For those of you that don’t know IRESS – we are a global Fintech organisation, headquartered in Australia with a large footprint in the UK. We’ve been supplying technology solutions to all parts of the adviser, provider, investment manager and lender markets for around twenty years - so we like to think we have a pretty good understanding of how FS technology has evolved over that period and I would like to share with you some thoughts on how it might develop over the coming years and impact on the cost effective delivery of financial advice.
It is hard to ignore the fact that the costs & charges associated with financial advice and financial products are under the spotlight. Both the Treasury and the regulator have raised questions about whether consumers are getting value for money and they are actively encouraging all sides of the industry to innovate and become more efficient through the greater use of technology. We have seen a rash of new entrants enter the advice market – some with a deliberate intent to disrupt the market. It also seems likely that we’ll soon see a number of global enterprises entering, and re-entering, the UK financial advice market with scaled propositions that could seriously undercut the current market pricing.
So, as an industry it looks like we are entering a period where we will all need to deliver more value with less resources. In fact, we will probably have to deliver substantially more value with substantially less resource.
The good news is that delivering more with less is actually very possible through greater application of technology right across the value chain. In fact, it could be argued that it is the exponential growth in technical capabilities, and their almost universal adoption across society, that is driving much of this change in expectation. We see it across almost every other area of our daily lives and, to a large extent, the financial advice industry is playing catch-up.
But, before I dive into details of different technologies and their potential impact, I want to consider the question of what exactly is ‘cost efficiency’?
A dictionary definition shows it as being the “production of good results for the amount of money spent”. So, cost efficiency doesn’t mean ‘cheap’; it means getting the most value for the amount spent and, in terms of financial advice we need to recognise that there are a variety of propositions on offer. Some adviser firms seek to offer a highly personal, frequent-touch, on-going service whereas others aim themselves more towards the transactional end of the market, i.e. delivering one-off pieces of advice at a lower price point. Clearly the costs involved in delivering these different types of advice propositions will also vary significantly so, whether a delivery model is ‘cost-effective’ or not can only really be judged in terms of the advice proposition they relate to.
In fact, the variety of advice propositions is an area where I think we can expect to see more growth over the coming years. Over recent years, partly driven by the RDR, adviser propositions have tended to cluster around the top right-hand quadrant, i.e. offering fully regulated, holistic advice on an on-going basis. However, with encouragement from the regulator, and a recognition of the significant latent need for financial advice throughout many segments of society, we should see significant growth in propositions aimed at the more transactional end of the market, i.e. delivering focused advice, or guidance, on a one-off basis to clients with smaller amounts to save and invest.
We have also seen a significant number of new, technology enabled direct-to-consumer propositions, including the so-called ‘robo-advisers’, come to market and I suspect that this is only the start of what will become a major part of the market in years to come. By 2025 consumers will probably have a wide spectrum of financial advice services from which to choose ranging from today’s traditional face-to-face on-going wealth management model right through to fully automated self-service, and all points in between. Of course, individual adviser firms will not have to offer every type of service themselves but, with the advent of omni-channel solutions it will not be the technology that is constraining these decisions.
So, now let’s look at the financial advice process itself and consider where it might be made more efficient. And, let’s start by breaking the process down into a number of key areas:- First, there are those parts of the process that are involved with engaging and interacting with the client.
Then there are those parts that are required to construct, execute and maintain the advice itself, i.e. creating a plan and / or recommendations.
And finally, there are those aspects concerned with running the business, i.e. the ‘back office’ tasks such as maintaining client records, collecting and reconciling fees and so forth.
Activities in all three areas contribute to the overall costs of the business and hence filter their way back to the client in terms of pricing.
The back office is, of course, an area where most adviser firms have already applied some form of technology but it’s worth highlighting some of the bigger opportunities around back office efficiency.
The collection and reconciliation of fees is one of those tasks that seems simple but can take an awful lot of effort. Done manually it is not difficult but it is very time consuming. However, with the right technology, the time involved can be substantially reduced. For example, one of our large network clients in Australia has uploaded, and matched, details of 284,000 individual fees and commission items in just seven minutes. Clearly most adviser firms won’t have anything like that volume to deal with but my example, hopefully, proves the point that, with the right technology, you can take an awful lot of the “grunt” out of the remuneration management process.
Production of periodic portfolio valuation reports for clients is another area that typically takes a very considerable amount of time. As an example, one of our clients was taking a whole day to produce just 10 client valuation reports. But using technology, including the use of electronic data feeds from product providers, they have doubled their productivity and are now producing more than twenty reports per day.
And finally, creating reports for your management team is another time consuming activity requiring data to be collated from across the business and from all sorts of different sources. One of our clients told us that they typically spent a whole day producing their monthly management report but, using the management reporting function within their Practice Management System, it now only takes a couple of hours.
Of course, I could list more examples but, I want now to move on to look at the process of actually constructing the financial advice itself.
As the slide shows the process can be broken down into four main stages, i.e. gathering the data, analysis, constructing the advice (or recommendations) and execution.
