How Equiniti and Money on Toast partnered
to challenge the status quo of the wealth
What a transformation: The unrecognisable change in the wealth management industry
The intelligence required to trade and transact with one another is something that is unique to humans and it’s a skill that has been integral to our evolution since we started doing it, nearly 35,000 years ago. However, it has only been through the discovery of game changing computer technology over the last 60 years that has enabled some of the most pivotal moments in our history of trading since minted currency was introduced and the first bank was opened.
Some of the most dramatic changes enabled by the new technology has been to the wealth management and stock trading industries. Historically it relied heavily on the processing of paper documents with slow and labour intensive processes. However, the 1980s saw big change for the industry brought about by the stock market Big Bang and the wider adoption of computers. Brokers were now able to set their own fees, rather than being set centrally by the Exchange and stock could be traded using computer based software.
Gradually, processes started to become more automated as computer technology advanced and in the 1990s online application forms began to emerge, further removing a step of human involvement. Still, even at this level, human interaction was required to process trades and investors were typically only able to invest or trade shares by seeing a broker in an office or by speaking to them in person over the telephone.
In the 2000’s the introduction of online trading tools allowed investors to easily access information and enabled them to log-in into secure online portals. The Financial services industry became quicker and more efficient as a result and eventually trades could be placed on-line via a network of inter-connected market counter parties called Market Makers, which are accessed electronically by Retail Service Providers (‘RSPs’).
What is noticeable during these changes is that while brokering and trading stock has become almost an entirely automated process, anyone wishing to make informed investments still requires the assistance of human to help them do it. However, a new wave of financial technology companies that are starting to disrupt the market could mean that investors now don’t need to have any human interaction on their investment choices if they choose not to...
We are social creatures, so for most of us the thought of being locked away in solitary confinement is nothing short of a nightmare. So why do we invest an enormous amount of time and money on developing technology that is designed specifically to remove human interaction?
The demand for enhanced customer experiences has been a key driver for the development of humanless technology, particularly with the explosion of smart phones in recent years. The new generation of investors will expect companies to offer them the same or a better customer experience that they get in the consumer world when using social media, mobile technology, analytics and cloud platforms. Having instant results are integral to the user experience – booking, and spending time meeting an advisor and then waiting whilst instructions are reviewed and then executed is expensive and too slow for a generation where attention spans are measured in seconds and not minutes.
Equiniti’s client; Ground breaking online investment advisor Money on Toast's decision to embrace online investment management and advice was easy. They predicted that millions of consumers would be priced out of quality financial advice and investment management as the fees for human advisors were rocketing. For them, it was simply about providing a way for these consumers to access the high level of service society expects from a company, without having to have millions in the bank.
In addition Money on Toast recognised that with the development of digital technologies and increasing regulation driving up costs, wealth managers were also facing certain challenges:
• keeping up with the pace of technological advancement;
• providing the best possible customer service,both on price and investment options; and
• growing their business while remaining profitable.
Historically, wealth managers have focused on in-house back office administration in order to create efficiencies and cost reductions. This era of digital technology now means there are other options – invest in the front office, not only as a way to drive down costs but also as a source of competitive advantage, and outsource the back office.
Money on Toast is already ahead of the game and is doing both. Equiniti and Money on Toast partnered to develop one of the first-of-its-kind solution – a back office outsourced business process model as well as a digitally focussed front office service, both of which have technology at their core.
Equiniti has developed a market leading technology lead outsourcing service, Equiniti Wealth Solutions, which provides transactional, settlement and custody services, including the facilitation of regular portfolio rebalancing. This is made possible through the advanced capabilities of Equiniti’s technology platform Xanite.
Money on Toast has developed an intelligent algorithm-powered client facing service that includes risk profiling and investment recommendation processes. These algorithms use the information given to place investors into ‘buckets’ of risk – low, medium and high. This standardised assessment of investors has removed yet another stage of interaction from the human financial advisor that has been so prominent in the past.
Bringing these two solutions together has already delivered incredible results for the investor and Equiniti’s client, Money on Toast:
Benefits to investors
This model has directly benefitted Money on Toast’s clients where investment fees are significantly lower than traditional services. This is due to the reduction of external platform costs, which are provided to Money on Toast by Equiniti, this, in turn means that Money on Toast don’t have to heavily invest in maintaining and developing an additional technology platform. Additionally there has been a reduction in the fund manager fees, which have also helped.
