises this revolution, with Stephen Barclay, economic secretary to the Treasury stating:

"New fintech firms can enter the market and offer innovative and transformative banking services that are tailored to meet people's needs. New apps will empower people to take greater control over their finances, whether that's through managing all of their bank accounts in one place or helping to avoid unauthorised overdrafts when they move money elsewhere."

It does not take much of a leap to imagine this being extended to other areas of a client's finances, including their investments (and other financial planning needs). Apps could be developed to advise on the best mortgage (or indicate better deals may be available), suggest pension contributions when money is available, provide regular updates on future cash flow, and highlight investment opportunities. Now imagine this banking data being augmented with all the information about their investments as well. New rules requiring wealth firms to provide all the data they hold on their clients to the same fintech firms that hold the banking data could be truly revolutionary. Like it or not, these third parties could start providing independent analysis of the investments held, transactional data, performance and more – all delivered directly and proactively to clients. It is not beyond the realms of possibility that clients will be questioning their wealth manager because their finance app has raised issues, eg, "my app has alerted me that you've been doing a lot of trading recently, why is that?", or "my app suggests my portfolio has become higher risk than I'm comfortable with, why is that?"

It's unlikely that similar rules will be introduced anytime soon, but as Paul Grainger pointed out in his GDPR article recently, data portability is already high on the agenda. The future may be sooner than wealth firms realise.

Look out for our article on how fitness apps can influence the client-planner relationship in the Q4 2017 print edition of The Review.

Views expressed in this article are those of the author alone and do not necessarily represent the views of the CISI.
Published: 27 Nov 2017
  • Wealth Management
  • Compliance, Regulation & Risk
  • Change
  • PSD2
  • fintech

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