The fast-changing global financial services environment used to be driven hard by product and service innovation, says Peter Hobbs, Chairman of deVere Group.
New developments often blossomed from smaller entrepreneurial business units, concentrating on first-mover ideologies. Innovation was driven by new entrants either succeeding themselves, failing, or being snapped up by the big players, the later has not always been a successful strategy. This was, and is, not dissimilar to many other industries, such as those based in California’s Silicon Valley, home to the likes of Apple and Google.
Within financial services, the big players, despite what they may claim, generally have had a poor record in innovation and, in recent years, they have not really changed that much in that regard.
‘Decline by regulatory regime’
One of the more surprising impediments to innovative development in european financial service centres has been the abject decline in the SME sector in some countries. One example is the UK, which has been driven to consolidation or decline by regulatory regimes that recently seem more focused on political outcomes than customer care.
This could either be by design or just corollary of a necessary outcome. Some cynics have suggested that regulators, in the drive to eradicate risk, would prefer their jurisdictions to be dominated by just major players as they know fines and redress will be paid by shareholders and be a constant source of regulatory income.
Sadly, the big players typically have an appalling record in how they treat their clients, as evidenced by the recent shenanigans at RBC and the debacle of the PPI scandal. The saving grace is that at least the fines and redress will be paid. I am not sure, however, this is great customer comfort.
The mighty rafts of new laws and rules linked to GDPR, MiFiD II and IDD are all scheduled for imminent arrival. Do we assume that the existing robust regimes have not worked that well?
Will these new behemoths succeed in anything other than driving up customer costs and reducing choice and value in all its aspects? Will the effort outweigh the benefit? We will just have to wait and see.
For the mass of SME’s the amount of new work, effort and costs in implementing these new items including ongoing maintenance are high in real terms. There is no relief for size. I often talk to SMEs across various jurisdictions, and they are all feeling the strain in ensuring matters like compliance and governance processes are not only maintained and in place, but are constantly revised and updated.
I recently attended a board meeting as a guest and noted that sales and marketing did not even feature on the main agenda and R&D was fast becoming a lost art. No one will argue that there is not a need for strong regulation, but if regulation dampens drive and innovation, customers will inevitably experience poor outcomes.
One organisation which I chair is deVere Group, operating across a range of financial services jurisdictions from the UK to the US to Australia and many more. Each regulator the group deals with thinks its approach is, naturally, the best one.
For example, take sales remuneration. Some jurisdictions have product and service based commission models using a range complex of factors, some have commission free models and others have various mixtures in between, e.g. fixed fees or ad valorum arrangements. It seems to have been somewhat forgotten that the only thing a customer is interested in is transparency when it comes to fees in whatever form they manifest themselves.
Quite a simple thing really, a company gives you X and Y is what is going to be charged in real terms, declared upfront and regularly updated depending on the model. How regulators have lost sight of this simple approach is astonishing. It’s never been about how someone is charged, it’s only ever been about how much is charged and clearly shown.
Innovation is still, however, thriving across many areas, whether these innovations in the financial services arena will appear in Europe is questionable and whether there will be a thriving SME long term industrial power base there would seem unlikely in the long term. As I said earlier, this could be a desired outcome – let’s hope not.
Bitcoin and Blockchain are fantastic innovations somewhat under the radar right now as regulators generally have no idea how to deal with them – let’s hope the brains behind them can ensure they fully immerge, but sadly a lot of vested interests may stifle even these next steps.
Peter Hobbs, is chairman of deVere Group.