The first day of this year’s Finovate Spring conference in San Jose left me thinking I had witnessed a real lesson in how technology can extend financial inclusion to a level many traditional advice firms may consider inconceivable. The west coast Finovate show is always the one where you see the wackiest ideas, but it is also the event that stretches creative thinking the most, making it well worth travelling eight time zones.
In one day I witnessed technology that can make profitable lending practical to people who might normally be declined based on all normal credit assessments. Into the bargain I had sight of the sort of service that could replace traditional investment platforms delivering a far more personalised service to consumers at a fraction of the cost in just a few years. To cap it all I saw how services usually reserved for those who can afford to spend $1,000,000 a year or more on their advice and private office fees can be accessible to mere high-net-worth families.
One of the presenters, AccountScore, is a British start-up spun out of Safety Net Credit. Five years ago Safety Net started taking banking data from a Yodlee aggregation feed and improved data categorisation to provide detailed insights into borrowers’ ability to repay.
The service is not intended to replace traditional credit references but to complement them. It provides a far more personal analysis of the individual’s ability to pay. The new business is now providing this service to other lenders.
This not only enhances new loan underwriting, but can be used as a technique to monitor the financial health of existing customers. It can enable lenders to make offers when they might decline and help them recognise when granting further credit is not in the borrower’s interest.
The new platform?
Hedg is a really interesting example of the sort of service that may replace platforms in a few years time.
Not everyone agrees with me the UK platform model is terminally broken. But with the real consumer value increasingly being recognised as financial planning, rather than asset management or product wrappers, serious price compression is about to take its toll on each of these elements.
It is the organisations who can help advisers add value to client relationships who will come to the fore. That Hedg provides highly personalised investment solutions for just 25 basis points helps demonstrate the further downward pressure such services will put on platform pricing.
Hedg has sought to build a business aimed at helping established advisers identify new, younger clients. It also looks to deliver ways in which advisers can interact with those clients at low cost digitally before they are viable for a traditional face-to-face service.
Advisers pay to put content on the Hedg platform outlining their specialist areas of expertise, as well as a success fee when they attract a client. Hedg is now partnering with US advice software suppliers to reach a wide range of advisers; a very different approach to the way Unbiased and VouchedFor work in the UK.
Onist Technologies showed how there are still plenty of ways in which the personal financial management concept can be extended. It demonstrated a multi-disciplinary virtual private office service where advisers, insurance specialists and tax and legal professionals can all share information and deliver a range of solutions via a single service.
Typically this level of integrated advice is usually the preserve of families whose wealth can be measured in many tens of millions. But this service could be deployed so typical IFA clients might benefit. I could see such an arrangement working really well in towns where a range of local professionals frequently serve the same clients.
Clients get an enhanced portal service where different members of the family can access information. This could be a very effective way for advisers to protect against the loss of assets which frequently occurs when wealth is transferred across generations. Various studies suggest that between 80 per cent and 95 per cent of children aim to fire their parents’ advisers and there are similar numbers involved when husbands die and wives take over.
A longer version of this summary can be found here
Ian McKenna is director at Finance & Technology Research Centre