Advice tech choices: platform vs ecosystem

By Jayson Forrest - Managing Editor  - IMAP Perspectives

The financial services sector is on the cusp of a major shift in advice technology. Speaking at the IMAP InvestTech 2021 virtual conference, Peter Worn - Joint Managing Director at Finura Group - reveals some of the emerging technology trends that will impact the industry over the coming years.

Convergence within the financial services industry between advice software, managed accounts, and platform custodial execution is rapidly occurring like never before.

Platforms are increasingly looking at how they can provide a deeper level of service and support to advisers with the software they are using, while software companies are working hard to provide better integration and execution of their products for advisers - or even becoming platforms themselves!

Add to this the enormous community of fintech providers that are each trying to build ‘best-in-class’ solutions to suit the specific tasks required by advice practitioners, and it is hardly surprising there has been a considerable number of mergers and acquisitions (M&A) across the industry over the past 12 months.

Against this competitive backdrop, as third-party providers all jostle to deliver their products and services to advisers, it is becoming increasingly essential for licensees and advice businesses to navigate these various technology solutions, in order to select the fintech solution that is right for each individual business.

However, things are about to get a lot more competitive.

Speaking at the IMAP InvestTech 2021 virtual conference, Peter Worn - the Joint Managing Director at Finura Group - warns advisers to prepare for the entry of some major cloud-based businesses into the local financial services sector.

One of the key technology trends on the horizon is the emerging shift to cloud-based technologies in the wealth management sector, which Peter believes will see more advice firms progressively move towards an enterprise cloud solution for their technology needs. He points to the likes of Microsoft, Google and Amazon, as some of the major global cloud-based players entering the sector.

“Our research indicates that Microsoft is on about 98 per cent of advice firm desktops in Australia. In fact, after Xplan, the second most popular planning tool is Excel and Word, and most SOAs are still produced in Word,” Peter says.

He adds that for advisers who have used the Microsoft system and applications through the pandemic, there has been noticeable improvements in how these tools connect together. In fact, Microsoft believes its Teams platform will become its major productivity tool moving forward, as people transition to spend more time using Microsoft Teams rather than Outlook.

“Microsoft is building interesting capability across its range of products and applications, particularly in terms of integration and how all these systems share data with each other,” Peter says.

“The reality is, most businesses already have a relationship with Microsoft and are using its tools. I believe advisers will increasingly find that more of the challenging workflow-type functions they do in their practice may potentially already sit in the Microsoft ecosystem, rather than a specific financial planning tool.”

For example, in November 2021, Microsoft released its Microsoft Cloud for Financial Services, which is designed to target banks and wealth managers. As a result, Peter believes it is likely the market will see interesting new businesses and applications emerge out of this move by Microsoft.

He emphasises the market cannot underestimate the influence and reach of global technology players - like Microsoft, Amazon Web Services, and Google - and the impact they will have on the financial services sector.

“In terms of market power, over the last 12 months, the big three - Microsoft, Amazon Web Services, and Google - have added $1.2 trillion in market capitalisation through their share price growth. The annual R&D spend of these three businesses alone, dwarf the combined spend of every listed company in Australia,” Peter says. “So, there’s no doubt these companies will have a significant impact on how the Australian financial services industry develops and operates from a technology perspective.”

When assisting advice businesses navigate the plethora of technology choices available in the market today, Peter says there are a couple of key areas that stand out for Finura Group.

“The feedback we get, particularly from large businesses, is they want to select ‘best-in-class’ tools. Ultimately, that comes with a lot of challenges, because you have to ensure that these tools connect well together, which can be complex,” he says.

“But the technology is available, particularly if an advice business has the right data connectors and the right approach to data, which is built on either a Microsoft, Amazon or Google tech stack. Remember, these enormously disruptive influencers may have been out of the reach of smaller businesses a decade ago, but they are here now, providing these smaller businesses with the opportunities to build their own tech stacks themselves.”

Another trend Peter forecasts is the change that technology will make to the skill sets of advisers.

“We have a whole ecosystem of people in our industry who are trained to use certain tools in certain ways. But the way we develop advice in the future will change, and this includes the types of people working within advice businesses.”

Peter believes the industry will progressively recruit staff who are skilled at managing and understanding data, while also delivering an engaging client experience. He adds that with the availability of advice software tools, advisers need to be able to bring together the human element of advice with the technology aspect, in order to deliver an advice offering that is useable and realistic.

“If I was thinking about my future roadmap for staff and the types of people I’d be hiring, I’d be less focused on administration staff and traditional paraplanners. Instead, I’d be thinking about recruiting people who have really great experience with data,” he says. “The advice industry has to recruit more people with this expertise, because looking ahead, we have a real talent shortage in this area.”

According to Peter, data is perhaps the most under-utilised resource within advice businesses today. However, he is confident that the emergence of new technologies will change that.

“We currently don’t have many providers of data cleansing services in the industry. Today, most of the heavy-lifting that occurs with data management in this industry is transforming it from historical legacy systems.”

While he believes collecting client data is being done more efficiently, he concedes legacy issues are still a challenge for the industry, with many advice businesses having grown on the back of M&A, where multiple businesses have come together, bringing with them their legacy systems.

“So, moving forward, we haven’t yet nailed the whole data structure model that’s optimal for an advice business, without requiring a huge amount of data cleansing,” he says. “But I expect to see more businesses emerge over the next 18-24 months that specialise in data management and cleansing services for advice firms. This will greatly improve the quality of data available in the industry.”  

In summing up the key technology themes and trends likely to impact the financial services sector over the next 5-10 years, Peter acknowledges four areas:

1. The decentralisation of advice and technology

“A lot of innovative advice tools have been built for the industry. However, most of these tools have been built on custom technology, which can be slow to update and may not be able to integrate with other software solutions,” Peter says.  

Instead, he believes the ecosystems being offered by Microsoft, Google and Amazon, are providing businesses with the ability to build their own custom applications, with better data security and user-interface, in a much more cost-effective way. 

2. Vertical technology versus an open ecosystem

Advice businesses are having to deal with increased competition, while having to navigate a wider selection of new and improved technology. The technology choices businesses make, whether it’s a more vertical technology model or an open ecosystem, will become a differentiator for their operating model. 

“For any business that has experimented with technology but it hasn’t gone well, they are only too aware of the challenges that follow when you make the wrong call. So, getting the right technology model for your business is absolutely crucial for long-term success.”

3. Cloud-based companies

Whether you like it or not, major cloud-based technology companies are entering wealth management, which will create new approaches to data management and software integrations.

“These cloud companies have many trillions of dollars sitting on their balance sheets. They are absolutely going to be investing huge amounts of money in wealth management, and will become a part of the Australian financial services landscape,” says Peter.

“Advisers can expect to see the likes of Microsoft, Salesforce and Google providing more education, resources and insights directly to the independent financial adviser market, because they understand this is a market that has a huge appetite for technology innovation.”

Advisers can also expect to hear a lot more about the ‘data-verse’, particularly in respect to the sharing of data.

“A lot of the work that Microsoft and Amazon are doing is working out how to ‘permission share’ data in a more effective way. This would effectively render some of the CRM functions irrelevant, because of the way in which data connects itself. This is an interesting trend over the next three or four years that advisers should look out for.”

4. Technology strategy

Peter also expects a greater focus on technology strategy, execution and capability by independent financial advice businesses.

Peter Worn is Joint Managing Director at Finura Group. He presented a session on ‘Adviser tech choices - platform vs ecosystem’ at InvestTech 2021.

The session was moderated by Brett Ebedes - a wealth management, financial advice and technology consultant.

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