WHAT THE HECK WITH FINTECH: IS WEALTH MANAGEMENT READY TO SEIZE THE MOMENT?

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“What is FinTech and why should I care?”

(…said someone famous in 2016)

If you are reading this and you are confused by Financial Technology (which for those that cannot bear using words with more than a two syllables is also known  as: FinTech) and what it means – log out of your online broking account, change your status on Skype to ‘busy’ and let’s clarify this. Read on.

One moment we are being told how FinTech is going to reduce operating costs by 8% in the next 10 years. In the next breath we are being told how Roboadvisers are the biggest shift in delivering client advice ever since double-breasted suits were no longer fashionable. Robots will, they say, rule the roost. It is breathless stuff. But what should we think?

With that in mind here are the five things you, wealth managers and decision makers,  need to consider about Fintech:

1. Get excited, it’s going to make your life easier.

2. Get even more excited, it’s going to make your clients’ lives easier.

3. It will change the way business models operate. FinTech can and, in time, will boost profit margins.

4. When Global top 10 Private Banks start to buy into FinTech, it’s time to sit up and start taking notes.

5. That said, it’s not the be all and end all. Any new industry is living on potential and risk.

 

Evidence for the wealth management industry to digitally innovate is compelling. One piece of this is mobile technology. A recent report by Pershing, in collaboration with Scorpio Partnership, focusing on digital trends in wealth management found the following.

Figure 1: 44% of clients are using online services for managing their wealth; 60% of clients say they like to receive mobile notifications from their financial provider:

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Arguably, the words technology and evolution have been over used in the last decade. Indeed, this article contributes to the discussion frenzy. Nevertheless, what sets this latest wave of innovation – FinTech – apart from what has come before?

Crucially, there is real need for it now and here are two reasons why:

  1. Wealth managers and private banks are under pressure, big time. Personnel, compliance and IT costs are holding firms back from achieving higher gross margins. FinTech solutions are low cost, focussed on disrupting the status quo and importantly they are swift footed – they can adapt to current consumer needs quicker than the traditionalists.
  2. Wealthy consumers want FinTech in their lives and they are seeking out providers. This is not simply digital banking – that is a hygiene solution that has long been resolved. They want interactive digital technology and engagement. Indeed, clients are prepared to switch their financial provider allegiance on the basis of an evolving new digital technology and the process that are supported by it.

Given the wealth consumers are pursuing FinTech for personal needs and the providers are in need of FinTech for economic reasons means we have reached convergence in a way that has not previously existed. The twofold prize for getting all this right = ↑net new assets and ↑revenue.

Figure 2: Average change in AUM in the last 12 months for “tech-enabled practices” versus “traditional advisers”

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Our perspective on convergence is backed by data. A US based study by Pershing and our friends Aite Group of 403 U.S. advisers found that 81% of digital practices increased their assets under management by 5% to 10% or more compared to this same increase for 53% of traditional adviser practices.

However before we all digitally hyperventilate and buy the next company with the phrase Fintech in their strapline let’s take a step back. Is the industry fully on the FinTech bandwagon? If the wealth management industry were to look back to today in 50 years’ time, they would probably consider 2016 to be a tiny blip on the wealth management oscillator. The UK, for example has deployed GBP647.5m of the GBP8.9bn that was invested in FinTech globally in 2015, according to Innovate Finance and a recent Financial Times article.

While there is convergence of needs, there is not necessarily yet a supply of good solutions. The industry is in a slight Fintech vacuum as solutions mature to the point of becoming viable. Today, the businesses that are operating in the wealth industry have often overwhelming valuations, some with up to a 50% premium and there really has not been much in the way of transformational technology to justify them.

This vacuum is not surprising and is nobody’s fault. The difficulty in entering and surviving in the wealth management industry is complex. FinTech companies possess new technology and new ideas, but in order to exist, they need new clients, new money and crucially trust. Trust in the brand comes through three channels – getting your name out there, tailoring the product to the market’s need, and importantly, being able to absorb and adapt to industry pressures. FinTech also needs to break down the resistance of the engine room of past fortunes – the salesforce. For them, voting for a termination note is not really a natural action.

So, are you in a better place having read these three hundred or so words? Possibly not. But for the time being you have begun to think more about what Fintech means to you. The opposing forces (manual versus digital) for progress in the wealth industry are in close combat now. The key to that riddle is looking more closely at the evidence of consumer patterns. The genie of wealth Fintech is out of the bottle whereas three years ago it was considered merely a retail phenomenon.

The next step is to be close enough to the developing trends to be sure to catch on to the next phase of implementation before it is too late. Nobody, as the saying goes, wants to be on the bleeding edge, but everyone that wants to win market share certainly wants to be on the leading edge. Our council is that you should be ready to leap into the Fintech universe within the next 12 months.

 

News from the world of wealth:

The Fintech Innovation Awards 2016 – Bob’s Guide

HNW Money on the Move: More than Half of Europe’s Millionaires Plan to Relocate in Next 10 Years – Scorpio Partnership

Union Bancaire Privée completes its acquisition of Coutts activities in Asia – CPI Financial

Australia’s NAB restructures HNW business – International Adviser

Bank of America’s wealth unit reports 13% rise in Q1 income – Private Banker International

 

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Hubert Brown Scorpio PartnershipAuthor: Hubert Brown, Manager at Scorpio Partnership.

Expertise: Hubert leads on a wide range of international client projects centred on client insight as well as market R&D. Hubert is also a lead on the development team of Scorpio’s annual global private banking benchmark study.

Background: Hubert holds a Bachelor’s degree from the University of Leeds in Business and Financial Economics. He has experienced a breadth of client project work since joining over three years ago. On weekends his favourite past times include controlled aggression flooring opponents on the rugby field, Texan line dancing and furthering his specialist interests in the field of 18th century origami.

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