You only have to look at Old Mutual Wealth’s latest results to see how crucial keeping up with technology has become to financial services.
The giant provider has had to write off another £250m and a further two years as a result of delays in upgrading the technology powering its platform.
When the project is finally completed in 2019, approaching half a billion pounds will have been spent, in a time when life companies are already struggling to adapt to the unpredictable new world of pension freedoms and a savings landscape in flux.
Yet report after report tells us that running an expensive platform does not entitle you to billions in profit. Margins are tightening and only those with huge scale will survive, experts say.
The same experts tell us it is the providers of platform technology who are really cashing in. Chief among these is GBST, which in the past year alone has launched platforms for Alliance Trust Savings, Just Retirement, Retirement Advantage and Novia Global.
Chief executive Rob DeDominicis says the past 12 months have been the firm’s “best ever”, as providers began to invest in the future again after spending the previous year battling to stay afloat in the wake of the pension reforms.
The boom times may have arrived for GBST but it must have felt like a long time coming for DeDominicis, who saw major projects dashed first by the tech crunch of 2001 and then by 2008’s global recession.
DeDominicis founded InfoComp – which was acquired by GBST in 2007 – in his native Wollongong, near Sydney, in 1988. The firm grew quickly in Australia, striking deals with Royal Sun Alliance, Credit Suisse, JP Morgan and BlackRock.
But the UK was years behind the curve when he made his early reconnaissance trips to London.
He says: “We came to the UK in 2000 and I walked into a presentation with Mercury Asset Management and out with a project. It was bizarre. They wanted to build something to compete with Cofunds and I didn’t even know what Cofunds was.”
The family’s bags were packed to make the move across the world but at the last minute Merrill Lynch, Mercury’s owner, pulled the project.
“We had bad luck and a lot of false starts, but then in 2009 we got AJ Bell and Aegon and we’ve been rolling ever since”
A couple of years later, he remembers, UK firms were still dismissive. “I’d have meetings and explain what a wrap platform was and why it was a threat if they didn’t have one, and a lot of them said it would never take on here. Transact was around but the big companies didn’t know what it was. But a year later, by 2005, they had all appointed a head of strategy for platforms. That was the start and in 2006 we set up our first office here.”
He says: “We had Prudential signed up, but then 2008 happened. Those financial shocks stop all discretionary spending; it all becomes about cost control. We had great momentum and the market just fell away.
“We had bad luck and a lot of false starts, but then in 2009 we got AJ Bell and Aegon and we’ve been rolling ever since.”
Today, wealth management makes up about two thirds of GBST’s business, with capital market clients accounting for the rest. The group’s stronghold remains Australia – where about 70 per cent of all trading goes through its platforms – but its European and UK business equates to nearly half of global revenue.
Two years after the Government unleashed the pension reforms, the industry has finally “applied the sticking plasters” and can turn its attention to boosting profits, says DeDominicis.
“Some firms have a thousand staff and 400 of them will still be working on manual spreadsheets. Compliance and risk have dominated and that has created big overheads. It is really quite scary. If the Government ever did a productivity paper to work out how much it has cost the industry it would find we’re spending £10m to stop £10,000 of fraud. It’s extraordinary.
“As a result they are not investing in technology. Often we find organisations have taken shortcuts because they had to at the time but three years later they have another priority. You need someone with a broom.”
Firms are also exploring the next generation of products to serve the post-freedoms market.
“With Retirement Advantage we’re doing annuities inside of a Sipp, it’s pretty clever.
“Retirement is becoming a way of pulling together all your different assets to make an income stream when you stop work. But we’re all living longer so you need some protection, hedging against living longer than you expect. A combination of drawdown and a guaranteed amount is a really good mix and there’s a lot of interest from the life and pensions sector.”
The rise of automated or robo-advice has also sparked a broader interest in how companies communicate with their customers, DeDominicis adds.
“It’s extraordinary the differences of opinion there are on how digital advice should look and how far it goes. It really depends on what kind of clients you have. A 35-year-old is so different to a 55-year-old, it’s chalk and cheese. High-net-worth older clients want the personal touch, while younger people can’t afford advice and are happy to do everything online, so firms’ appetite for innovation depends on the demographic of their customers.”
GBST itself has had to put its own upgrades to one side to keep pace with the rapid change of the past 18 months, DeDominicis says.
“The pension freedoms were really tough. We got the detail late in October 2014, and we got our first delivery in by December, which was a record. People didn’t take annual leave that Christmas and all our clients were done and dusted by Easter weekend.
“We put some of that development on the back burner because we had to put clients first. Even for us, keeping up with technology is a treadmill.”
Dec 2015-present: Chief executive and managing director, GBST Holdings
Oct 2015-Dec 2015: Interim chief executive, GBST Holdings
Aug 2007-Oct 2015: Chief executive of wealth management, GBST Holdings
Aug 1988-Aug 2007: Chief executive, InfoComp
Aug 1984-Aug 1988: Programmer, BHP Steel