With Bryan, I discussed global trends in wealth management, humans and robo components competing with one another, and expectations for the near future.> More details
WealthTech Insights #1 with Simon Bussy: Move from State Provision to Self-Provision
With a wealth of experience and successful track record operating across Wealth Management, Life & Pensions, Retail Platform, Workplace, Asset Management and Retail Banking Wealth in the UK and overseas, Simon has become one of a handful of ‘go to’ people in the UK’s fast-evolving digital (‘robo’) advice sector, providing insight, opinion and challenge to blue-chip and FinTech clients right across the Financial Services sector.
Leading and challenging teams to design, develop and deliver best-in-class adviser and customer propositions, recent client engagements have included working with senior leadership teams on disruptive innovation; market assessments including regulatory and technology developments and insights to aid strategic planning; developing business model and target operating model options to support digital business transformation; assessing global retirement proposition opportunities; and market-entry approaches options for new entrants.
A regular on Twitter , and LinkedIn, where he shares insight and best practice, in this interview Simon shares his thoughts about digital (‘robo’) advising in general, along with upcoming trends such as the human-and-digital model. We discuss the possible impact of Brexit on the wealth management industry, and Simon provides several examples of the brightest innovations in the industry and their impact on the further development of the industry.
Q: The bottom line for the WealthTech Club blog is to connect business and technology experts to help both sides be successful in wealth management solutions. We have started by creating a number of articles based on industry research, which you can see on the WealthTech Club website wealth.insart.com. We have just started this blog, and to date we have shared some information, some knowledge that we have gained through working with our customers. What do you think about this?
Simon: That sounds good, I like it. The more we can share and help one another, the better. At Altus one of our key roles is to connect our clients to the right technology or BPO partners where this fits their business model. To support this we write blogs, white papers, and articles, and host thought-leadership events, to help people with their own thinking, give them a view, stimulate ideas and open up new possibilities. It doesn’t necessarily mean they have to agree with us, but it just gets the discussion going, and ideally helps them moves their thinking forward a little bit.
The WealthTech Club has a similar vision. You’ll get different views, different opinions, and that creates the discussion. I’m very supportive of that approach; any debate and discussion is, in my view, to be encouraged, as the different arguments and points of view can be considered.
“There’s been a dramatic move from state provision to self-provision – individuals need to increasingly look after themselves, often without the knowledge, skills or confidence to do it.”
Q: That’s really true. Last year I attended a couple of conferences, of which the biggest was perhaps Money 2020. There was significant interest in robo-advising, such as robo-advisors for wealth management and portfolio management, which I think is an emerging topic right now.
I have seen a number of articles you’ve posted on LinkedIn, and note that you’re specifically interested in robo-advising. Could you tell me how you came to the wealth management industry and what changes you have been observing in the sector in recent years?
Simon: I originally started out in a non-FS environment, working for a number of retailers in the UK, such as John Lewis, Kingfisher Group, and WH Smith. They were my first experience of how organizations could really meet and exceed customers’ needs, and how to deal with the situation when things occasionally went wrong.
For me, that was very good background and learning experience prior to moving into financial services. That is, I always try to come at things from a consumer perspective rather than just a traditional financial services perspective, and it’s that which particularly excites me about the emerging robo- (or digital) advice sector, and fintech more broadly.
I was – and still am – passionate by what financial services can do for people, to help them live more comfortable lives, and to protect their loved ones. Particularly in a global environment where we’re facing a major longevity problem. Not surprisingly there’s been a dramatic move from state provision to self-provision – individuals need to increasingly look after themselves, often without the knowledge, skills or confidence to do it.
Trying to get people to help themselves, plan for the future, when they have so many other pressures and commitments on their money is a huge challenge. And that’s been compounded here in the UK by the move from defined benefit final salary schemes to defined contribution plans, where a person’s pension pot is based solely on their contributions, term and investment performance. So the ‘golden’ defined benefit guarantees that older generations have benefited from are being phased out and rarely available to the younger generations. And with increased choice and flexibility by virtue of Pensions Freedoms, there is even more responsibility today on the individual to make very important decisions, and this will only increase for future generations.