Data gathering is an area where technology has already had a considerable impact. For example, we have intelligent online fact-find forms where the user is automatically presented with the right questions for the client in front of them, i.e. the data capture process responds to the answers given to previous questions ensuring that only relevant questions are presented and the adviser avoids wasting time working out which questions to ask and which forms to use.
Using technology also means we can cut the cost of compliance checking as we can configure the system to prevent advisers from conducting their analysis on incomplete or inaccurate data.
And, we have tools that can, for example, help the adviser validate their clients’ ID and assess their attitude to investment risk.
That said, data gathering is still a time consuming task, and one that probably puts-off a number of prospective clients. But, the good news is that the next few years will see considerable in-roads being made towards reducing the pain involved in fact-find completion for both the adviser and their client.
First, we should see the widespread adoption of digital passports, as the government has a target of getting 25,000,000 of us using them by 2020. And what exactly is a digital passport? Well, those of you that have submitted your tax return online may have already used the Gov.Verify service to obtain one. It is an approved service that verifies your identity and then enables to present a set of pre-verified credentials to any appropriately enabled website. They will make it far simpler, and quicker, for you to prove who you are in the online world and avoid the on-going nightmare of having to remember, and maintain, so many different user names and passwords. And, in terms of the financial advice process we should be able to drop the need for a separate eID&V check or, worse still, a manual check of passports and utility bills etc.
Then there is next year’s introduction of the second Payment Services Directive (PSD2) and Open Banking Standards. These regulations will give consumers the right to have transactional data, currently only held by their bank, transferred electronically to an approved third party, if they so choose. This kind of transactional data could be used to pre-populate a fact-find. Similarly, assuming the Pensions Dashboard gets off-the-ground, establishing details of a client’s pensions will become radically simpler. And, again, this data can be used to pre-complete the fact-find.
We then move on to the task of establishing the clients’ attitude to risk. Traditionally this is done by asking the client a range of carefully constructed psychometric questions followed by a more detailed discussion of the risk-reward dynamic. This all takes time and I sometimes wonder whether it really answers the question of how much risk the client should take rather than how much they feel comfortable taking. However, that aside, there are ways in which technology, and BIG DATA, might be used to automate the task of producing a highly robust client risk profile. For example, one Fintech provider has already created an application which can scan an individuals’ Facebook activity to derive a risk profile. And, having done significant amounts of cross-checking back to traditional risk-profiling techniques it has proved that this approach is as reliable, if not more so, than the current approach.
So, within the next few years, the whole process of completing a fact-find might be reduced to a matter of a few minutes discussing with the client those things that cannot be derived through other means, i.e. the vitally important soft-facts. And, if all this does come about, then not only will it substantially reduce the time involved but it will also improve accuracy and avoid re-work caused by transposition errors, etc.
As you might expect the analysis stage is where there has been quite a lot of technology development. There are all sorts of shortfall calculators, tax calculators, quote engines, fund X-ray tools and so forth – all of which can save many hours of effort and, perhaps just as importantly, they avoid the impact of human error.
The advent of lifetime cash-flow analysis tools is particularly interesting as I suspect it is the start of something that will develop to a much greater level over time. Specifically, with more and more data becoming available via the Open Banking Standard APIs, the Pensions Dashboard and other data aggregation services, it seems probable that lifetime cash-flow modelling will become ever more sophisticated. Perhaps by 2025 most HNW clients will have a highly sophisticated lifetime cash-flow model, fed by various data sources, periodically running in the background prompting ideas to save money and / or improve investment performance?
We now come to the process of actually producing the advice or, more specifically, the product, investment and other actions that the adviser thinks their client should take.
And this is where the adviser really adds value. Having spent many years not only gaining the requisite professional qualifications but also continually developing and refining knowledge through practical application learning on-the-job, they apply their knowledge and experience to make the most appropriate recommendations. Of course, we have applied technology to the process of turning those recommendations into a Suitability Letter, saving many hours of effort but, thus far as an industry we have only made a small start, in terms of automating this process i.e. through digital (or algorithm based) advice.
Turning now to execution, i.e. enacting the recommendations made by the adviser and agreed by the client, this is an area where significant progress has been made over the last decade – although there is still considerably more to be done! Online application for most life insurance and packaged retail investment products has been a reality for quite some while now and is fairly common place. We are also seeing far more integration between adviser Back Office systems and the investment platforms, etc. For example, it is now possible for advisers to open new accounts on investment platforms and perform a range of simple trades for their clients without ever leaving their own Back Office system saving considerable amounts of time and avoiding re-keying errors.
And, how will this type of activity develop over the next few years? Well, I think it is fairly inevitable that more direct integrations between adviser Back Office systems and provider / fund manager platforms will be created and that the integrations will become increasingly quick and easy to use especially with the advent of digital passports easing the path around client identification and verification.
So, let’s now turn to the last of my three stages of the financial advice process, i.e. Engagement.
Of course, we’ve had technology that advisers can use with their clients for many years and, it’s fair to say, that it has met with mixed results; some advisers love it whilst others think it creates a barrier between them and their client so they don’t use it. But, rather than revisit that debate I want to consider the other ways in which a client might engage with the financial advice process.
