Keeping abreast of Fintech

The growth of robo-advisors such as Schwab Intelligent Portfolios and Personal Capital in the US has been spurred on by people seeking low-cost investment opportunities. The service allows those with even the smallest amount of cash to set up and invest in diverse portfolios. But are they useful for people with more complex financial needs and do investors really want "advice" about something so complex from a robot?

Moreover, how can traditional wealth managers embrace the technology and developments within the fast-growing Fintech sector, so as not to be left behind?

Eoin Corcoran, head of Portfolio Construction with Davy, says that while a number of robo advisors have cropped up in the US in recent years, most noticeably Betterment, a behemoth in the industry, they have yet to do the same on this side of the water.

“Some peers have set up in Europe. They say robo advice but the advice is very limited really. They are more robo asset allocators or rebalancers so they use an algorithm in the background to map an advisor to a predefined asset allocation or portfolio and they implement that and then rebalance it as required.”

According to Corcoran the issue robo advisors face, is that a customer will present questions but a robo advisor will not be able to provide a personalised response. “A lot of working with people is knowing their motivations, fears and how you can allay those,” he says.

From his company’s point of view, it is how best they can utilise the technology in order to free up more time to deal with clients, including the use of online portals so the customer doesn’t have to ring or email for a statement or look at a transaction history. “It’s about how we derive efficiencies from things that would have been more complex historically and that will free up more time for a greater engagement with the client” he says.

Investment Strategist with Investec Dan Moroney says there's a recognition traditional wealth managers need to raise their game in terms of the digital offering.

“That’s very clear and the new cohort of clients and the future of the industry, the millennial generation, is going to demand that. If you are not up to speed with your digital platform in the coming years you will be left behind. If you ask any traditional wealth manager what their greatest priority is in terms of developing the business, I think digital will come top,” he says.

Paul Laverty of brokerage firm Degiro agrees, "In general, millennials tend to be more tech savvy than the baby boomers or Generation Xers. These will be the people who contribute to the digitalisation of the field."

Corcoran says certain tech tools are being embraced by the industry such as customer relationship management (CRM) packages, as well as portfolio management tools and additional tools around oversight risk analytics. “There is very broad technology . . . some that will be obvious, for example client portals and others that may not be as obvious to the client, more internally focused and deriving efficiencies for the firms in terms of scalability and effectiveness.”

Moroney says the website, the first point of contact for the customer, should be “well-considered, and well put together as it is the first interface any prospective client might have. It should demystify the service offering and some of the better examples have investor education and will explain in a jargon-free way the various options.”

Corcoran says for Davy, it is about trying to understand the frequent service client touch points; when clients come looking for information and how they can make that information readily available to the client 24/7.

In terms of how quickly and adequately traditional wealth managers have reacted to Fintech, he says the lead time has been “long” but the catch-up is beginning to happen.

While robo advisors have a very big part to play in the wealth management industry, they will not replace traditional advisors, according to Moroney, something echoed by Laverty.

“In my opinion, I see this field growing alongside to the brokerage industry. I think investors will still want to have some level of control so these services will be more of a supplement or an educational reference to actually doing it themselves,” he says.

Wealth managers agree that robo advisors are a positive addition for younger investors.

“If you take a young professional looking to take some prudent steps towards retirement, they may not have significant savings or income. Going down the route with a full advisor might not be cost effective for them so robo advisors provide a cost-effective way for someone whose circumstances aren’t that complicated,” Moroney says.

At the other end of the spectrum are older people with more complex financial needs; larger income streams, assets and children going to college. There may be succession planning involved or the client may own their own business.

“I don’t think that level of financial advice can be commoditised or given by a robo advisor. Indeed, robo advisors are now hiring more flesh and blood, there are human beings at the end of those services. You can go on and they’ll sort your risk profile out, spit out a portfolio for you and rebalance it and that will all be done digitally but there’s also click here to speak to an advisor,” Moroney says.

Corcoran says traditional wealth managers can take the best of practice in terms of information flow, good client engagement, client user experience and some of the technology to drive efficiency but layer on top the expertise and service standards that are long standing within these firms.

He agrees that younger clients may only require a robo advisor but as they age and as their financial situation becomes more complex the same clients will require greater advice.

Why Revolut is my favourite online bank Lots of things keep us glued to our mobile devices but innovations in the Fintech sector means we can now also manage our money with greater ease and the click or swipe of a touch screen.

Dr Anita Suurlaht, lecturer in finance at UCD, says online bank Revolut is one of her favourite innovations to come from the Fintech sector in recent years.

Revolut is a digital challenger bank that includes a pre-paid debit card and currency exchange with no fees for the majority of its services.

With Revolut you can track your expenses and they will categorise your purchases to show you exactly how much you’re spending. You can block and unblock your Revolut card in a single tap and turn online, ATM or contactless payments on and off instantly. They offer instant support with an in-app chat and they promise that the customer will always get the proper exchange rate as they don’t add fees or mark up the rate when you spend or transfer money abroad.

Dr Suurlaht explains its stand-out attraction for her.

“It’s an APP on the phone, you register and it works like a normal bank account and you can top it up from your current account. They will send you a physical card and you also have a virtual card to pay for things over the internet. Their fees are much lower than a regular bank or there are no fees at all. They can do that because of their structure.

“It is really easy to use abroad and you save a lot of money on the fees. The ease of use is amazing, you don’t have to change money if you travel to Hong Kong or the US for example, the money is there and you pay no fees on the exchange rate.”

However, there are a couple of down sides. “They don’t have a banking licence, so they are not insured in the same way a regular bank is, but you would only use it for small amounts of cash anyway. The second thing to look out for; a lot are in the beta, testing stage, so there can be some mistakes in the programme but if the amounts are small then the risk is very small.”