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February 1, 2021

Retirement Planning: Regulatory Trends

Advice, especially investment advice, is the most heavily regulated part of financial services, with specific processes and procedures governing transparency, suitability of advice, and eligibility. There are significant challenges in operationalising these principles effectively for automated advice, alongside new regulatory considerations around data storage and analytics for a digital-only (or digital-largely) service.

Regulatory Trends

Listed below are the key regulatory trends impacting the retirement theme, as identified by GlobalData.

Using digitisation to drive consumer understanding and engagement

It is unclear how regulatory regimes may evolve around new entrants as they target the retirement/pensions space. However, early indicators show parallels with the mortgage market, in which regulators want to encourage digitisation to make it easier for customers to engage with and understand their long-term financial needs and available products and providers.

The UK, for example, is moving towards a single, standards-driven platform that all providers will be compelled to provide a feed into, so customers can see their pot on the dashboard. The aspiration, intimately connected to the concept of open finance more broadly, is the ability to automate pension switching based on current and projected financial states, underpinned by real-time data across every financial instrument that the customer owns.

PensionBee has developed open banking partnerships with the likes of Yolt, Starling Bank, Lumio, and Money Dashboard. Customers of these financial institutions can gain access to PensionBee’s service through the providers’ own apps, as long as they give consent to share their data.

More generally, the digitisation of pensions can make the investment and advisory process more transparent. Rather than simply being told how their money is invested and how it is performing, digital gives investors a way to interact with their advisors, increasing their engagement. As the investment process becomes more transparent it also becomes more customer-centric.

Seeking to tackle product push

Regulators worldwide have a longstanding goal of clamping down on product push sales tactics and encouraging needs-based selling. In contrast, many wealth arms focus on selling the most profitable products. Chinese policymakers have also been actively pushing for customer-centricity. One example is the mutual fund advisory pilot programme announced in late 2019, which encouraged the industry to tailor investment options to customers’ financial goals.

Different approaches to more open wealth create different risks and opportunities for incumbents and new entrants alike

There’s no “open wealth” yet, but open banking makes it easier to perform automated KYC checks and pull together an aggregated picture of a client’s financial life. The growing acceptance of data portability forces wealth providers to think about a model of retirement planning and saving that could survive customers being able to pick up all data and go somewhere else. What would they do to create that stickiness? Conversely, how easily could new entrants get the data they need to provide meaningful tips and advice to bank customers?

The response varies by markets. In the US, for example, where there is no regulatory-driven open banking, leading incumbent banks are creating data-sharing agreements. Akoya is enabling Application programming interface (API)-based secure data access, moves that banks like Wells Fargo and JPMorgan Chase have been pursuing through agreements with aggregators.

Need for separation between banking, insurance, and wealth

A countervailing pressure here is the regulatory need for ring-fencing between the insurance, retail, and wealth divisions of banks and the need for tight data integration to enable the most integrated conversations around realising customers’ retirement goals. The industry and policymakers need to work together to better understand potential data sharing risks and how to mitigate them.

General Data Protection Regulation (GDPR) is an opportunity to know customers better

While GDPR is largely a compliance exercise for companies, it also presents an opportunity for better customer relationship management. GDPR forces providers to document all that is known about a customer, which is often not recorded formally within the wealth space as wealth managers tend to know customers informally. This creates an opportunity to organise information to answer suitability-of-advice questions.

This is an edited extract from the Retirement Planning – Thematic Research report produced by GlobalData Thematic Research.

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