Another key benefit to Money on Toast’s clients is that by partnering with Equiniti, Money on Toast is able to offer a much wider range of investments options. Most traditional platforms are not able to offer equities and exchange traded instruments; and only offer funds. Equiniti is able to offer more because of its heritage in the equity registration space.
As Money on Toast grows, Equiniti has the ability to scale without substantially increasing fees. This allows Money on Toast to sustain profit margins and continue to pass savings onto the end consumer. The reason Equiniti can do this is through the continued development in its platform and the constantly increasing volumes elsewhere. This results in efficiencies through economies of scale as both Equiniti and Money on Toast grow.
Equiniti’s technology platform receives constant investment to remain innovative which allows Money on Toast to keep pace with technological change. All the time Equiniti is advancing the ‘back office’, Money on Toast is able to advance their ‘front office’.
The expertise and technology makes Money on Toast, supported by Equiniti, one of the major market disruptors in the wealth management space. It’s inevitable that more wealth managers will adopt this model, so, if this model is just starting to disrupt the wealth management industry, how do companies like Money on Toast remain competitive and innovative; what more does the future hold in this space?
The trend is clear – technology is a significant factor in companies remaining competitive and innovative.
In 1965 Gordon Moore, co-founder of Intel observed that the capabilities of computer technology had doubled every 2 years since the first integrated circuit board was invented in the 1950’s. He predicted this would continue for the foreseeable future. So far, 60 years later, he has been correct.
So, if Gordon Moore’s observation stays true what will be the next development in technology made available to investors and the wealth management industry? An even greater level of tailored customer service? Further advanced algorithms that simplify complex processes? A greater distribution of technology?
The current algorithm-powered risk profiling and investment recommendation processes; placing investors into low, medium and high risk categories doesn’t take into account all their individual requirements and therefore doesn’t meet their exact needs – two investors might be placed into the ‘medium’ risk bucket but have contrasting views and requirements. So how can this be taken a step further?
One thought is that these algorithms will be developed to take investors’ personal information from the on-line risk assessments and use the information used in smarter ways, profiling investors in greater detail. This will mean the service to investors becomes even specific to their requirements and portfolios can be more closely matched with investors’ goals and objectives.
Currently, being able to automate and manage large portfolios and the complex tax implications that come with it (several pensions, working in different countries, trust funds, etc…) may seem like a fantasy and beyond the capabilities of the technology available to us right now. However, it’s thought that eventually even more complex algorithms will be developed so that computers will be able to handle this problem.
Tax harvesting for many investors is one of the most important ways to create tax efficiencies whilst diversifying portfolios in new and innovative ways. Currently humans are the only ones capable of handling such complexities and ensuring they are properly ‘tax-efficient’. This takes time so imagine the possibilities for both wealth managers, tax advisors and investors if computers could solve these problems for us!
In the past wealth managers relied on institutional banks and their huge, central server and data rooms to perform their services and functions. Today, it is much cheaper and easier to distribute technology across the company infrastructure, eliminating the need for big, expensive data rooms. It allows firms to perform more complex tasks for cheaper. In the future this is only going to increase and the barriers to high levels of technology are going to be in further reduced for smaller companies wanting to compete with the big players. Similar to Equiniti and Money on Toast’s relationship.
Change and regulation
The wealth management industry cannot overlook that regulation follows change. It was only a few years ago that the FCA wouldn’t even recognise online advice but now it is rapidly evolving to catch up with the developments of online investment, making it much more accessible for the new wave of online investment companies to operate and grow. However, they will be keeping a close eye on this fast growing industry and will maintain a high level of scrutiny now and even more so in the future, especially if anyone loses a significant amount of money as a result of technology-driven advice.
Will human interaction ever be fully removed?
Despite all of our endeavours as an intelligent species to find innovative ways of removing human processes from our daily lives, chances are that high-net worth investors will always require some level of human interaction to make informed investments. With a recent Gartner Survey claiming that nearly 5 billion devices will be connected to the internet by the end of 2015, remote access to live stock market information and on-line trading services will further enable multi-jurisdiction customers with highly complex and intricate investments portfolios to be increasingly prevalent. Tackling the specialist requirements of these portfolios will only be achievable by experienced personal advisors for the foreseeable future, even if they simply go away and use the latest automated technology on behalf of the customer.
So, as we continue to march through a digital (and potentially into a robotic) revolution, we can rest assured that robo-advisors won’t be completely replacing humans in the wealth management industries just yet…