Good technology underpins, rather than undermines, adviser propositions
The FCA’s final report on its study of the asset management market, highlighting average margins of 36 per cent and questionable price competition, was the latest in a long line of official initiatives to shine a spotlight on the costs of financial products, services and advice.
With downward pressure from both government and regulator, plus upward pressure from increasingly savvy and demanding consumers, the industry needs to look at delivering more value with less resources. Substantially more value with substantially less resources.
It is just as well, then, technology is developing at such a pace, as it holds the key to enabling advice to be delivered at a fraction of the current cost and in a much more tailored way.
Most advisers have already applied some form of technology to their back office. But the potential here remains huge. Data gathering for advice is another area where technology has already had an impact and further in-roads are expected to be made in the next few years.
First, we should see the widespread adoption of digital passports, as the Government has a target of getting 25 million of us using them by 2020. Anyone that has used the Gov.UK Verify service to submit their tax return online already has one. They should eventually mean advisers can drop the need for a separate identification and verification checks.
Next year’s second payment services directive and open banking standards will also give clients the right to have transaction data held by their bank transferred to an approved third party. This could be used to help pre-populate a fact-find. Once it gets off the ground, the same might eventually be possible with data from the pension dashboards.
The future potential for lifetime cash-flow analysis tools is interesting, too. When more data becomes available through the open banking standards, pension dashboards and other aggregation services, we could see advisers running continually updated, highly sophisticated lifetime cash-flow models in the background for clients, prompting them with ideas to save money and/or improve performance.
At the point of advice, technology can help turn recommendations into a suitability letter, saving hours of effort. And we have only made a small start in terms of the potential for robo-advice to serve appropriate market segments in a cost-effective way.
When it comes to enacting recommendations, technology has already driven efficiencies, from online applications to the beginnings of greater integration between back office systems and platforms.
The May 2017 UK Adviser Technology and Business Report from Investment Trends highlights the ability to open platform accounts from core adviser technology systems as a key driver in selection. With digital passports coming downstream to ease the identification and verification process we can only see a deepening of these integrations in the coming years.
Technology has a key role in facing out to clients too. Client portals enable self-service portfolio valuation and breakdown reviews, saving advisers time but also encouraging clients to become more engaged with their investments.
The signs are there that self-service is set to grow. Capgemini’s World Wealth Report 2016 found 79 per cent of wealth managers would like to pilot new digital tools that would help drive this.
Clearly, the use of technology needs to underpin rather than undermine adviser propositions. If you are offering a highly personal, frequent-touch service then it’s probably not appropriate to suggest your client fills in their own fact find. But if you are working with a cash-rich, time poor younger demographic, then allowing them to complete their own fact-find when they can might be the only way to engage them.
Consumers have growing expectations of advice as something that should be deliverable anytime, anywhere and through any device, without the need to re-key any data, and have that data held in a safe and secure manner. In this world having the right architecture becomes essential.
Technology has the potential to drive efficiencies at every level, reducing costs to adviser businesses and helping filter savings back to the customer.
Chris Pitt is head of market analysis at Iress