Five tech trends transforming the intermediary world
Expect disruption in the intermediary space over the next few years, says Alex Kerry, head of Winterflood Business Services
What can be disrupted will be disrupted. This is the universal law of innovation and it is a concept the financial services industry will have to embrace as technology rapidly transforms the saving and investing landscape.
Over the last decade, the industry has undergone profound regulatory change and it is clear it has to reconsider its relationships with investors. There has been a realisation the industry needs to engage with consumers in a way that delivers more clarity on products and services. Consumers also need to believe their wants and needs are being addressed.
Against this shifting landscape, I assess the five key trends that adviser platforms, wealth managers and financial advisers need to consider.
1. Improving customer experience
When we consider customer experience, it is important all segments of the market are represented. While millennials are seen as the first tech-savvy generation, we must not forget about the underserved Generation X.
Like millennials, Generation X prefers mobile and digital interaction and is comfortable transacting online. These people will increasingly also look to interact with financial advisers in this way.
According to Ofcom, internet use among adults in the UK aged 16 and above is 87%, with the time spent on the internet increasing every year. While computer internet consumption has been falling, internet ‘on the go’ usage is also growing each year.
The most popular internet activity is sending and receiving emails, followed by information on goods and services – of which the highest numbers of users are between the age of 35 and 44, or Generation X.
While this generation has the ability and capacity to invest, a large proportion of this segment does not invest, or keeps money in cash-based products. According to HMRC, about 80% of ISA subscriptions remain in cash, despite today’s incredibly low interest rates.
Research suggests the real key to engaging the Generation X audience and new investors is through enhanced customer experiences. We have already seen the emergence of ground-breaking new digital investment solutions such as Wealthify, Scalable and Moo.la, but the revolution is only just beginning.
2. Portable data
Poor access to financial data impedes a consumer’s ability to make informed decisions. It also makes the process of providing advice more laborious, as advisers need to spend large amounts of time compiling data from pension providers and other institutions. The Treasury has announced the Pensions Dashboard prototype will be ready by spring 2017, with an official projected launch in 2019. However, we believe the industry will begin to bring its own data capture solutions to the table.
Another exciting development is the integration of spending habits data into individual saving plans. This is vital in achieving dynamic saving flight plans to long-term saving. As savers go through life, changes in spending habits, behaviours and milestones – such as having dependents – must be incorporated into savings plans. This information can also be used to create saving nudges to increase the level of defined contribution or ISA saving, and adjust overspending, so savers can achieve their financial goals.
3. Growth of best-of-breed solutions
Much of the industry is run on old technology still requiring manual entry, which ultimately increases costs for clients. Collaboration with cutting-edge technology providers will allow wealth managers and new platforms to drive greater efficiencies and deliver cheaper solutions to clients, while creating seamless straight-through processes. Adopting a best-of-breed approach and creating a fully automated service allows advisers and wealth managers to stay at the forefront of platform innovation. It also allows firms to concentrate on the front-end, client experience and investment strategy.
For example, while you may not have heard of APIs (Application Programme Interfaces), this is radically changing the investing experience. APIs essentially make it easier for firms to share data, allowing digital propositions to create new tools for end-users. It will help build the next generation of robo advisers to integrate customer data in providing more interactive savings tools and enhancing investor saving journeys.
As APIs transform the investment world, there will also be big implications for the wealth management industry. The ability of APIs to revolutionise digital products is allowing advisers and wealth managers to innovate and differentiate propositions.
4. Rise of fractional shares
DFMs are increasingly selecting ETFs for use in model portfolios, as aggregated trading can help with the trading costs, particularly when it comes to rebalancing. We are seeing DFMs increasingly put pressure on platforms to provide fractional dealing to ensure more efficient trading.
For example, our plug and play solutions around fractional shares enables platforms, discretionary fund managers and advisers to fully invest into ETFs and ensure these instruments can be used effectively through model portfolios. Robo advisers will also be a key beneficiary of fractional dealing for ETFs, given this market’s objective for stress-free, cost-effective investing for broad audiences. This is revolutionary for cost-conscious investors, meaning clients with £1,000 are treated the same as those with £1m.
5. Ongoing education is vital
Education on how to use these solutions is crucial, not just for Generation X consumers. It is pleasing to see many of the new innovative entrants into the market are offering tools to help educate, nurture and encourage new investors. For example, Wealthify’s interactive ‘myth buster’ tool helps dispel the common misconceptions around investing, and their on-boarding journey incorporates intuitive sliders with visual tools that help explain how potential volatility can be linked to an investor’s risk choice and time horizon. Increasingly, larger players in the market are starting to dedicate more resource to education for the end consumer, such as the ETF and markets insights hub created by BlackRock’s iShares. The microsite provides digestible and informative education on how to use ETFs.
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