KEY TAKE OUTS
- The majority of platform operators are focussing on improving platforms for either direct investors or financial advisors.
- Operators are also electing to differentiate themselves by incorporating a unique investment tool or strategy.
- Disclosure documents are a vital tool in assisting investors to understand new investment technologies and products and operators will need to ensure they are compliant.
Digital investment platforms represent an opportunity to expand the boundaries of the wealth management client base by tapping into client segments traditionally out of reach for wealth managers.
Investment entities are now increasingly exploring alternative approaches for the delivery of platforms and digital investments, whether by the introduction of robo-advice, collaboration with other financial bodies or exploring unique investment perspectives.
Digital investment platforms originally arose out of a need to simplify the investment process for investors and advisors alike. The platforms were designed to simplify the administration, management and reporting of the increasingly complex portfolios investors were accumulating and to attract new direct investors and financial planners.
The rise of online services, mobile devices and self-service platforms is educating and empowering the individual investor and challenging the role of traditional players and the wealth management industry as a whole.
While the level of human interaction turns upon whether a digital investment platform is fully automated or advisor-assisted, platforms are increasingly being used to replace or supplement existing financial advisor relationships. These platforms mark an irreversible shift in the wealth management industry landscape by eliminating the need for direct interaction with financial advisors.
The current industry trends generally fall into one of two categories. Platform development is either being engineered to improve the experience for direct investors, or the developments are focused on advancing the experience for financial advisors who engage with the platform. At the heart of all developments however is the increased need for technological developments that produce instant, cost-effective and transparent results for investors and advisers alike.
Improving direct investor experience
In contrast to making online platforms easier for financial planners to operate and engage with their clients, some platform operators have focused their initiatives towards direct investors.
Computer software that automatically generates financial advice and investment portfolio strategies is profoundly changing the way that people manage their investments. Online platforms are increasingly expanding services to include this robo-advice, which can limit the interaction that financial planners have with clients.
In November 2015, ASIC recognised the growing popularity of robo-advice, both in Australia and overseas, and its ability to offer a convenient, low-cost advice to consumers, with a potential to reduce conflicts of interest and improve record-keeping and compliance.1
Improving financial planner efficiencies
The rapidly evolving and competitive investment market means that platform operators and financial product issuers and advisors are constantly seeking to set themselves apart from their competitors and give themselves an edge.
Many platform operators are recognising the benefits in making platforms more efficient for financial planners to access. Numerous platforms are making improvements to the functionality to their portals and seeking to improve advisor engagement levels.
Some platform operators are aiming to become a holistic, one-stop for financial advisers by:
- Allowing advisors to customise the screens and interface that provide information to their clients;
- Facilitating easy movement by advisors between clients and tasks;
- Improving the navigational efficiency of advisor support pages;
- Allowing for electronic signatures and document upload facilities;
- Providing practice management guidance and information;
- Enhanced reporting tools; and
- Pre-programmed contribution and investment strategies.
In recent months, as seen in international media and public news releases, there has also been a worldwide trend of financial institutions that have sought to combine the above strategies by entering into partnerships and joint ventures, particularly between entities that have the infrastructure for digital platforms in place and entities with sophisticated financial planning resources.
In Europe, an automated investment management platform has been launched by Saxo Bank in partnership with BlackRock.2 The platform is promoted as allowing investors to choose from three risk profiles (defensive, moderate and aggressive), and will then produce a pre-selected investment strategy with full transparency and an all-inclusive service fee. The SaxoSelect platform has been launched in select European markets, including Denmark, Finland, Italy, Norway, Netherlands and Sweden.
In the US, RBC Wealth Management has launched a hybrid digital-human advice pilot program, partnering with BlackRock’s FutureAdvisor.3 The program is focused on adding to advisors’ existing capabilities and expanding the ability of advisors to serve their clients. While emphasising that it does not intend for robo-advice to replace the relationship that financial advisors can provide, RBS has stated that it anticipates being able to serve a broader range of clients by offering a digital advice option.
Closer to home in Australia, ANZ has partnered with Macquarie Investment Management to develop a new wrap platform, which is scheduled to be available from May 2016.4 It is understood that the current Oasis platform will be transitioned from ANZ to Macquarie over the next 18 months.
Further to the two above approaches currently being taken by the majority of platform developers, some operators are seeking to further separate themselves from their competitors by offering something different to the rest of the market, such as particular investment strategy, or taking a unique approach to marketing.
Former Wall Street executive Sallie Krawcheck is due to launch a digital investment platform for women in the US later this year. Krawcheck states: “It’s time to turn our attention to another gender gap: the investing gap…It’s time to give women an investing experience built specifically for them.”5
Further developments have emerged in the lending space, with India’s leading online investment bank for small and medium enterprises, SMERGERS, announcing its expansion into Australia.6 SMERGERS offers a regulated online marketplace for small business owners seeking to finance or sell their business to connect with investors, acquirers and advisors.
The innovative model has been disrupting the Indian investment banking industry by bringing investment banking techniques into the business for sale market and will offer another investment angle in Australia.
While operators are understandably eager to update and evolve in sync with rapidly developing technologies, it is also imperative that operators and issuers ensure that all disclosure materials meet regulatory requirements and in particular, accurately reflect the investment vehicle.
In the same way that operators are constantly adapting new methods and technologies, retail investors are reliant on issuers to adequately explain these new investment concepts and techniques in a meaningful manner.
- “Digital disruption and how regulator are responding”, Speech by Greg Medcraft, Chairman, ASIC, 5 November 2015.
- Saxo Bank media release 20 January 2016.
- Onwallstreet, article “BlackRock’s Robo Platform wins another big client” 2 February 2016.
- Financial observer, article “ANZ to transition Oasis to Macquarie” 2 February 2016.
- BloombergBusiness, article “Krawcheck to start women-focused digital investing platform” 29 September 2015.
- Finextra article “Smergers expands to US, UK, Canada, Australia and the UAE” 18 February 2016.