Historically, we haven’t really had the technology that would support this type of decision-making; often it promised much and delivered little. To be fair, in more recent years there’s been some excellent technology solutions developed for advisors to help them better advise and support their customers. And some of this technology is now configured for consumer use, and we’re also seeing new consumer tech solutions developed.
At Altus Consulting we’re privileged to work with a wide range of FS clients – on major business change and wealth transformation and operating model programs for global banks and platforms, market entry and distribution strategies for asset managers and distributors, platform and technology selection for wealth managers, capability assessments for technology businesses, all the way through to growth strategies and more for smaller D2C propositions for digital startups. Given what’s happened in the market externally, many of the companies we work with are really focused on how they can help customers to help themselves, whether that’s with the customer directly, or via a B2B2C arrangement.
Over the past couple of years, the “robo-advisor” model (or “automated advice,” or “digital advice” – it has a number of names here in the UK!) has become increasingly popular. Altus are now tracking around 100 different organizations who have or are developing propositions along the wealth value chain, either B2B to provide capabilities to support robo-type propositions, or the actual consumer facing propositions themselves. I love spending time with, and working with, these type of organizations, always looking to solve problems, invariably a ‘let’s find a way to make it better’ attitude.
Despite its critics, not least around cost of acquisition and commercials generally, the robo model is proving extremely popular and has an increasing foothold in the marketplace. In the US the charge has been led by firms such as Betterment and Wealthfront. On the other side of the globe, in Australia, you’ve got propositions such as Ignition Wealth and Stockspot. India, South Africa, Asia, continental Europe – it’s pretty much become a global phenomenon, and in the UK the ‘robo’ model is something pretty much every brand is now looking at.
From the global banks and old Life & Pensions companies who are trying to transform their models and become more relevant and have a place and a purpose in the future world, through to platforms, B2C providers, and a number of existing enterprise and new FinTech startups as well, it’s a really exciting place to be involved in.
We’re also engaging with an increasing number of Wealth Managers and advisory firms who are typically considering two main models – either to upgrade the technology they use to enhance their service offering and reduce operating costs, or to add a new low cost D2C digital offering alongside their full advice offering.
For me personally I love talking with such a wide range of people, to have the opportunity to help the people driving change in their businesses, and to share thinking, experiences and frameworks to help them on their journey.
Q: How do you think robo-advisors vary from country to country? Could you give some examples of differences between the UK, Australia, other European countries, and so on?
Simon: Although the same “robo-advisor” term is used globally, the major difference across regions and territories is frequently around regulation. For example, regulation in the UK has driven a much more robust approach to client risk assessment, and the whole regulatory approvals process generally takes longer in the UK, as Scalable Capital will testify, as they operate in both Germany and UK. And more generally, in the States and elsewhere, the term “robo-advisor” is typically related to propositions where the algorithms drive the portfolio-management aspects of the service, while in the UK, although there are propositions that are probably more akin to that type of definition, we’re increasingly witnessing a trend where brands are recognizing the importance of “Advice” with a capital “A,” usually “simplified” or “streamlined” advice, focused on a particular need area.
That said, some of our clients are now looking at how this can be extended to a much broader, more holistic financial planning service which covers all sorts of client money management, debt and protection needs. That’s far more challenging for the tech and the underpinning algorithms to cope with, of course, but it’s great that some organizations are really beginning to push the boundaries of what could be possible, to re-imagine what the future might look like, rather than just trying to copy what others are already doing.
Over time it will be interesting to see how those propositions that offer an execution-only style proposition, linked (probably) to a risk-rated model portfolio or similar, and which are charging a price that is not dissimilar to those that offer advice, will evolve. Will they find it more difficult to attract new customers if they can’t demonstrate real added value? Now that value may come via superior investment performance, or perhaps some will evolve their model to offer advice? Time will tell, and it’s an area I’m keeping an eye on.
