By Jayson Forrest - Managing Editor - IMAP Perspectives
IMAP Chair Toby Potter and Peter Worn - Joint Managing Director at Finura Group - provide their key insights from the IMAP InvestTech 2021 virtual conference, including the likely themes that are expected to play out in the industry from 2022 and beyond.
With the Australian wealth management sector accounting for just over $3 trillion, this sector accounts for over one-quarter of the entire financial services market in Australia. It also represents the second largest segment of the Australian financial services sector - due largely to the growth coming from the superannuation system.
But against this backdrop of mandated growth is a range of issues and themes that are likely to impact the Australian financial services industry in the years ahead.
Speaking at the IMAP InvestTech 2021 virtual conference, the Joint Managing Director at Finura Group, Peter Worn, highlighted a couple of these issues, including the growing number of young Australians who have been priced out of the property market - and who no longer view home ownership as a viable investment option, with a consequent increase in their focus on wealth
accumulation through financial investments - and the ever shrinking pool of advisers to service the growing demand for advice by consumers.
“We have this strange situation where we have a wonderful growth trajectory in wealth management, but a declining pool of practitioners to advise clients on their wealth. Unfortunately, that trend isn’t forecast to change for at least five years,” Peter says.
“It’s not surprising, therefore, that technology providers, asset managers and platforms are all thinking carefully about how to retain clients and service them better, even though advisers are likely to remain the gate-keepers in the client-relationship. So, it’s exciting to see some real investment happening in technology, particularly in relation to the client experience and portfolio customisation.”
The irony is the demand for advice in Australia is huge and the potential for the advice market to expand is enormous, but it’s being held back by regulatory complexity. However, technology is the answer for dealing with this complexity. Technology-based solutions will make advice more accessible and affordable for the majority of Australians
Technology is the answer to complexity
One of the consistent themes playing out at InvestTech was the issue of ‘complexity’ within the advice industry, which according to IMAP Chair, Toby Potter, will remain an overarching issue confronting advisers over the coming years.
“Unlike many other jurisdictions, like New Zealand, where the financial services industry is not as heavily regulated, Australian investors find themselves facing a very complex regulatory environment,” says Toby.
“The irony is the demand for advice in Australia is huge and the potential for the advice market to expand is enormous, but it’s being held back by regulatory complexity. However, technology is the answer for dealing with this complexity. Technology-based solutions will make advice more accessible and affordable for the majority of Australians.”
Standardisation of processes would enable the better sharing of data and would actually free up capability to allow the industry to invest more on core data infrastructure. This would mean we don’t end up with an advice world that is dominated by investment spending on compliance-related activities. Instead, the industry would be able to invest more on data and advice-driven activities
Data is king
Another key observation from the InvestTech conference was the central role of data in the advice industry, including data ownership, location/storage, availability, accessibility, and the transference of data between parties.
“At Finura, we’ve undertaken research into how big cloud-based companies are thinking about data. We’ve discovered there’s an evolving thinking that ultimately, the data belongs to consumers, and consumers are simply granting the technology companies permission to use and share their data for the provision of services. So, there is a definite trust element with data,” says Peter.
However, he adds there is a real risk to companies losing this ‘trust’, if the ‘entrusted’ data is not used for good - by innovating, building products and services, and data sharing with counter-parties. “If that’s the case, then companies will be left behind, because advisers and consumers will no longer put up with that.”
Toby agrees, adding that the ‘closed universe model’, where the business owns the data and manages the delivery of that data to advisers and clients in a way that best suits the business, is no longer a sustainable model for advice providers or product issuers.
However, with the exit of the big banks from the financial advice sector, how do smaller licensees now handle their data management, when previously, they relied on these institutions to do that for them? This departure has placed enormous pressure on these smaller licensees, with many advice businesses already struggling to provide the resources and expertise to manage their data.
“It’s an interesting situation,” says Peter. “Already we have ASIC requirements for licensees to share data in relation to authorised representatives moving between licensees. However, there are many businesses sitting on huge pools of data that isn’t shared. So, there needs to be some thinking around how this data can be shared within the industry.
“From a compliance perspective, there needs to be a lot more standardisation across licensees. We seem to have a lot of licensees doing the same things repetitively across the industry, but perhaps in slightly different ways, which creates a lot of unnecessary complexity.
“Standardisation of processes would enable the better sharing of data and would actually free up capability to allow the industry to invest more on core data infrastructure. This would mean we don’t end up with an advice world that is dominated by investment spending on compliance-related activities. Instead, the industry would be able to invest more on data and advice-driven activities.”
These global companies are unregulated monopolies. They are bigger than most governments. I really don’t think they have any desire to go into highly regulated areas, like Australian financial services. Instead, it’s going to be about partnerships. And what will really be interesting is who partners with whom.
Market globalisation is coming
What really whets Peter’s appetite is the range of global cloud-based companies heading to the Australian financial services market - like Microsoft, Google and Amazon Web Services. According to Peter, these companies have the size, capability and resources to make a significant difference in the Australian market, but he adds, they are missing one vital piece for long-term success - local expertise.
“And that’s where I think there are opportunities for local businesses,” he says. “I expect we’ll see a lot more partnerships between these cloud-based organisations and the key stakeholders in the advice market, including technology providers and advice businesses.”
However, what is the likelihood of these global cloud-based organisations eventually dominating the Australian wealth management space? Will there still be a place for ‘best-of-breed’, locally produced advice technology?
“From a cloud perspective, I do believe there will be a huge battle in financial services cloud-related activities. And this won’t just be in wealth management, because these global organisations also have their eyes fixed on banking and superannuation funds,” Peter says.
“However, I don’t think these global companies want to be at the advice coalface. Ideally, they want to enable their local partners to build better technology to sit on their platforms. This is probably where the game will be played.”
Peter is confident there is little risk of the likes of Amazon Web Services building an investment wrap in Australia, simply because the Australian market is too regulated and the regulations are too idiosyncratic.
“These global companies are unregulated monopolies. They are bigger than most governments. I really don’t think they have any desire to go into highly regulated areas, like Australian financial services,” he says. “Instead, it’s going to be about partnerships. And what will really be interesting is who partners with whom. Watch this space!”
About
Peter Worn is Joint Managing Director at Finura Group.
Toby Potter is Chair of IMAP. They both co-presented a session on ‘Themes for 2022’ at InvestTech 2021.
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