This is the first post in a series recounting some of the great discussion from our October Investment Forum. Open finance experts Tessa Lee of moneyinfo, Nick Eatock of Intelliflo, and Ross Laurie of Visible Capital answered adviser’s questions about the evolution of open finance, how it’s changing the wealth management industry, and how advisers can get involved. Tickets for our next Forum on November 11th are now available, and can be accessed at the bottom of the page. 

Open finance is key to streamlining the ‘know your client’ aspect of the advice process.

Tessa Lee:

I guess open banking, open finance, really the key for this is that any broader access to our clients’ data is going to benefit us as a business and making that access easier, making it quicker, and really think about how access to people’s full financial data can help support those advisory processes that you’re doing for your clients. The fact-find and know your client is one of perhaps the most labor intensive and onerous parts of the advice process; it’s data gathering. It’s perhaps the bit that clients value the least because what they really value is the conversations that they’re having with their advisers. So the opportunity for what it means for advisers is the ability to really support, streamline, improve, and enhance those advice processes, particularly around, around the ‘know your client’ process, I think.

It’s very hard for a client to accurately tell their adviser how much they spend each month, and open finance will help with that sort of issue a lot. In open banking/finance, the client is in control of their data and the access is initiated by them. Client portals will become central to interacting with clients and getting their open finance permissions in the future.

Nick Eatock:

Firstly, I’d like to agree with Tessa’s comments. I think she’s absolutely right. What we value from the tools is that they’re helping with the whole advice process as a bedrock. I just had an adviser reach out to me earlier this week who said: “this is fantastic. I’ve never met the client, but I feel like I already know them”. And that’s just through data that the client filled in during the fact find. So I thought that was pretty impressive.

Ultimately, as you start including things like open banking as part of the client portal technology, you start to help with suitability and affordability obviously, but also that data can then be used by other tools. So when you’re talking about cashflow tools, that kind of capability of having the data squirt in automatically and it no longer be a guess-find, it’d be an actual fact find on where people are spending their money. I think that’s pretty important.

It’s always one of the hardest questions that advisers or clients struggle to answer. When an adviser asks, “how much do you spend every month?” That’s not easy to answer accurately and open banking can certainly help with that. I think probably more directionally you asked at the beginning there, Ian, about open finance. And I think we are seeing an interesting sort of directional flow here.

So open banking was the first of these services where gaining access to information about a client’s accounts– in this case bank accounts, credit cards, that kind of thing– has been facilitated and initiated in fact by the client themselves. And they’re in control of that open finance, due to the fact that actually your clients are the ones who hold the keys to that information though– it’s still very much an early stage work in progress, it has to be said– but when it gets to some form of maturity and if it brings the same methodology around it.

So you must be interacting with them via client portal if you’re going to get the permission from them to support everything else that your advice business does. I think it’s really important that even though open finance is some time away, this is where things are going. So get on the client portal way of doing things as early as you can and you won’t be left behind.

Open banking/finance is hugely time-saving for advisers. There’s a distinction here between PSD2, the Payment Services Directive 2, and open banking: they both work together, but PSD2  was the regulatory government-led initiative to effectively allow customers access to the data that they held within, in this case banks, and open banking was effectively the framework that said, “well, okay, this is how we all do it.”

Ross Laurie:

I can tie it all back in with the main question in there. So what is it? What does open banking and open finance mean to advisers? For us, it’s basically time-saving, stop keying data time all the time: key it at once or never. Both Tessa and Nick have alluded that all we’re doing is looking across, effectively, the data collection part of financial advice, for fact finding and, of course, ongoing suitability; and looking at where we can digitize the manual processes that are in there because it is cumbersome and potentially inaccurate, and potentially open to regulatory challenges as well in terms of reporting.

So all we’re doing, and it’s a bit more complicated than just ‘all’, but basically providing that data, using those new technologies that have become available. Going back to “what does open banking mean?” I suppose there’s a very clear distinction here between PSD2, the Payment Services Directive 2, and open banking, they both sort of symbiotically work together, but PSD2  was the regulatory government-led initiative to effectively allow customers access to the data that they held within, in this case banks, and open banking was effectively the framework that said, “well, okay, this is how we all do it.” Because imagine if all the banks went off and did their own version of making that data public.

What we’ve seen is a number of those processes have been part digitized, Ian made the point, actually, he talked about one of the interviews we did with him – we were talking about digital fact-find and the fact that now you can you can basically give that as a digital questionnaire to your customer which they can complete, and they can do it in 18 minutes. Well, we think we can do it shorter than that by simply inviting the customer to log into their bank. And then we pass that data straight into your existing back office. It’s the 3-step process of request, respond, and then just get on with giving advice.

Most customers choose to share all their accounts because it improves their service, but they’re completely in control of how and where they share their data.

Tessa Lee:

Essentially it works through the banks online banking site. So if you’re going through a client portal, like moneyinfo, you would choose to add your accounts on it and it would take you through, as part of that process, to your banking site, where you would log in effectively to your bank site, and they would ask you to provide your consent, to share your data with whatever third party service you’re aggregating it on.

And you can select the accounts that you want to share, and that consent process then lasts for 90 days, at which point you have to refresh that consent, and you will be prompted by your technology to refresh that consent. And you can manage that consent at any point through the process as well.

So the customer is completely in control of how and where they share their data and also how much of their data because they don’t have to share every account. They could share some accounts. Most, I have to say, tend to share all of their accounts because the benefit for the consumer here is a better experience and the ability to aggregate all of their financial life in one place. That’s really the experience that they’re getting. So all in the control of the customer, and consent lasts for 90 days.

