The world is changing fast and to keep up you need local knowledge with global context.
* This content is brought to you by Carrick Wealth, leaders in wealth and capital management
“If you do not think about your future, you cannot have one.” These are the wise words of English author John Galsworthy.
Here at Carrick we take his advice seriously and spend a lot of time thinking about the future – about things like what kind of company we’d like to be; where we would like to find ourselves two, five or ten years down the line; how we can raise the bar and revolutionise our industry; what mix of services and products would enable us to be the best financial services provider our clients would want us to be; how future regulatory changes or economic shocks might affect our business and how we might protect the interests of our clients against them; or how rapidly changing technological advances could change our entire approach to service provision in the wealth management environment.
Back in the day …
Just think where technology has already taken us. A mere forty or fifty years ago, if someone working in the financial sector in Cape Town wanted the latest share prices from the New York stock exchange, or the London spot fix, you had to make a call by landline and hope somebody would answer on the other side of the world. If not, you had to rely on the good old ticker tape – which didn’t allow you to ask more questions – or send a telex or a fax, and often wait a day of two for someone to reply. Transaction documents had to be couriered back and forth, often with substantial delays.
Now fast forward to today where it is all instantly available with the push of a few keys on your smartphone, iPad or laptop. You can surf the internet, instantly compare prices; read up about product or regulatory changes as they happen anywhere in the world; sign off documents from Cape Town to Moscow in seconds; Skype a banker in Toronto; or WhatsApp a broker in Sydney.
Just think of how banking has changed, for instance: from walk-in meetings with managers who had names and faces and offered you tea or coffee, using cheque books and wire transfers, and drawing cash over the counter from a teller who knew your name, to today’s faceless, computer-driven (and decided) internet and phone banking. And who would have guessed your financial affairs could be conducted on a cloud of all places?
So where will it all go, five years, a decade or two down the line? What will be the major changes and challenges facing us, and how will it reshape the financial services industry?
Nobody can say for certain, except that there are bound to be many more, vast and innovative changes. We need to anticipate them and be prepared for them, so that when they do come we can adapt fast and embrace them to the best advantage of our business and our clients. But without losing our tried and trusted values and service levels. Because some things you can never, or should never, change.
There are likely to be many future changes in the financial services industry, for instance in the global regulatory environment, expanding customer expectations, revolutionary new product offerings, and more. But it is widely anticipated that the biggest changes will be technological, crossing frontiers that we can’t even foresee right now.
Look what happened to print media
And you have to pick up the signals of pending change early and adapt timeously in order to accomplish smooth and viable transitions, as the print news media, for instance, found out too late to its dismay and detriment. When digital online news media innovations descended on the world with a vengeance from the 1990s onwards, the print media globally were totally unprepared, give or take a few possible exceptions.
Now, rapidly losing advertising, revenue and readers and facing dramatic increases in costs, let alone environmental pressures regarding their old production and distribution methods and tough competition from social media, the print media everywhere is locked in a gruelling battle for survival, as media companies seek to make the transition to viable and profitable online business models. Few are succeeding so far.
The problem is well illustrated by figures released in July by DMG Media, publisher of the Daily Mail and Mail on Sunday in the UK. The company reported that the two titles saw their advertising revenue fall by £7m (15 per cent) year-on-year in the quarter to July, while the Mail Online’s advertising revenue growth was up by only £1m (8 per cent), leaving a big, uncomfortable gap.
While few believe that robo-advice will completely replace the human interface between in-person advisers and their clients, technological changes in the financial services sector – as in all other sectors – are vast, rapid and ongoing.
The advancement of technology generally evokes a range of emotions in people everywhere, with some viewing it as an unavoidable evil that diminishes our humanity. Others welcome it as part of a brave and exciting new world that brings us all closer and helps us reach new heights and solve some of our biggest problems and challenges.
