Are financial marketplaces offering enough protection?

Anthony Morrow

Co-Founder of OpenMoney

February 16, 2021

In recent years there has been a huge rise in financial marketplaces, particularly through money management apps, influencer websites and challenger banks. Financial marketplaces are sites that provide access to a number of different third-party services in one place. This can be anything from mortgage and insurance providers, to the most common product you can find on them - investment platforms.

It’s easy to understand why they’ve become increasingly popular; they add additional content to engage the customer and more importantly, they introduce additional revenue streams for the app or website provider.

For a lot of people, the world of investing is something they would never consider for themselves, believing that it’s only accessible to those with plenty of disposable income to ‘play’ with. These marketplaces have done wonders to make investing more accessible by promoting these services to their customers, but there is also growing concern over whether they offer enough protection for potential investors. It is also great for the investment app as it can be a cost-effective way for them to attract new customers.

Some of the more successful marketplace providers have access to your financial information through any bank account, savings account, debt information or investments that you may have chosen to link to their app. Despite having access to all this information, we’ve found that they choose not to use it to determine whether the products on their marketplaces, especially investment apps, are right for you and instead leave them open for anyone to use.

A lack of suitability

Making investing accessible is great, but without any measures in place to ensure the suitability for customers, these marketplaces are wading into dangerous waters.

There is no obligation for marketplaces to offer advice or for them to ensure that the services being offered to their customers are actually in their best interest, nor are there any repercussions for them if the customer makes the wrong decision from their offering. They do, however accept referral payments from the services they recommend which raises questions as to whether these marketplaces are purely a money-making vehicle – for the wrong party.

Our 2020 Advice Gap Report revealed that 63% of people asked, said they find managing their money and making financial decisions challenging. We owe it to this group of people to educate and steer them in the right financial direction as well as protect them from companies who could be seen to be taking advantage of their situation.

Our experience using marketplace providers

To understand the experience we asked some OpenMoney employees to try them out to identify any pitfalls to keep an eye out for.

The first service we looked into gave us immediate access to their marketplace as they do all account holders. From the Marketplace we were able to select an investment provider, from a choice of 3, and set up a payment into a ‘conservative’ portfolio despite us stating that we had £5,000 in debt and that we couldn’t really afford to lose money.

Similarly, we tried a new online money management app, which allowed us immediate access to their marketplace. Their hook was highlighting investment providers’ past performance, meaning customers are only looking at the success rate of providers, rather than having any insight into the best fit for them personally. From this provider we were able to choose the first option available to us which asked no questions that would determine our suitability, but focused on the low cost of starting to invest whilst simultaneously mentioning in the small print all the fees that could be applied.

The last service we looked at, recommended an investment provider without asking any information to determine whether we should be investing at all. Once through to the provider, the journey was simple and we were screened to find the portfolio to suit. Despite us explaining our high level of debt and lack of emergency savings, we were still offered a ‘confident’ portfolio, with the addition of advice to lower monthly payments, pay down debts and start building our savings up.

The big point here is that none of the customers in the above examples would have been advised to invest if the suitability requirements of the Financial Conduct Authority were applied. In fact, it would be viewed as unsuitable advice.

What really stands out is the fact that these marketplace providers have access to see their customers’ financial situation, but they’re not using it. To use the information they have at hand would enable them to position themselves as a barrier between those who shouldn’t be looking to invest and the accessible investment platforms that could lead them into further financial difficulty.

The big picture

We’re not claiming that these investment marketplace providers don’t, or shouldn’t, have a place. Opening the world of investing up to a whole new audience is an exciting and progressive move, but we do believe that there needs to be stricter measures in place to protect this new generation of investors who aren’t ready to make their own investment decisions.  

It’s a case of just because you can invest, doesn’t necessarily mean that you should. Our own data from over 70,000 recommendations given to people asking if they’re ready to invest, shows that we’ve advised over 65% of people to use the money they have to work down their debts to make them more manageable and build up emergency savings first.  

Our mission is to make financial advice accessible and affordable for everyone; to arm people of all ages and incomes with the tools to make solid financial decisions and take control of their money. Here at OpenMoney we believe that helping people to understand their circumstances, and advising on the steps they can take to create strong financial foundations is the best way to get people to make their money work for them.