As part of our Wealth & Tech Monthly newsletter, together with our partner, US-based wealth management focused research and consulting business, Cutter Wealth, we pull out significant technology-related themes that we see from the news and developments picked up from the month.
Looking back at the more than 90 market news and development pieces covered fro April 2019, Cutter Wealth and ourselves highlighted and briefly summarised four themes.
Highlighting four themes this month
1. Private banks initiate downstream push of wealth management services
Providing tailored financial advice for the mass affluent client segment didn’t make good business sense in the past. But April’s press releases suggest that banks are waking up to the fact that they need to offer a broader array of services to clients who fall below their high net worth thresholds. The emergence of digitalization, robo advisors, and self-directed investment platforms have made providing financial advice much easier for banks, and clients in the mass affluent segment are beginning to expect these services, and Goldman Sachs calculates that this segment accounts for around $9 trillion in assets.
New partnerships between wealth managers and tech firms have produced several new financial management services that appeal to the mass affluent client segment. For example, UBS Wealth Management has harnessed Envestnet | Yodlee’s aggregation technology to develop its new UBS iPad app, which synchs a client’s accounts at UBS and other institutions to provide a comprehensive overview of a client’s financial status. Fidelity continues to invest in its Wealthscape Integration Xchange offering, which connects applications and makes it easier for providers to deliver a seamless experience to clients. In April, Fidelity announced integrations with Addepar and Wealthbox that will expand the number of technology solutions they offer to more than 120.
Banks are also producing new technology-based services on their own. Later this year Bank of America will launch a digital portal named Life Plan to help clients plan through life stages such as saving for college or purchasing a home. Goldman Sachs will soon offer an investment platform targeting the mass affluent segment through Marcus, its digital brand.
2. Trends in robo-advising show hybrid models are the future
The march of the robo-advisors continued in April, with the launch of two automated investment platforms. UK residents can now invest with Fountain, a new digital wealth manager. In Hong Kong, Davinci Technology introduced the Wave Robo Advisor and its affiliated product, the Robo Advisor Family. These are just the latest examples of an expanding global marketplace for robo-advice.
Those who doubt the growth potential of robo-advice would be wise to consider consumer sentiment. Last month, research by the strategy consulting firm Thinque found that 30% of Australians were comfortable with financial advice produced by algorithms or by more sophisticated A.I. Recent cases of misconduct in the banking industry might account for some portion of consumers’ increased openness towards digital financial services.
Human wealth managers need not despair. Although the demand for robo-advice is increasing, trends suggest that hybrid human-technology advice is likely to dominate. Octopus Group published research in April indicating that 76% of financial advisors see the combination of automated investment platforms and face-to-face service as the best way forward. Newly-launched Fountain will add human advice to offerings for clients investing anything over £1,000. Partnerships between traditional bank advisors and robo-advisors are beginning to flourish. For example, in April Taiwan’s Taipei Fubon Bank announced that customers would be able to access Nutmeg’s digital investment platform through the bank’s Nano Investments service. Similarly, SaxSelect, a Danish digital trading and investment service, will now offer an Ethical Selection portfolio through its partnership with US-based Brown Advisory.
3. Banks play friendly with each other
There are whole host of ideas around how the future of wealth management (and the broader financial services) marketplace will look and how it will get there. One aspect that has emerged over recent years is incumbent wealth managers and other financial services firms working together with WealthTechs and FinTechs to co-learn and co-develop, not seeing them as a threat, but as an enabler. They also see this as a cheaper, faster, more flexible and more reliable option than the existing in-house resource. Apparently, this is almost revolutionary. Mind you, when you consider the old thinking looked something like this, ‘do it all, own it all and keep it all inside your own four walls’, maybe it is.
But one thing that has maybe not caught so much of the attention recently, in this sort of feeding frenzy around new technology players and competitive threats from the challenger banks, digital wealth players and the like, is the idea of wealth managers and other financial services firms themselves actually working together. Maybe it’s just not that cool but it’s certainly part of the future of this market. If we look from the client perspective, not the internal view, this business is about providing what the client wants.
That is why this month’s news that Citi and Schroders have worked together to develop a new digital tool for their clients in certain markets called investIQ caught our eye. Both banks have significant plays in the Fintech space and Schroders also recently partnered in its home market of the UK with another major financial services organisation, Lloyds Banking Group, where the two will establish a new joint venture to provide financial planning to affluent customers.
In an increasingly client-centric world, where needs are evolving, the ecosystem becomes ever more important. How is everything connected, where can the client meet all of their needs easily, who has the best-in-class offering? Call it partnership, collaboration, co-creation, co-development or something else, the point is this dynamic is multi-directional not just bi-directional between banks and FinTechs.
4. The dual role of the new age regulator
The role of the regulator has never been an easy one. In today’s world of consistent and faster-paced change, and with a growing role for technology, the role of any regulator also now has a far more technological flavour to it. Not only do they themselves need upgraded, sophisticated and expensive supervisory technology (SupTech) to do their jobs in an increasingly technology-enabled market, they also need to think and act differently in how they oversee the markets in new ways.
Just this month the dual role of the financial markets’ regulators was highlighted by announcements from either side of the Atlantic. In the UK, the country’s financial services regulator, the Financial Conduct Authority (FCA), revealed that it will place resilience from technology failures at the core of its supervisory focus looking forward. This comes following the several large-scale technology upgrades during 2018 where the delivery was, to say the least, challenged. The FCA has taken note and, in its ‘Approach to Supervision’ document, it laid out what it expects from market players to avoid these difficulties. The role of any regulator has always been about ensuring stability, certainty and competence and, with so much technology so active in the market, that remains true.
Meanwhile, in the US, the country’s securities industry self-regulatory agency, the Financial Industry Regulatory Authority (FINRA), formed an Office of Financial Innovation, a move that signals how a regulator not only has to consider what is happening now but also must consider what is coming down the line. The new office for FINRA, part of its FINRA 360 program, is there to help them better identify, understand and foster technological innovation in the sector. Indeed, it is not just about understanding but engagement and shaping.
Arguably, the oversight role is no different from what it’s always been, though the precise areas of focus have changed. The forward-looking engagement in innovation, however, is new and necessary.
