When it comes to gaining a competitive edge in pensions, how much of a role does technology play? A pretty big one, according to 54 percent of IFAs polled at the recent roundtables hosted by WealthOS.
The roundtable took place at the Retirement Matters conference in London on September 25. WealthOS were one of the sponsors alongside Goldman Sachs, Iress, LV=, Legal and General and Standard Life.
More than a quarter of industry professionals surveyed thought that cost was the “primary barrier” to investing in new platforms.
This suggests that many practitioners believe in the power of digital tools to transform their businesses – but a sizable minority are yet to fully understand its potential benefit to the bottom line.
In addition to snap surveys, the session explored some of the challenges holding up the technological transformation of the sector.
WealthOS CEO Anton Padmasiri and CCO Shri Krishnansen led the discussion, titled Leveraging the tech: is your retirement proposition more Netflix or Blockbuster? probing wealth managers for their thoughts on what a digital future might look like for the retirement industry.
Integrated challenges: how the retirement industry is struggling with platform interoperability
What emerged was a picture of a sector striving to overcome inefficiencies, driven in large part by poor interoperability between different technologies.
One audience member described how he and his colleagues were forced to waste time logging in and out of a range of tools, because there was no system knitting products, platforms and customer relationship management functions together.
Another delegate spoke of using a master spreadsheet to track clients’ various sources of wealth, which was manually collated and laborious to maintain.
Yet technology was not always a panacea, particularly if it lacked robustness or was inappropriate for the task at hand, the session heard. A good example given here was that of a front-office tool which was capable of collating data across products such as SIPPs, GIAs and ISAs. However, it didn’t have the ability to update that information on a quarterly basis, meaning clients’ financial statuses were quickly out of date.
Shri also quizzed the audience about how they could tap into the 13.1 million-strong mass-affluent market in the UK – that is, investors with wealth ranging from £50,000 to £5 million.
Fascinatingly, many IFAs thought that digital platforms had the potential to play an important role here. But perhaps not how you’d think. It turns out, technology, according to the audience, might prove most useful in freeing up time to better serve existing clients in this segment, rather than acquire new ones.
The reason being that the professional indemnity risk attached to many mass affluent customers wasn’t commercially sustainable for IFAs. A potential solution to this problem lay in wealth managers offering an automated self-service proposition.
This could give mass affluent customers access to useful products during their early years of accumulating wealth. Such propositions would clearly be guided, direct-to-consumer offerings, albeit with some link to the wealth manager to provide support and build a relationship.
Then, once wealth had accumulated beyond a certain threshold, for example where more in-depth advice would be beneficial, there could be an offer of, or handover to more traditional advisory models.
Taxing problems: poor visibility, big bills
In terms of specific wealth management challenges causing avoidable friction for wealth managers, tax efficiency figured high in the discussion as did slow product transfers.
Tax frustrations centred on financial advisors lacking full visibility of a client’s various products, making it difficult to create tax-efficient income streams in retirement.
Constant regulatory changes that led to sudden large bills from HMRC were also a commonly cited frustration. Capital gains tax reforms are a topical example here. Remember when GIAs were a great idea? Clients who have been advised to use GIAs and make CGT-free withdrawals of up to £12,000 will soon face the headache of a new £500 tax threshold.
Inconsistent systems were also creating unnecessary hold-ups in tasks such as product transfers–with one audience member citing the case of an ISA taking an unacceptable four-and-a-half months to transfer–and even then part of the transfer remained incomplete at the time of discussion.
Income sustainability during a person’s retirement was another area where existing technology fell short. Current systems seem to lack the flexibility to help clients course–correct when markets change.
Some good news: the future of pensions is digital
Despite myriad challenges in the world of pensions affecting customer experience and back-office efficiency, there is every reason to be optimistic about tomorrow.
And a good number of roundtable attendees agreed with that statement. An average of 45 percent of wealth managers left the event saying they were going to explore technology solutions for their pension services.
If they look in the right place, they’ll discover a new generation of highly interoperable wealth management platforms, led by WealthOS.
Many of the problems discussed at the Retirement Matters sessions are entirely surmountable with a fully digitised, integrated approach.
For instance, our technology does equip wealth managers with data on an investor’s assets, with the ability to transact on them too. And they can provide the digital infrastructure needed to automate self-service products to the mass-affluent market. A deep integration with HMRC also prevents tax code errors and orchestrates end-to-end tax wrapper compliance and reporting. The list could go on.
The roundtable opened by asking the delegates to consider whether their business models were modern like Netflix, or outdated like Blockbuster. The key learning here was that modernisation requires investment in the right technologies. Netflix has spent billions of dollars on digital innovation, Blockbuster didn’t–delivering results that speak for themselves.