Disruptive Innovation: Getting Sand Between The Toes

Will the introduction of the regulatory sandbox enable new entrants to the financial services advice arena to challenge the established adviser way whilst bringing the concept of robo-advice more to the fore?


… was first coined by Harvard professor Clayton M. Christensen in his research on the disk-drive industry and later popularised by his book The Innovator’s Dilemma, published in 1997.

It explains the phenomenon by which an innovation transforms an existing market or sector by introducing simplicity, convenience, accessibility, and affordability where complication and high cost are the status quo. Initially, a disruptive innovation is formed in a niche market that may appear unattractive or inconsequential to industry incumbents, but eventually the new product or idea completely redefines the industry.


The FCA’s Financial Advice Markets Review (FAMR) included recommendations aimed at providing increasing access to affordable advice for consumers – advice that had largely disappeared with RDR as the average ‘man in the street’ found it almost impossible to sit down with an Adviser without it costing, (relative to the amount involved), ‘an arm and a leg.’

The need for sound financial advice is arguably greater now than it has ever been – just consider what has happened to the markets since the historic Brexit vote, the analogy of a yoyo isn’t far off the mark!


In these turbulent times perhaps taking the emotion out of an investment or pension decision is a sound course of action, particularly for those who can’t, or don’t want to, pay for personal advice. It might also encourage those providing traditional advice services to ‘sharpen their pencils’ to remain competitive.

Perhaps the disruptive innovation being facilitated by the FCA’s Project Innovate is just the ticket for new entrants to the advice market that will help satisfy the requirement for more accessible and affordable advice. Indeed, “it is pretty clear ….. that the response to this challenge will be technology-driven, involving automation in some form – a concept dubbed, possibly unhelpfully, ‘robo-advice’ “*

*From the drafted text of a speech given by Mary Starks, Director of Competition, FCA, at the Centre for Competition Policy (CCP) Conference on 10 June”


The FCA’s Regulatory Sandbox opened to firms on 09 May 2016, providing them with a ‘safe space’ in which they can test innovative products (including robo-advice methodology), services, business models and delivery mechanisms in a live environment without immediately incurring all the normal regulatory consequences of carrying out the activity.

Tracey McDermott, the Acting Chief Executive at the FCA at the time of the sandbox launch said:

‘Supporting innovation is an essential part of our role in promoting competition in the interests of consumers.

Our aspiration is that the sandbox not only enables innovative ideas to be tested and brought to market, but also helps to reduce the time and the cost of getting them there.’

DSW’s view remains that traditional financial advice is a valid and valued service, particularly for those consumers who have complicated and diverse financial needs and are willing and able to pay for it.

BUT the need for financial advice for the masses has never been more clear-cut, whether this be as a result of traditional players returning to the market with a slimmed down offering, or technology firms who make available the type of innovations that the sandbox has been set up to facilitate.

Whether or not your organisation is a challenger to the existing market or being challenged by the emergence of alternative access to / delivery of financial advice, we believe that understanding and articulating your overall value proposition will be more important going forward than ever before.

One implication of this is that competing on service – more so than on price – should be the main priority in winning customers over, for incumbents and challengers alike.

To find out more or to share your views … get in touch on 01302 760 008 or fill in the form below

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About Mike Pawley

Mike has 19 years retail banking experience under his belt along with 12 in the financial services arena. He has worked for DSW for nine years and has a wide ranging remit including 'keeping an eye' on all key regulatory developments.