But here the wise words of yet another author, Walter Lippmann, come to mind. He said, “You cannot endow even the best machine with initiative; the jolliest steamroller will not plant flowers”, implying, correctly, we believe, that the human factor will never disappear altogether.
So what’s the point of all of this? Three things: technological change in any industry is inevitable; business as we know it will be radically different a decade or two from now; and you have to adapt or die without forsaking the human factor.
The WEF/Deloitte report of June 2015
Exploring the likely future trends and possibilities in the financial services sector together with business services group Deloitte, the World Economic Forum (WEF) released a report in June 2015. In its opening statement the WEF/Deloitte report said: “Rapidly advancing technologies, evolving customer expectations and a changing regulatory landscape are opening doors to disruptive innovation in financial services. From crypto-currencies to big data to peer-to-peer lending, fintech innovations have captured the attention and imagination of customers, investors and incumbents. However, the nature and extent of the impact that these innovations will have on the financial services industry remains unclear”.
Among other things, the report looks at how the empowerment of individuals through automated systems and social networks will transform the business of investment management.
“The wealth management industry has suffered from the loss of customer trust since the financial crisis. This trust has been slow to recover in the face of continued economic uncertainties. In this environment, a number of disruptors, from automated wealth management services to social trading platforms, have emerged to provide low-cost, sophisticated alternatives to traditional wealth managers. These solutions cater to a broader customer base and empower customers to have more control of their wealth management,” the report states.
It then finds that: “These innovations will create pressures for the wealth management industry to improve the value delivered while broadening access to more customers. Cheaper and faster online tools and automated services that originally catered to underserved customers may steal share from traditional wealth managers in the mass affluent market, pushing traditional managers to switch their focus to more personalised, relationship-based segments. Alternatively, automated investment management platforms could commoditise traditional high-value services and reduce the value delivered by wealth managers across all customer segments, enabling traditional wealth managers to focus on providing more personalised, bespoke services to a broader customer base.”
Among the key implications and challenges the report lists, are:
- Despite the “tangible threat to the traditional practices of the wealth management industry”, incumbent institutions who can embrace these innovations and streamline their processes will be able to provide higher value services to a broader customer base.
- As wealth managers have begun to expand their focus from high net worth to mass affluent segments, increased regulations on consumer protection requires more structured advice from advisers, raising the bar for new entrants, while the increased transparency into investment performance is allowing individuals to better compare products.
- The trend toward passive products has placed pressure on pricing; high fees limit access to wealth management services for mass and mass-affluent clients; while customers’ expectations of personalisation, efficiency and low costs continue to grow.
The WEF/Deloitte report then concludes that as a number of disruptors are emerging to provide low-cost and sophisticated alternatives to the traditional wealth managers to a broader customer base, key innovations that will democratise wealth management, include:
- Automated management and advice of a personalised investment portfolio based on individual needs will offer high-value advisory services on portfolio allocation and money management at low costs based on automated analysis and will provide an aggregated view and analysis of multiple accounts;
- Social trading will empower individual investors to build and share investment strategies and portfolios with other investors; and
- Retail algorithmic trading will enable investors to easily build, test and execute trading algorithms with limited technical knowledge and infrastructure and will provide platforms for sophisticated investors to share trading algorithms with others.
The implications of the report
So where will this leave traditional wealth management firms like Carrick Wealth who cater for individual high-net-worth investors?
While technological innovations will facilitate greater efficiencies and service excellence across a wider spectrum, core business practices and the human factor will remain key. As the report explains, many processes within investment institutions are considered as “core” to their business operation. A new breed of process externalisation providers are using highly flexible platforms (typically based in the cloud) to provide financial institutions with increased efficiency and new levels of process sophistication and excellence, but the core competencies that differentiate winning financial institutions shift from process execution to more “human” factors such as e.g., synthesis and decision-making.
