Artificial intelligence, open banking, robo advice, blockchain, virtual reality – all hot topics in financial services innovation as brands try to understand how they can most effectively engage their customers, better understand their circumstances and monetise their connections using the latest technology.
In the financial advice market we’ve been hearing these phrases for several years but as yet, there has yet to be a watershed moment where a firm has gobbled up market share and created genuine disruption through the use of futuristic technology.
The logical step is to question why this is, when other similar industries, like the payments and pre-paid card industries, are full of lean competitors (Monzo is a good example). Financial advice could be the perfect market for tech innovators; it has a lot of wealth to go after, it is traditionally slow to innovate and technology has the ability to improve the client experience and make firms more efficient.
Brands have certainly tried to gain first mover advantage. In the online investments space Investec recently closed its ‘Click & Invest’ direct investment service following an unsuccessful period, at a reported cost of £20m. At the point of closure, the company cited a lack of appetite for its investment services. It adds that the digital wealth management market is growing at a “much slower rate than expected”.
As many as 3 in 10 financial advisers are set to retire in the next five years
There’s no shortage of demand for investments at the moment, so one can infer that the lack of appetite is around making substantial investments through an online platform without advice.
The basic economics of investing in technology, staff, infrastructure and marketing and the amount that individuals are willing to place with an online-only investment service have not added up for Investec, despite it being a business that employs some cutting edge thinking and no shortage of ambition in its other activities.
Regulation is something of a barrier to entry in financial advice. It can demand a lot of manpower to navigate and the requirement to treat customer’s fairly as a central pillar of conducting business in the sector cannot be ignored by those piloting more automated solutions.
Every client is genuinely different and although algorithms can be calculated to incorporate endless eventualities there’s a sense that human intervention is still essential to ensure the best possible outcomes for clients.
4% of the UK’s mass affluent population prefer robo-advisers for investment providers, compared to 1.3% in 2018
A common misconception about technology and the financial advice market is that clients are not ”tech-savvy” so therefore take-up will be low. That might have been true a few years ago but the proliferation of smartphones and tablets among older generations is changing that. Smartphone penetration has seen growth across all age groups, the 55-75 category has seen the most growth increasing from 40% in 2013 to 77% in 2018.
Perhaps the single biggest issue is trust and fear of data loss, misuse and scams.
It’s not an irrational fear as there have been high profile incidents in recent news – but technology also has the potential to limit that. Blockchain originated in cryptocurrency (think Bitcoin) and is a complex way of ensuring transactions are secure but essentially it means each electronic stage, or block, in a transaction is unique and is connected in chronological order to other transactions in the same ‘chain’. Because each part is unique and goes through multiple stages of verification it makes it very tough to hack.
Institutions are experimenting with blockchain (including BP, Amazon and Fidelity) and it’s reasonable to assume that large insurers that Wren Sterling deals with will introduce the technology in the near future.
Smartphones are now used by 77% of 55-75 year olds
Where advice can benefit from technology
Open Banking is the secure sharing of financial information between platforms that is being embraced by many small tech-savvy banks and financial institutions. As financial advisers, advising on our clients’ entire wealth allows us to make the most comprehensive recommendations. If that information was available to us and the client in real time, we could arguably make better recommendations. There’s no doubt the process would be faster as well, resulting in a better experience for everyone.
One of our building society partners is pioneering video conferencing facilities so clients can speak to their adviser without travelling – which reduces the cost of delivering advice, make it more convenient, and ultimately, lead to better value for client and firm.
Other labour-intensive processes like research have benefited from product aggregation and voice technology has the ability to transform the fact-find process.
How Wren Sterling is embracing technology
At Wren Sterling our Personal Finance Portal (PFP) has been live for a couple of years, allowing us to share files securely, to communicate faster and to measure the effectiveness of our communications.
The PFP allows us to display our clients’ financial information at a glance in real time – much like online banking apps do. Importantly, the roadmap for development within the PFP will incorporate some of the innovations mentioned in this article, including Open Banking. It’s feasible that in the near future clients can see their investments, pensions, credit cards, current accounts and savings all in one place and their adviser will be able to make more informed recommendations.
We’re actively encouraging our clients to adopt the PFP as soon as possible so they can be part of the next phase of its development. There’s no charge to clients for doing so either.
Wren Sterling has also adopted cashflow planning into our processes. Visually displaying clients’ cashflow projections really brings the scenario to life and we see a bright future for that technology too, which could clearly be aided by open banking.
A perfect storm?
There could be a perfect storm coming that will make technology more attractive to firms, advisers and clients. Numbers of financial advisers are forecast to decrease over the next few years, but demand for advice is likely to rise significantly through increased pension savings levels brought about through auto enrolment and other focuses on retirement savings. Some estimates suggest that as many as three in ten advisers set to retire in the next five years and although they may be replaced, there’s an opportunity for firms to look at how to plug this skills gap with technology in a way that delivers an equivalent or improved client experience. If the value in financial advice is time with an expert and the peace of mind that comes with knowing your plans are aligned to your overall goals, there will inevitably be other parts of the process that can be aided by technology.
At Wren Sterling we’re running an apprenticeship scheme to ensure we’re training the financial advisers of tomorrow and we’re constantly looking for technology to improve our processes and the advice and experience we offer to our clients.
For technology to really transform financial advice, it will take both sides to move towards the middle; firms to enable the technology and clients to see the benefits of what’s on offer but one thing’s for sure, things will not stand still.