Then there’s the argument about pure digital only versus digital plus human. There have been a number of research studies in the States and UK that have confirmed that consumers at certain life stages or facing particular life events really need human advice, not just digital guidance. We are already seeing the emergence of this hybrid human-and-digital model, as opposed to digital only. Some of the larger brands, with branches or cutting edge customer contact centers already in operation, are recognizing that they may just have a differentiator that will help them compete against the more nimble start ups. And to be fair to some of the smaller brands, they are also trying to create a more hybrid model, as opposed to digital only, such as the recent launch of eVestor in the UK. We’re also now seeing the bigger brands often wanting to partner with the smaller disruptors, wanting to find a way to work with them, not against them. And the smaller brands, realizing that it’s not so easy to acquire customers direct, are more than happy to offer a whitelabel service, or license their tech or their algorithms.
“While people might think their money is safe because it’s not going down in capital value, its real value is because its purchasing power is going down.”
Q: Do you think Brexit will affect wealth management and WealthTech in the UK in general? If so, how?
Simon: There is no simple answer to that, and with the repercussions following the UK general election we can be certain that Brexit will be front and center of the political and economic agenda. What history tells us though is that whenever there’s change – be it political or regulatory, social, economic or technological – such change brings both threats and opportunities for any market, and the organizations operating within it. For those that offer advice there should be wonderful opportunities to help and advise.
Many consumers in the UK choose to save or invest in assets that are typically very low risk, investing in Cash ISAs, bank savings accounts, and so on. Sadly there is a fundamental lack of financial literacy here in the UK, a lack of understanding, even around concepts such as inflation. While they might think their money is safe because it’s not going down in capital value, its real value is because its purchasing power is going down.
There was a report out from HMRC a month or so ago stating that 80% of new ISAs in the UK, which is our tax-free savings account, are invested in cash. When you look at the rates that you can get for a Cash ISA – may be in the1 to 2% range – they’re an absolute waste of time when the rate of inflation is over 2%. Yet this also says to me that there’s the most amazing opportunity for the industry to help consumers, to educate them, to gently take them on a user-friendly journey to start investing. And it doesn’t need to be anything too racy! Even for low-risk investors, if we can convert just some of their cash savings into a longer term investment, where this is the right thing to do for them, then we’ll actually be helping the population at large.
As well as the individual, there’s also a benefit to both the industry itself and also the government if we can help people recognize that over the longer term, equity-based investments—or at least partial equity-based – will give people a better return on their ‘non-rainy day’ money than if they just keep it in cash.
Q: Ten years ago in wealth management we could find only big, and rather conservative, players and a considerable portion of the market belonged to banks, maybe using several layers of financial advisors. Today, instead, there are new and innovative companies in the market and they’re oriented not only to financial advisors but to enabling “regular” people to invest directly in various financial instruments. These include Betterment, which is oriented toward B2C, and the startup Robinhood, which is more focused on millennials.
Why do you think more and more companies in the sector are refocusing on the B2C market and shifting away from the more common, classical approach of working through financial advisors? Do you think it’s happening due to technological developments, or weakening regulations and policies on the market, for example?
“Yet millions of consumers desperately need advice, not least due to the flexibility and options from pension freedoms.”
Simon: There are a number of factors at play here, and worth mentioning that in the UK the adviser channel has always been strong and resilient in the face of constant change. It’s probably no surprise that some of the early ‘disruptor’ B2C propositions were positioned to take on the existing, in their words, “very expensive” traditional financial advisor channel. Their argument was that their new propositions could offer a similar or better outcome at much lower costs and therefore, for the customer, they get a better overall return because they are not spending as much on a financial advisor.
‘If you can invest in us at something less than a percentage point, why would you go to an advisor who is charging you two or three percent, or whatever?’ There was a significant price play in some of those early propositions, and some of it was very unfair because it wasn’t really comparing apples with apples. On one hand you had effectively an execution-only investment proposition, on the other a service where advisors are providing, in many cases, holistic financial advice and an ongoing service. That’s what customers are paying the extra money for.
The market has matured over the last year or so. In the UK, post Retail Distribution Review (RDR), we have millions of consumers who have effectively been cast adrift from receiving financial advice. Either because of the amounts of money they have to invest don’t warrant the attention of a financial advisor (they know that they can’t provide value for the level of funds that the customer has), or the customer doesn’t actually want to pay the fees that an advisor may wish to charge. This sadly has taken the UK backwards in terms of saving, an unintended consequence of RDR. Yet millions of consumers desperately need advice, not least due to the flexibility and options from pension freedoms. They now have more choices about how to use or invest their pension pot that’s been accumulated over many years; this is one of those life events we spoke about earlier, a time when many consumers really need the expertise and advice of an advisor.