These changes will enable small and medium-sized organisations to better compete with large incumbents by allowing them easier access to processes previously beyond reach due to scale. And it may encourage centralised communications to regulatory agencies that would improve the speed at which financial institutions are able to respond to regulatory changes and ensure a higher level of compliance. While firms will be able to benefit from efficiency gains and increased sophistication, they will have to consider which capabilities they should continue to focus on as a source of competitive advantage, the report suggests.
The Wealth Management Conference held in Calgary, Alberta, Canada, in October 2013, in partnership with CFA Society Calgary, also took a serious look into the future. In a thought-provoking presentation on the future of wealth management based on his firm’s global research, Chris Pitts, a partner in the asset management practice at PricewaterhouseCoopers (PwC) in Toronto, Canada, said wealth management firms need to prepare for six strategic megatrends that will have an impact over the next ten to thirty years: interconnectivity and the rise of emerging markets, the global competition for natural resources, increasing state-directed capitalism, demographic change, social and behavioural change, and technological change.
He indicated how the global financial crisis of 2008 and ensuing fiscal pressures including the euro crisis and the US budget crisis; political pressures including unrest in the Middle East and Asia, and, increasingly, regulation-based responses to current issues are affecting financial institutions globally. They highlight a need to transform many financial businesses, especially wealth management, he said.
According to Pitts firms should be well prepared, adopting a holistic approach to make the most efficient use of firm capital and to leverage resources in addressing the megatrends facing the industry.
Citing recent and ongoing changes around the world, he said ongoing regulatory changes that carry a high cost, are becoming a key driver of transformation to a more holistic wealth management practice.
And in agreement with other futurist researchers, he also believes that technology will be a big game changer. For instance, an asset manager with the capability to mine data successfully should find significant opportunities, he says. But he also warns about the potential for disruption to business posed by technological changes, citing, for instance, how tech companies with a well-constructed customer solution in the mass market, such as Google’s coming out with an asset management arm, could have an impact.
But rather than shy away from such possibilities, we believe one should embrace the possible increasing role for technology players.
Pitts sums up what we at Carrick are already doing when he says: “Technology is needed for the efficient transfer of information between participants in the investment process, such as between the asset manager and the adviser/distributor, who then, in turn, communicates with the client”.
Embracing a digital approach
In an article written by Srini Venkateswaran and Kunal Vaed of Booz & Company’s financial services practice and published by the Financial Times under the heading “The future of wealth management services” the authors say that to succeed in the decade ahead, “established wealth management companies will need to leverage technology in much the same way that their cutting-edge counterparts have in other industries. This means embracing a digital approach to doing business that is online, mobile, social, real-time, and 24/7. Getting there will mean rethinking just about everything, from how they interact with clients to how they conduct business in the back office”.
They list what they believe are four “overarching imperatives (that) stand out”: improving client acquisition, rethinking advice, enhancing client experience, and bettering the back office.
Finally, will the machine eventually replace humans in the financial services industry? We believe not. While robo-advice – computers and programmes that can undertake sophisticated tasks – will certainly play a much bigger role in the future, there are certain human actions and interactions that algorithms can never replace.
As Sheriar Bradbury, managing director of London-based Bradbury Hamilton, puts it: “There will be aspects of advice that an algorithm is unlikely to replace. Holistic advice involving financial planning for more complex areas of, for example, inheritance tax, retirement, investment planning and the taxation interplay, is unlikely to be replaced by an algorithm any time soon”.
But, as he adds, “The question is which wealth management firms will be on the right side of that technology? These are the firms which will survive extinction”.
We believe we are and will be on the right side of these momentous technological advances. Welcome to the future…let’s embrace it together.
- Carrick Wealth is a licensed South African financial management company specialising in retirement and pension planning, fiduciary and estate planning, investments, and QROPS. The company has offices in Cape Town, Johannesburg, Durban, Zimbabwe and Mauritius. For more information call +27 21 201 1000 or visit www.carrick-wealth.com
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.