In a post-Royal Commission world, Nicholas McGarrigle believes advisers will need to think critically about their technology needs across all steps of the planning process.
Nicholas McGarrigle
Head of Institutional Research and Senior Research Analyst, Ord Minnett
Platform technology has come a long way in the last five years. What was once an administration and reporting engine is now often the nexus around which investment strategies are implemented and client engagement is built.
Platform enhancements, such as separately managed accounts, online reporting, open APIs and broader investment menus, provide a richer experience for clients, and can often boost adviser efficiency and practice profitability.
Much has been made of pricing movements among incumbent platforms in 2018, but administration fees form just one component of the overall ‘cost’ of a platform. Traditional administration costs are borne by the client, but there are a range of opportunity costs borne by advisers using ‘old world’ systems. These opportunity costs will rise in coming years for a number of reasons:
- Practice efficiency: With adviser education standards likely to precipitate adviser retirements and potentially crimping the flow of new advisers to the industry, those advisers who remain will have to be increasingly efficient to effectively service clients who still require advice. We expect the need for advice to grow, but the number of advisers providing this advice will shrink. Cumbersome technology and investment structures require advisers to engage in manual processes, which take time away from client engagement and business development, which can be ill afforded when average client numbers per adviser grow.
- Service standards: Service quality and client outcomes will become more dispersed as good technology gets better and old world technology ages. This is typified in a quote from IBM’s Bridget van Kralingen: “The last best experience that anyone has anywhere, becomes the minimum expectation for the experience they want everywhere.” This means that it’s not just modern advice technology driving a new service standard, it is any technology that a client interacts with that drives expectations. Advisers sticking to antiquated technologies will be ‘shown up’ in comparison with their more tech-savvy peers.
- Investment outcomes: Understanding a client’s goals and risk appetite to formulate an effective financial plan is a serious undertaking. The design and implementation of multi-asset investment strategies requires a vastly different skill set to that required to formulate a financial plan and manage a client relationship. Modern technology provides efficient access to professional and dynamic investment management. Under traditional financial planning investment implementation, an adviser’s clients may experience a diverse set of outcomes for no other reason than friction in the advice provision process and compliance structures.
Modern platforms that work collaboratively with the industry to design and invest in functionality enhancements, reduce these costs through features such as:
- Managed accounts: Incumbent and disruptor platforms alike provide managed account functionality for both professional asset managers and advice practices to offer investment management. Rather than implementing investment strategies on a client-by-client basis, a managed account can allow a client to opt in to a strategy that is managed professionally, thereby providing the adviser with more time to engage with the client and provide an overall improvement in investment results for the client. However, not all managed account functionality is created equal, with some providers doing a better job at optimising tax parcels, minimising trade costs through netting and facilitating fund switches better than others – all factors which can boost client outcomes and drive adviser efficiency.
- Client logins and online reporting: Platforms were once the domain of the adviser, with clients receiving limited access to online reporting. In an age of increased transparency, clients demand better connectivity with their finances. Mobile apps, desktop logins, regular performance updates and visualisation tools are all table stakes for client interaction. Quality platform interaction is now held to be the benchmark of the client’s last best technology experience. Does your platform offer a client portal experience akin to Uber or Expedia?
- Open APIs and bank feeds: Having a holistic view of a client’s financial position is vital for an adviser and for clients. Not all assets or liabilities can or will be held in custody on a platform, increasing the need for open-architecture and a spirit of data sharing to provide the most complete view, and therefore management, of a client’s finances. This can relate to data feeds from platforms into third party software providers, or platforms capturing data from accounts held off-platform.
- Broad investment menus: Integrated product margins provided a high degree of cross-subsidisation in some old world platforms, but post-Royal Commission, both clients and advisers are questioning the appropriateness of such investment menus. Incumbent and disruptor platforms alike have evolved to much more open investment menus that facilitate a more customised provision of advice and effective implementation of investment strategies.
While we provide research on the disruptor platforms at Ord Minnett (Netwealth and HUB24), we see many of the incumbent platforms making much-needed investments in their offering, both in technology and the investment menu.
Advisers will need to think critically about their technology needs across all steps of the planning process, partner with thought leaders who are investing in technology, and embrace modern solutions to drive efficiency in their practices to avoid bearing these expensive opportunity costs.
Nicholas McGarrigle is Head of Institutional Research and Senior Research Analyst at Ord Minnett.