1.4 Financial Services - Investment Distribution Channels Flashcards
What is financial planning?
Financial planning is a professional service available to individuals, their families and businesses, who
need objective assistance in organising their financial affairs to achieve their financial and lifestyle
objectives more easily.
Financial planning is ultimately about meeting a client’s financial and lifestyle objectives, not the
adviser’s objectives. Any advice should be relevant to the goals and objectives agreed.
What is the difference between independent and restricted advice?
Investment firms must now clearly describe their services as either independent advice or restricted
advice. Firms that describe their advice as independent will have to ensure that they genuinely do
make their recommendations based on comprehensive and fair analysis of all products available in the
market, and provide unbiased, unrestricted advice. If a firm chooses to only give advice on its own range
of products – restricted advice – this will have to be made clear. Their activities are supervised by the
Financial Conduct Authority (FCA).
Who supervises the activity of independent and restricted financial advisors?
The FCA.
What defines an execution only service?
A firm carries out transactions on an execution-only basis if a customer asks it to buy or sell a specific
investment product without having been prompted or advised by the firm. In such instances, customers
are responsible for their own decision about a product’s suitability.
To ensure that firms operate within regulatory
guidelines they need to record and retain evidence in writing that the firm:
• gave no advice, and
• made it clear, at the time of the sale, that it was not responsible for assessing the product’s suitability.
What is robo advice?
Robo-advice is the application of technology to the process of providing financial advice, but without
the involvement of a financial adviser. A prospective investor enters data and financial information
about themselves, and the system then uses an algorithm to score the information and decide
what investments should be chosen. The system then presents the investment strategy, which is
usually passively focused around index funds or exchange-traded funds (ETFs), and allows easy
implementation.
What is Fintech?
Financial technology, or Fintech, refers to the use of technology to enhance and deliver superior
financial service product offerings. The term describes a variety of financial activities; at its most basic,
we see and use Fintech in our daily lives in the form of internet banking or more recently mobile pay
How has the UK regulator responded to Fintech?
In 2019, the Department for International Trade and the HM Treasury published the ‘UK FinTech: State
of the Nation’, a comprehensive summary of the UK’s Fintech industry. The document highlights the UK
Market as a forerunner in the Fintech sector.
The UK government says it is setting the global standard on innovation in financial services.
It is also important to note the FCA’s proactive approach to the Fintech industry. In its infancy, the FCA identified the need to have a dedicated team to allow innovators in the Fintech navigate the area of regulation. This was initially done through the use of ‘robo’ advice and later evolved in the guise of the sandbox. The sandbox gives firms the opportunity to test Fintech-related ideas with real customers in a controlled environment. Demand for the sandbox initiative is high and it continues to evolve with the recent launch of the Green Fintech Challenge.
What is ESG?
The emergence of a more conscious investor has contributed to the development of the latest theme
within the financial sector. ESG factors are used by these investors to determine if an investment suits
their objectives. Environmental factors include sustainability and climate change; social concerns
include consumer protection and diversity while governance concerns include employee relations
and management structures. It is not only important for firms to ensure their product offering to
their investors/consumers covers ESG factors but it is also extremely important that firms looking to
deal with other firms adopt this and demonstrate this culture. For example, an investment firm which
demonstrates responsible investment will not want to associate with an administration firm whose
social environment could be called into question.
Investors can utilise the services of an ESG rating agency in deciding which investments suit their
objectives.
