We’ve gathered the most exciting highlights from the digital advice innovation landscape as well as the latest news related to balance sheet risk.
Automated Financial Advice
The representatives of JLM Mortgage Services, the UK mortgage network, elaborate on the risks faced by institutions willing to entirely automate their financial advisory services. The experts highlighted the importance of the adaptability of the provided services to different customer groups and provided the readers with examples of their own experience of catering a hybrid financial advisory service. Link
Santander has become the latest high-street bank to launch a robo-adviser. The offering is built in collaboration with the behavior finance focused fintech company Be-IQ, and targets the first-time investors. Link
According to findings of consultancy firms Ignition House and Critical Research, the UK financial advice consumers continue to have concerns around transparency, suitability and value of the received advice. This explains why the number of people who could need a financial advice but do not engage with the advisors remains high. Moreover, the article suggests that the potential customers feel increasingly more comfortable managing their funds themselves. Link
The Wall Street banks’ fees for traditional financial advice are slowly decreasing. According to the article, this is the result of enhanced transparency as well as the transfer of wealth from the generation of boomers to their heirs, who are more likely to ask questions about the nature of financial advisors’ services. The robo-advisors, although steadily acquiring their market share, still comprise a small share of the market. Link
The London-based HSBC has joined forces with an independent robo-adviser Marstone to cater automated investing services to its customers. The new offering going live next year is targeted for the younger customers in the US. Link
Goldman Sachs has recently announced plans to expand its online retail banking offering Marcus by merging it with its investment management division. The bank intends to leverage its digital offering to enable cross selling of investment products. Although the functionalities of the new platform are not revealed, it is speculated that the services (which to date offer deposits and loans) would include retirement planning and credit cards. Link
Balance Sheet Risk
The European Securities Markers Authority (ESMA) has recently updated its Q&As on MiFID II and MiFIR market structure and transparency topics. The purpose of these Q&As is to promote common supervisory approaches and practices in the application of MiFID II and MiFIR. They provide responses to questions posed by the general public and market participants in relation to the practical application of level 1 and level 2 provisions relating to transparency and market structures issues. Link
Adolfo Montoro, a director in the market risk management and risk methodology team at Deutsche Bank criticizes FRTB P&L attribution test thresholds, discusses non-modellable risks and reveals why he believes Kolmogorov-Smirnov test is a better choice than Chi-squared test. Link
The MiFID II obliged the financial advisors to reveal the constitutes of the fees that they charge. In connection to this requirement, the pricing of research costs in the fees has been an area for debates. The problem is that it is not easy for the industry participants to provide enough motivation that the research costs incurred were in the best interest of the particular end customers. Despite the fact the MiFID II has been live for about 10 months, the industry has not found a better solution than reverting from charging the customers with the research costs at all. Link
Tim Lind, head of data services at the Depository Trust and Clearing Corporation (DTCC), discusses the complexities of FRTB and the data pools firms such as DTCC are creating to help banks opting for the IMA. Link
European Banking Authority reveals the Regulatory Framework for Mitigating Key Resilience Risks. The central role is devoted to the cloud outsourcing and cyber security. Link