The first, and most common, alternative method of engaging with clients is via some kind of client portal, i.e. enabling them to self-serve to some extent. Enabling clients to review the current value and make-up of their portfolio is not only going to save time but it will also encourage clients to become more engaged with, and attached to, their investments.
And, the client portal can be used to get clients to perform parts of the financial advice process themselves, for example, completing the fact-find. As previously stated this can be a time consuming task so, if the client is prepared to take on the work themselves, then it could be used as part of a more cost-effective offering for lower-value clients. And, that’s the key point, the use of this type of technology needs to underpin rather than undermine the adviser firm’s proposition. If you are offering a highly personal, frequent-touch service then you might not want to be suggesting that your client fills in their own fact-find. Conversely, if you are looking to reach a younger demographic that are cash-rich but time poor then enabling them to complete the fact-find whenever they can find the time might be the only way to engage them. Ultimately the role technology plays is in providing the flexibility and freedom to offer clients choice but it must re-inforce the over advice service proposition.
And, if you are enabling clients to self-serve there will be occasions when they need to discuss / clarify things with the adviser – which is where screen-sharing comes in.
Interestingly, research from the US amongst 50 -70 year olds actually shows that consumers would prefer to deal with advisers via screen-share rather than via face-to-face meetings. So, maybe the use of technology-based interfaces isn’t just for the millennials.
And, if we look at the broader demand amongst Wealth Managers for all things digital then we can see there is significant interest. Personally, I think we will soon see the passing of that cohort of society that have had no involvement with technology and that we will soon be in a world where almost everyone is familiar, and comfortable with, using technology to access all kinds of services.
So, to summarise, whilst technology has helped streamline the financial advice process there is still an awful lot more that can be achieved. Data gathering will be largely automated as will the analysis and execution of financial product recommendations all of which will contribute towards a much lower cost-base for advisers. And, the use of technology won’t stop there; it will also be applied to the way in which we engage with clients by offering them a full range of services through different devices whenever they want to use them. Ultimately, technology will enable financial advice to be delivered at a much reduced cost and in a much more tailored, personalised way.
In fact, partly driven by our experiences within other parts of our lives, we (consumers) will expect financial advice to be delivered anytime, anywhere, through any device; without the need to re-key any data; and have that data held in a completely safe and secure manner. In short we will expect our advisers to be part of the connected world in which we are all increasingly living.
So, the real issue becomes one of how do you ensure consistency and cost-effective delivery across all of these disparate channels? And, it won’t just be the consumer that expects consistency, it will be the regulator as well as I can’t see them being happy with a situation where a customer gets different advice outcomes from the same company depending on the channel they choose to use. They might accept that the prices charged differs between channels and propositions but it is surely unacceptable for the recommendations themselves to differ.
So, how do you ensure consistency? For me, it’s all about having the right architecture. Specifically, there needs to be a core platform that handles all of the complex stuff around record keeping, tools and calculators, production of suitability letters, execution and trading, etc. The user journey / user experience is then simply a matter of surfacing the appropriate data, functionality through whatever device(s) the user chooses. And, of course, consumers will probably mix-n-match their choice of channels and devices from time to time. Whether we like it or not, there will be a need for more centralised control of the financial advice process as it will be the only way in which consistency of advice outcome can be achieved.
So, to conclude, when all’s said and done it seems that delivering financial advice is all about collecting, analysing and manipulating data and the future will see a much wider variety of advice propositions delivered in a much more cost-effective manner through greater use of technology.
Delivering cost-effective financial advice
Chris Pitt, Head of Market Analysis
Costs & charges are in the spotlight
more for (substantially)
less is fast becoming a
critical success factor
And technology is
impacting every part
of the value chain
But, before we start…
“Producing good results for
the amount of money spent”
Collins English Dictionary
An emerging spectrum
Let’s break things down a bit…
Fee management Management reporting Client valuation reports
Statement lines uploaded
and matched in seven minutes
Previously took a whole day
From 10 valuation reports
per day to 20 per day.
• Algorithm generated
• Suitability letter
• Comparative quotes
• Digital passport
• Automated AML
• More STP
• Digital signatures
• Outsource to client
• 24 x 7 x 365 availability
US research, incl. biometric
testing, found consumers
(aged 50 – 70) would prefer
to deal with advisers via
screen-share than at
of wealth managers
would like to pilot
new digital tools
Capgemini’s World Wealth
Technology impact will be substantial :-
• Advice at a much reduced cost
• Truly personalised, high-touch services
And, consumers will expect :-
• Any device / any time
• No re-keying
• Absolute security AND data sharing
(their adviser as part of a connected world)
The future is Omni channel
Consumer User UI
APIAPI API APIAPI APIAPI
Provider Provider Provider Provider Provider Provider
To conclude ……
Greater use of technology
Mobile: 07920 135708
Chris Pitt - Head of Market Analysis
LinkedIn: Christopher Pitt