Technology, platforms and fintech

Can the independent wealth management community embrace technology to give themselves a competitive edge? Hubbis assembled a panel of experts to discuss digital strategies at the Independent Wealth Management Forum in Hong Kong on November 16, 2017.

These were the topics discussed:

•   What does this all mean to you? If anything.
•   What are the solutions and platforms available?
•   How are we investing as an industry in fintech and digital tools?
•   Are we making the most of this to drive growth for our businesses?
•   Does anyone have a clear and differentiated digital strategy?
•   What should be your priority when investing in technology?
•   How do you collaborate with fintechs to achieve your goals in terms of innovation and enhancing the client experience?

With the largest fund management organisations in the world searching for the optimal solution to data management – converting data to insights – it is increasingly essential to understand the work flows of researchers, asset managers and home office CIOs. The biggest firms can handle their own risk metrics, modelling, portfolio analysis in house.    

The key driver is building functionality and tools that allow clients - banks, family offices, external asset managers and others - to do their job in the most elegant and efficient way. 

There is a wide range of choices to be made as to whether to use a bank or non-bank custodian. The use of non-bank custodians, explained one panellist, is limited and driven by cost and clients that prefer more control over their trading.  Most assets are held in private banks.

The cut-off point, however, for opening bank accounts with private banks in the current market has risen to at least $2 million, and often $3 million or more. “That, explained the same panellist, “is creating a vacuum for the smaller clients of $2 million or below and the online brokerages and others can fill that gap.”

Technology driving change
Meanwhile, fintech and general technological innovation is helping to driving down the cost of servicing clients, according to another expert, making it more viable to serve the wealth that is not traditionally defined as HNW. As wealth can be grown so rapidly today, especially in markets such as China, these early HNW individuals are highly valuable prizes. 

He elucidated: “Technology is going to help continue to drive down the cost, allowing firms other than the larger private banks to maintain the connectivity and make it ‘sticky’ for the new generation of wealth and the new concept of wealth.”

There is rapid growth in the US in the independent advisory model, as well as a move from commission to fee based. “We are seeing the same globally and certainly within Asia,” noted one expert. “Fintech can help smaller organisation by rounding up areas of skills not available in-house to help create an elegant user experience.”

Online brokers do not push independent advisers aside, as they do not provide advice, either piecemeal or more holistically. They provide a service that can reach from the small account holder to large institutions. 

The newer wave of online brokerages, trading and custodian platforms that have emerged in the past 10-15 years appear to be agnostic in terms of the clients they can take on, being just as able to take new clients with $5000 to invest, or $50 million. If they have invested to build global multi-asset class trading platforms they can partner with individual clients or even private banks who need access to a market leading digital wealth management platform and services.

Scepticism over innovation
One expert with more than 20 years of experience in broker-dealers is somewhat sceptical about fintech solutions. “Many are simply coming to us with these funky front-end solutions, but actually it is largely stuff that has been out there for years and years. The only difference today is that more people are talking about it and more people are using it and we have our super-phones that everybody uses. We do not even bother to sift through the fintech offerings, because we think 95% of them will not be around in a few years.”

He added: “The major online financial brokerage and trading firms are surviving, they have clearly demonstrated that they are here to stay, and they are doing things that all these fintech companies are trying to either copy or crudely copy. So, we are just waiting on the side-lines and using serious solutions that exist out there.”

Banks dragged down by legacy systems
There is some concern that the major international private banks are stuck with legacy systems. “They are all too often building legacy systems over legacy systems over legacy systems and they call themselves fintech banks, but in reality they do not have the technological sophistication.” 

To counter this, another expert explained that more and more banks either incubate or they directly invest in fintech companies. “But,” he noted, “creating the next generation of banking to support wealth management and the financial community is still some long way off.”

A more positive view on fintechs was given by another panellist. “Some fintechs have worked out. We use the concept of robo-advice or digital advice. 
 
 

Banks pushing revenues not client loyalty
There is a real danger that the creativity of private bankers has in the past decade been hampered by the banks themselves. “They so often put their bankers and clients into a specific box and then demand they push certain products, and if the RMs do not, it appears they might not be compliant, and risk being cut. Accordingly, the better bankers are coming out of the private banks, breaking free.  And we very often see the clients following their leads.”

When freed up, these same relationship managers tend to spend far more of their time talking to clients and far less on admin and other matters. “This is not to say that everyone can make this transition, in fact very few do, but those that do make a go of it can make their clients very happy indeed.”

China’s growth has spurred the proliferation in popularity of family offices. One panellist reported that the advantage, as explained by some of those having these family offices, is that they can easily pick and choose services from multiple banks and largely prefer to handle the advisory work in-house, with many of them coming from a private bank background. Technology enables this as well as low cost online trading platforms.

Online brokerages often work with specialist investment research and investment management firms to provide a service to customers to narrow down the field of investment products and vehicles. 

Online diversification to wealth models
“People do need guidance,” explained one expert, “they want to outsource, they want to trust an advisor to construct a portfolio and provide systematic analysis, they also want educating. An alliance with such firms helps the online trading platform help the investors meet their financial goals.”

The online platforms are also stepping boldly into the cryptocurrency space. “Our founders had, and we have today, a highly entrepreneurial and innovative approach and are always looking for the next thing.  We are very aware of the risk within this new marketplace, so try to mitigate that as we do with all of our securities trading. A great advantage of fintech is to enable the crunching data much faster electronically then for example creating an Excel sheet or even on paper. Technology will certainly greatly integrate itself into our world. 

Another claimed: “I think AI is going to be dramatically more powerful, just look at what happened with Facebook and targeting the elections in the United States, how they can drill down things, who dreamed this 10 years ago? I don’t know what will happen 10 years from now, I just know instinctively it will be different and exciting.”

“Technology is essential for us as we see ourselves as new kind of bank that is an enabler, we are bridging that gap between the traditional model, moving into more digital delivery model, that will be our focus in the medium term.”

Another agreed: “AI is going to play a very significant role in the future, not only from the investment decision standpoint, also as mentioned earlier for cost cutting as well.  But another innovation is the whole open banking API initiative that is starting in Europe. The Hong Kong Monetary Authority is considering that as well. It is potentially going to change the landscape of financial service, given that it will open out access to all kinds of different information.”