Digital financial advice
The boundaries between stationary consulting systems and various types of digital advice have long since become blurred. The analogue world of consulting has already gone digital: from the recording of personal data on the adviser’s desktop or laptop, to the electronic transmission of product information and standardised algorithm-based recommendations (even if consumer institutes and NGOs do not seem to consider this in their “mystery customer” research exercises). Advancing digitalisation and the digital-analogue mesh is also enabling non-banks and innovative start-ups (so-called FinTechs) to establish core businesses in the field of financial advice.
Where a handful of tools with multiple usage potential is perceived as bringing real added value to consumers, the meshing of digital services, combined with traditional analogue elements, could prove advantageous for those seeking information and advice.
Clear and comprehensible standards of regulation are required in order to allow consumers to discover and exploit the opportunities of digital financial advice, while recognising the risks. These have been missing so far:
- Clear, simple, comprehensible and comparable information on financial products is becoming increasingly important, especially for digital customer relationships. Unfortunately, this is particularly lacking in Germany. Existing rules continue to create more complexity and confusion; a clear-out of the “financial jungle” would benefit consumers. Especially when the quality of digital information is at stake, “less is more!” should certainly be our mantra. However, in the world of financial services we are still far from putting this principle into practice.
- In the world of digital finance, the likelihood of consumers opting for digital financial advice is very closely linked to the availability of standardised product information: Irrespective of where companies are based and regardless of the time of purchase, all providers who wish to sell financial services in Germany should be obliged to make standardised product information concerning their entire range of financial services available to the public. This must apply uniformly to the whole range of financial services provided by (savings) banks, investment funds, insurance and all similar providers including FinTechs.
- Lawmakers should prescribe specific, standardised product information models. These should be binding and easily available in digital form.
- Simple yet strict rules should apply to financial information, as well as financial product testing and comparison services. The review of these rules must be ongoing. These rules should be applicable at all stages, from creation and preparation to publication, and would include:
- Mandatory provision of information on the business model and financial relationship, in particular any commission paid.
- No advertising using the term “free” (or similar) if charges are included in the price of the products being compared.
- No advertising using the term “low-price” (or similar) if not all products/services on the market have been included.
- Are the criteria and comparative methods publicly available and verifiable by third parties?
- Has the method of comparison been disclosed? Do we know which standards are applied to which study?
- Are the points featured in the comparison relevant to the key features of the financial service itself?
- Transparency for consumers when faced with a range of digital advice services as to whether any part of the payment for digital services is to be made in personal data – and if so which data – including data being passed on to third parties. Such transparency is currently lacking. Alternative channels for the provision of advice must be available where consumers reject digital services.
- The same applies for identifying (IT) security measures, including disclosure of any expected/obligatory action on the part of those seeking advice.
A report entitled “The digital world and finance: Payment services and financial advice under a digital agenda” was presented to the public on 19 January 2016.