There are a small number of robo-propositions being positioned to fill that gap. And whilst pure digital might not be the silver bullet that everybody hoped for because many consumers still want a degree of human interaction, if we can combine some human intervention with digital capabilities to reduce the costs and the inefficiencies of the process then we can get to a point where the industry can serve far more people than perhaps it could have done in the years just after RDR. The proposition offered by LV= and Wealth Wizards is a good example of this, an at-retirement service supporting customers facing the difficult decisions about what to do with their pension pots.
“That’s a smart way of engaging with a millennial audience and not just trying to get to their money.”
Q: That is really interesting. Previously, the wealth management industry was mainly associated with securing one’s retirement; right now, we are seeing the potential audience becoming younger and younger. In your opinion, how can the new technologies and possibilities provided by technological startups in this area promote an investment culture among the younger generation?
Simon: The industry – whether it be wealth managers, the banks, advisor networks or anybody else – all focus on different customer segments. What we are beginning to see is a number of organizations that are trying to engage a much younger audience, not just those segments with the most significant wealth today. They’re doing that in a number of ways. I’ll give you three examples.
First are the organizations that focus on the millennial or younger generation markets, such as Wealthify, a robo-advisor based out of Cardiff, and whose vision is to democratize the wealth industry, make investing available for all. Their customers go through a very simple onboarding process to invest money into one of their five risk-rated portfolios, and their minimum premium is just one pound sterling! They’re positioning themselves so that literally anybody can invest if they choose to. They’re raising their profile through advertising, have a nice, clean and simple to use mobile app, and have been one of the ‘robos’ promoted by Martin Lewis on MSE. So that’s one proposition, a simple, low cost, low premium service, and while they get called a robo-advisor, they don’t actually give any financial planning advice. Worth mentioning too that it’s a tough ask to build a consumer brand and sustainable business from scratch, so it’s no surprise that they also (sensibly) offer a white label B2B2C service too, enabling them to partner up with other organizations that already have a customer base.
Consumers can also use an app like Moneybox, which enables customers to save their spare change if they choose to. For example, every time they buy a coffee or go shopping they can effectively round up the cost to the nearest pound, and this goes into their savings plan. They do that on a daily basis and over a month they’ll have saved little and often, almost unnoticeable, and if they want they can also contribute an additional lump sum and make regular contributions, too. This approach – and there are now a number of similar apps in the market – is all about trying to get people into the savings habit, building good disciplines, enabling them to slowly accumulate a pot of money. That’s example number two.
And the third example is a service that covers US and Europe – Finimize. This business started off by providing free, bite-sized, easily digestible financial content to millennials on a daily basis. Each day they send out an email that tells their readership in three minutes what’s going on globally in the markets – what it means from a global perspective, then what it means for them as an individual. They’ve already got a loyal tribe of followers reading these regular updates, and they’re now developing that proposition further to enable their readers to start investing some money as well – Finimize My Life. I really like their approach: slowly building trust and a loyal following with a free content service, and now gently guiding them to start dipping their toe in the water to do a little bit of investment as well. That’s a smart way of engaging with a millennial audience and not just trying to get to their money on Day 1. They’re actually trying to give them something of value, trying to help them.
Another type of organization we see coming to market in the UK that excites me is the challenger bank. A good example is Starling, which got its banking license last year. The company’s ambition is to offer the best current account in the marketplace, and – because their technology stack is all self-build, open APIs – a number of third-party partners can integrate their propositions and, with customers’ permission, share data. In time what we’ll have is a segment of consumers who are far happier to share data as long as they can see value coming back the other way, and in Starling’s case that will be, all being well, a best-in-class proposition – their own current account plus a whole range of best-in-class third party solutions, for example we could see partners offering mortgages and loans, FX, digital advice, utility services, GI, robo-investments, and so on, as far as Starling want to take it.