Jo French:

I’ve got a question please, for a review of what permissions the different parties in the supply chain need to have to use the different levels of services available with open banking. Please, that’d be really helpful.

AISP is the fundamental permission. The regulation is very strict about Ts & Cs and transparency with the customer.

Nick Eatock:

It’s a good question, Jo. So the fundamental permission is an AISP, and that allows you to get the information and read the accounts. It can be taken one stage further on the regulation, which actually allows you to instruct payments– so you need to be clear and understand yourself what the vendor that you are using has within that context. They must be regulated.

There is simply no way you can do this without following the regulation and having the T’s and C’s of the service be very clear as well. Both as part of the underlying T’s and C’s, but also as part of the client journey, and this is something the regulators have been pretty clear on. I know, and I’m sure Tessa and Ross went through this as well and other private providers who’ve done this, when you work with the regulator they’re very prescriptive on the transparency of the information to the end customer, looking at who is providing the service and what data is being shared.

So they must accept those T’s and C’s. If you’re seeing any solutions out there in the market that have a nice quick and dirty route through to get the information, you should question it because you’ve got to be open with the customer on that.

Moneyinfo runs an agency model where we’re responsible for the AISP regulation and our advisers become our PSD agents and don’t need to go through the regulatory process themselves and can still benefit from open banking.

Tessa Lee:

Yes, absolutely. We are regulated by the FCA as an account information service provider. It’s a fairly rigorous process and fun process, as I’m sure you can all appreciate, because you’ve been through your own fun regulatory processes, but it does mean that providers like us and like Intelliflo are party to quite strong scrutiny from the FCA in terms of the organizational processes we have and controls in place, our security controls.

In terms of whether advisers need to be regulated as an AISP, that’s something we worked really hard with the FCA on when we went through our model and actually the regulation says that it’s the party presenting the consolidated view of accounts to an end consumer that needs to be regulated as an account information service provider. Now, initially for us, that presented some challenges because all of the moneyinfo portals are fully branded up for our advisory firms and our wealth managers right down to their own app store presence for iPhone and Android.

So for all intents and purposes, it’s their portal, it’s their client and they are presenting that information. But of course it’s moneyinfo that’s supplying the technology, it’s moneyinfo that’s responsible for the security of that technology. It’s us that can provide all of the information around how that’s managed and operated.

So we run an agency model, which means that all of our advice firms can become PSD agents of moneyinfo, which means that we’re responsible for the AISP stuff, we’re responsible effectively for the agents in that as well. And it means that our advice firms don’t need to go through that regulatory process themselves.

They can become our PSD agents, they can still have their fully branded service but they are able to effectively benefit from our AISP regulation. And that’s something we worked hard with the FCA on because it’s important that we didn’t want to be barriers to our advice firms to being able to benefit from open banking.

The AISP and PISP are the two sides of the regulatory service. If you want to get your own AISP license, it did take us 9 months to secure one pre-COVID.

Ross Laurie:

There are two thrusts of the regulation service: the AISP account initiation service provider that we’ve talked about, and then there’s PISP, which is a payment initiation service provider, and you can do a blend of both. I don’t think any of us, certainly Visible Capital, aren’t looking at the payment side of things and we’re just looking at the aggregation side of it – or access to account data. So that allows us to effectively pull data through, but we can’t take any action thereafter.

And it ties back in with the previous question about how the process works through that AISP process and the open banking framework. There’s an authorise, authenticate and consent 3-stage process, which the banks actually provide. So you’ll authorize it by clicking on the link to go into your bank. And then you go through the consent and the rest of the processes within your bank and pass it back out. And to this point, and I suppose the original question, what do you need to, to do it?

Well, you need an AISP license to access the customer’s data. I mean, in the olden days people would do screen scraping. We never really liked that on our side of the balance sheet, it felt like a bit of a security risk, to be honest. But you can use our model without having your own licence.

As Tess says, there has to be a presentation to the customer. And if you look at the regulation – its early days and we’re hoping it will evolve – but it has clearly been written with the credit, side of the balance sheet in mind, it’s all about dashboards and things like that. So you do have to provide a dashboard, as an AISP, but the way we do that, is we present that report to the customer, and then pass that data back into the back office, so it can then be used by the adviser. We don’t want to get in the way of the adviser-customer relationship.

So you can literally use this as a service, or you can take out a license if you’re going to use it a lot, but you don’t have to worry about getting an AISP license (if you use an AISP like Visible Capital). If you have got your own license, but you really rather like our functionality, then you can pull that in as part of that, but it took us nine months to get the license. We also then got our ISO 27,001 accreditation on top of that as well for additional security purposes. And this was all pre-COVID. It might take a wee bit longer now.

Open banking is being adopted by high-street lenders, but is slower to adopt on the consumer side.

Ross Laurie:

Open banking actually is being used by high-street lenders, and even for car loans and things. I suppose this goes back to the point in this call. I think the opportunity is actually more on this (wealth/adviser) side of the balance sheet, in terms of what we can be doing with the data.

It [Open Banking]  is being used, but it’s been slow to adopt in the consumer side of things, largely because there’s already existing processes in place, credit scores, that kind of thing. I was involved as a non-exec with a company working exactly on that who recently sold out to one of the big credit companies. So it will probably become a lot more commonplace.

But I suppose that the other side, staying in mortgages, you can also look at it for lifetime mortgages and how you would use it to asses those too. So there is some applications of it being used on the lending side, but we’re early days though.