Wealth managers battle to keep pace with robo technology

Tech upgrades become almost out of date straightaway

Keeping up with technology is still one of the biggest challenges facing traditional wealth managers and advisers as online money managers continue to flood the market, according to delegates at PA Northern Congress.

Brewin Dolphin portfolio manager Matthew Worton, who is based in the firm’s Newcastle office, tells Portfolio Adviser in the video above that the proliferation of smaller direct-to-client propositions, such as those offered by robo-advisers, has forced his firm to question its own technological capabilities.

Over the past few years several robo-advisers have come to market that claim to offer a tech-enabled opportunity for people with smaller amounts to invest at a lower cost. Often these strategies use algorithms to match a client’s risk profile with a suitable portfolio and use ETFs to keep costs down.

The latest player to join the likes of Moneyfarm, Nutmeg, Wealthify and Scalable Capital is InvestEngine, a robo wealth firm launched in May by Gumtree founder Simon Crookall and his sister Joanna Crookall. The firm claims: “Our team, approach, technology and low fees are geared to making your money work harder to deliver smarter returns, whatever your risk profile.”

The Financial Conduct Authority has backed robo-advisers as one way of closing the advice gap. It recently announced a review of two of its landmark regulatory measures – the Retail Distribution Review and the Financial Advice Market Review – in a bid to close the gap, but industry figures have labelled this “miguided and naïve” given robo-advice is still at an early stage.

Already out of date

Worton says that while Brewin Dolphin has spent a fair amount of money upgrading its underlying systems, keeping pace with technology is an uphill struggle that takes a “tremendous amount of investment and time”.

“As soon as you’ve spent the money and invested in a technology upgrade it’s already out of date and there are products available on the market at the moment, in which we are not necessarily in competition with but that investors can look to for alternatives – smaller direct to client propositions on your phone, things like that,” he says.

In 2018 Brewin launched its online client portal MyBrewin which enables clients to view their portfolios and valuations online. Then in April this year the firm announced an overhaul of its custody and settlement system after signing a 10-year deal worth £35m with Swiss fintech firm Avaloq.

In the firm’s latest annual report for 2018, Brewin CEO David Nicol described the upgrade as the “most significant future financial investment”.

Challenge to keep up

Worton does not believe that Brewin Dolphin is dragging its heels on technology, noting its recent spend and “multiple ongoing projects in the pipeline”, but adds it is not easy.

“We as an industry have to look at the service we are delivering to clients and the vehicles that we are using to do that to keep up with, if not try and lead. That takes a tremendous amount of investment and time.”

He adds: “Our online portal has had a tremendous amount of work put into it and we have our own direct to client execution-only propositions which from an end-user perspective is among some of the most impressive I’ve seen. So, I don’t think by any stretch we are lagging it is just a constant challenge and you have got to keep up.”

For a smaller IFA player such as PGI Financial, technology is clearly a consideration, but this is usually part of a wider process which involves juggling client relationships, regulation, being commercial in terms of pricing and keeping an eye on economic factors.

Financial planning director Phillip Instone says in the video above: “You have to be disciplined enough to know where your strengths lie. We are all different animals, so I quite like the granular side of the portfolio investment management. Other IFAs may say they’re not and outsource it. We tend to do a lot of the work in-house.”

Middle ground

Netwealth, which claims to sit in the middle between traditional wealth manager, was launched in 2015 with the specific aim of harnessing technology to improve its proposition. It was launched specifically because co-founder and chief executive Charlotte Ransom was unimpressed with the client service levels and tech prowess of incumbent wealth managers at the time.

Ransom describes Netwealth as a “fintech” company rather than a pure financial services firm and the fact its staff comprises 40% developers is a testament to that.

“In the end it is technology that underpins the service,” she says. “So, the reason that we have so many technologists is that all of our money is managed on a technology platform that we’ve built from scratch and we will be continuing to evolve it.”

She adds: “So, all the time we’re thinking about what else could we be doing just to make life better for our clients and make it easier for them to look at this or that.”

Embracing regulation

Ransom also argues that being a reasonably new player to the the market, and backed by technology, means that Netwealth has dealt with regulatory pressure from Mifid II from day one. In fact, she goes as far as saying Mifid has been “fantastic” for the wealth manager.

“Partly because we were completely set up to be able to comply with Mifid right from the start because transparency has always been something that we focused on,” she adds.

For example, Ransom says the recent 30 April deadline for investment firms and platforms to provide their clients with total costs and charges annually as both a cash amount and as a percentage, as required under Mifid II, has worked favourably for Netwealth in terms of new business.

“People for the first time have had an envelope through the door where they’ve finally had it spelled out how much they’re paying their wealth manager,” she says. “So, we’re finding a lot of clients are coming to us, you know, unhappy, understanding what they were paying somebody else, and moving across to a firm like ours where they’re able to achieve the same thing at much lower costs.”

But Worton says Brewin, which has been around since 1762, has been on top of Mifid II requirements from the get-go.

“With Mifid II we were among some of the earliest firms to start reporting fees and charges to clients. That was a conscious decision from management at Brewin to come out at the font of the pack saying, ‘Look, full transparency, here are the costs applied to your portfolio, here is where they come from’, and taking an unflinching approach to that because it is much better to lead with that than ultimately be found out some stage in the future when you are forced to declare it.”

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