This is Starling’s differentiator, and it’s interesting to contrast it to the traditional vertically integrated model, where a single provider aims to offer everything, sell every product and cover the entire value chain. SJP, Old Mutual Wealth, and the incumbent banks, amongst others, have been very successful with this model over the years, and it’ll be really interesting to see whether the new ‘platform as a market’ proposition (such as Starling’s) can take it on. Exciting times ahead!
Q: What we are seeing right now working with some WealthTech companies who develop wealth management solutions is that, from one side, we have product managers who have experience in financial advising and who understand the needs of clients, and from the other technology teams, such as software-development teams. We see that sometimes there is a lack of understanding in technology teams as to what’s going on in WealthTech, what portfolio management is—you know that kind of thing. Do you see any gaps in the technology for wealth management right now? If so, what kind, and what are the primary ones?
Simon: I think the main challenge for people that come from a technology background but not financial services (I will apply this particularly to the UK, but I’m sure it applies elsewhere as well) is getting one’s head around the regulatory environment. The regulatory environment in the UK is very, very complex.
The FCA, the UK’s regulator, has worked hard to help address this. For example, they established Project Innovate to help organizations both large and small through some of the regulatory treacle that exists, and just last year the FAMR (the Financial Advice Market Review) recommended the establishment of an Advice Unit (to support the development of ‘robo’ style propositions), and a regulatory sandbox (so that new propositions can be road-tested in a safe environment).
A number of organizations attempting to bridge the Fin and Tech gap will engage organizations such as Altus, the company I work for, to help them through this process. Do they understand the UK market? What are the critical insights they need to understand from the UK and the wider international market, too? What about the regulatory environment, how should they optimize their business model, and how do their propositions need to develop to sit competitively in the marketplace without facing the wrath of the FCA?
We like to help our clients with their strategy, their propositions and challenge their thinking. We’ll help them with their operating model, and if required we’ll help them go through the regulatory process, and may be engage with the FCA’s Advice Unit or Regulatory Sandbox.
“Users can literally run their whole life through that one single app.”
Q: In your opinion, which WealthTech companies would you highlight as the most innovative in the industry? We know Betterment, Wealthfront, and some other companies. But which would you say are the most innovative and disruptive in this area?
Simon: That’s an interesting question. When we talk about disruption and innovation it should – ultimately – lead to changes in customer behaviors, the adoption of one brand over another, the demise of those brands that failed to react. For example, in other market sectors, the rise of Netflix and the demise of Blockbusters; the adoption of digital cameras, the fall from grace of Kodak; Apple’s Smartphone signaling the downward spiral of Nokia.
In the robo space Betterment and Wealthfront are often put forward as innovators and disruptors. In truth, they have acted more as a catalyst – the real disruption came when the big brands, such as Vanguard and Schwab in the States, got in on the act. Betterment and Wealthfront are interesting examples of different market approaches. Launched to market within a year of each other, for a good few years they were running pretty much neck and neck as far as assets were concerned. In recent times Betterment has begun to pull away. They recognized that if they were to focus solely on going direct to the consumer it would be extremely challenging. What they’ve done, and in my opinion quite rightly, is to diversify their model. They still have their B2C proposition, but now offer a B2B2C institutional proposition and a retirement proposition, too. They’ve now got a three-pronged approach, as opposed to just trying to go directly to the customer. I like that they’ve diversified – it’s de-risked their model and given them more routes to market – and not being afraid to pivot in order to be successful is, in my book, a very strong trait.
Another development that is now coming into the wealth space is open APIs, which we touched on briefly earlier with the Starling example. Open APIs will provide a whole host of opportunities and innovation going forward. We will begin to see companies that really use customer data as a strategic asset. Combined with big data analytics capability, they’ll be able to really drill down, analyze their customer data and then proactively provide tailored best-in-class solutions on an individual basis, that absolutely meet their customers’ needs, and at the time they need them, and rewarding loyalty. Saving them money in some areas, and helping them spend and invest it more wisely elsewhere. Customer centric. Customer first.
The boundaries of those solutions are only people’s imagination. I would offer WeChat in China as an example. What started off as a little app used on mobile phones to send messages or pictures is now a platform in its own right where users can transfer money to friends and charities, they can go online and read content from their favorite newspapers, celebrities, magazines; they can online shop; they can even buy and configure a car. And so much more. And from an FS perspective, they offer digital payments facilities, an online banking service, and, importantly, users can even invest. An increasingly smart-connected ecosystem, in China users can literally run their whole life through that one single app.
Facebook appear to be following a similar course with Messenger. We often argue whether Google, Amazon, Facebook, Alibaba or others will ever get involved in financial services. I personally wouldn’t bet against it; may be not to directly offer financial services themselves, more likely perhaps that they would partner, use the immense data they have on all of us. And remember, they have access to pretty much anybody on the planet who’s got a smartphone. Now that would be disruptive!
I’m sure we’ll see far more platform marketplace propositions being developed, especially post PSD2 and open banking. Assuming this pans out as I expect, some of the existing ‘robo’ propositions that we see, which have very limited journeys that go through a very predictable process and end in buying a fund or portfolio, will seem very dull, very boring, very yesterday. And this may happen in the not-too-distant future; organizations really need to be thinking about how data, artificial intelligence, biometrics, even blockchain, will come together; how they’re going to cut out more cost, how they can make things more secure. We’ll see some companies really come to the fore, and other companies that think they’re leading the pack suddenly get left far, far behind.
Q: What do you think the typical company in wealth management, both for B2B and B2C, will look like in five years, ten years?
We have Betterment, which is basically like a software startup, but is primarily a technology company and focuses on B2C. We can also think, for example, about BlackRock, which is more an asset-management company. Certainly, these companies are doing their best to implement all the technological innovations for wealth management, and are more oriented toward the B2B space. What will this landscape look like in five, ten years?
Simon: There’s a brilliant quote from Steve Jobs, “We always over-estimate the change that will occur in the next two years, and under-estimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.”
The iPhone is only 10 years old. Other businesses to appear in the last decade include Spotify, Uber, AirBnB, and Tesla. Real innovators, Real disruptors. Who saw them coming?
Back in the wealth sector, advisors and wealth managers will likely become increasingly niche with their full advice (face to face) offering; they’ll have to continually add value over and above what a client can source in seconds on their smartphone (which will evolve even faster with the arrival of 5G). As AI, big data analysis and the algorithms get ever more sophisticated, digital solutions will continue to offer broader, deeper, more intelligent propositions. Advisors will have to continually find areas the algorithms can’t support – which likely means moving further upstream and dealing with more complex situations for more wealthy clients.
Second, customers will increasingly use their smart device for pretty much anything, sharing and receiving data about all aspects of their lives with trusted third parties. This smart-connected ecosystem will proactively serve up personalized, tailored solutions, often in real-time. These will be the propositions that win, using data as a strategic asset, really analyzing the data, understanding it, and being able to proactively provide solutions on a tailored, individual basis, and in a readily digestible format. And those organizations that can’t fulfill these needs will, quite simply, get left behind. The propositions of yesteryear – where organizations used to target a homogenous segment of customers that had similar needs, and it had to be of a certain size in order for it to be profitable – that type of thinking goes out the window.
The financial services landscape will look very different from the landscape today. Some incumbents, of course, will evolve and develop solutions to meet their customers’ needs, while others die a painful death. We’ll see affinity groups, workplace, and retail propositions all looking to offer more holistic financial and non-financial solutions, neatly packaged into frictionless services, each one tailored to an individual’s needs and circumstances.
And expect to see the Big Data providers – the data giants at the center of much that goes on. “Data is the new oil” – a term coined by Clive Humby of Tesco Clubcard fame – is absolutely spot on.
An important question remains around the role of the trusted human adviser, and how it will change across generations in the future. For those consumers and advisors who embrace how the world is evolving and all that new technologies have to offer, there will undoubtedly be the most tremendous opportunities. And for now, smart people using smart technology still create the smartest solutions.
Interviewed by Vasyl Soloshchuk, CEO and co-owner at INSART, FinTech & Java engineering company. Vasyl is also author of the WealthTech Club blog, which conducts research into Fortune and Startup Robo-advisor and Wealth Management companies in terms of the technology ecosystem.