Technology spotlight: It’s all so backward

Even in financial services, you don’t get to write a technology column without mentioning the fruity Cupertino firm when they launch new stuff. But fear not, I can save you many clicks and minutes of frustration by telling you that there is literally no application for Apple Watch relating to financial planning. Should you see an article titled something like ‘Time For Financial Planning – 8 Ways Apple Watch Will Revolutionise Personal Finance (Number 4 Will Blow Your Mind)’ you may safely ignore it.

The hard sell

There was something in Tim Cook’s latest tap dance on the grave of the Mighty Jobs, though – the new MacBook. Now, we haven’t usually gone hardware-side in this column, but bear with me.

The new MacBook is very thin, very light (unless you get the gold version, in which case you are most likely a Russian billionaire’s girlfriend), and very shiny. It also only has one port – a USB-C port which delivers data and power down the same line. No normal USB ports, no LAN ports, no anything apart from a headphone socket, and even that’s probably going to disappear in time.

What does this mean? It means that Apple has done the thing it does from time to time and leap-frogged how we use devices now to how we will probably use them in two or three years’ time. Just as many moaned like crazy when the Mac Mini, the iMac and the MacBook Air did away with a disc drive – something which we barely miss now – so, soon enough, connectivity will not be about wires but about ever-faster Bluetooth or wireless LAN connectivity.

Meanwhile, those of us who like to charge our laptops while plugging in a camera, or a GoPro, or a bigger display, or one of those e-cigarette charging thingies, are out of luck. Unless, of course, we buy a new and attractively priced USB-C hub with lots of ports, at which point our new sexy laptop has Spaghetti Junction hanging out the side of it.

The issue underlying all

this – and our theme this month – is backward compatibility. What do you do when you build something with one eye on the future, but most users are not on the bus yet (that’s a little USB joke for the techies there).

Our industry is full of these issues at the moment. We’ll look at a couple of examples, where one element of technology is radically outstripping others.

First, and not for the first time, pensions freedom. You will no doubt read much on this elsewhere in this fine issue, but for our purposes we’re interested in how providers, many of whom are only just getting over the stress of the millennium bug, can deal with legislation which effectively changes the fundamental basis on which many of their contracts were written.

The answer, of course, is that they can’t. Old products, housed on old technology, simply can’t do it. At the lang cat, we’ve been prising off the skirting boards in the haunted disused clapperboard house that is the legacy pensions industry a bit recently, and along with spiders, roaches and the odd life settlement fund, we’ve established exactly what you’d expect (well done us) – that if you want to access pensions freedom on most older contracts, you’ll have to transfer to a newer contract. The old laptop can’t deal with it, and the new one doesn’t have the right sockets, so you’ll have to jump the fence.

Conversely, most platforms or platform-enabled retirement propositions (Perps as I like to call them, in a Judge Dredd style) plan to offer the full range – or close to it – of new pensions freedoms, overwhelmingly at nil or low cost. For me, this is a great example of why there are more things in heaven and earth than are dreamed of in replacement business procedure notes.

I think we can see, maybe for the first time, a proper causal line between better client outcomes (which is to say a fit with financial plans created by you; not a set of artificial illustrations) and being on modern, flexible technology.

So what if you can’t or won’t jump from old-generation to next-generation technology? The answer is middleware, or hubware, or any other buzzy term which has to do with trying to mash together old and new. When this works well, it can be very helpful, if ugly – the USB hub we mentioned before. When it doesn’t, well, we get lifeco inter-contract transfers.

We’re already hearing some offices quoting turnaround times in weeks for customers wanting to get at their pensions cash, whether via drawdown, UFPLS or the medium of modern dance. What you’re not hearing is that this timescale is dependent on a range of new and exciting forms being filled in accurately – advisers, this is the time to make your lifeco broker consultants come into the office, sit your admin team down and go through exactly what is required for your clients’ intended courses of action.

Out with the old...?

So much for pensions freedom. I got a lesson recently about the interaction of old and new tech when at a fund administration and transfer agency event. When I’d finished insulting everyone about their aspirations to get to know customers better, I learned how frustrated the nice people who actually move fund records and money around have become, and they are nice people.

As you’ll know, funds are a bit slow in how they trade; we all understand that you get a price later than when you put your deal in and all that, but this is not a particularly compelling reason why it takes T+4 to sell something in many cases and then another T+4 to buy something else, meaning that your client has often moved to a more spiritual plane of existence by the time you’ve finished a basic switch.

The reason for all this is that the systems dealing with your trades are built to do big batch-runs overnight. This is because the hamsters powering the systems are special nocturnal hamsters, who shun the daylight. The detail is a) dull and b) frightening, but it all sort of works as long as clients are happy to take a ticket and wait a week or so for their trade to work its way through.

The thing is, that same client can Pingit money to their mate instantly via their phone, or get a Faster Payment to or from another account in less than two hours in most cases. Why should they wait? “Ah, Mr Client, but your money passes through 543 different organisations, all of which want to do a batch run overnight, and charge for it, so in fact you can have your money back out in 2025, as demonstrated in this fine cashflow planning chart.” Said no adviser, ever.

Old meets new. The platform makes everything instant, or nearly instant. The plumbing can’t keep up. So again, something has to step in – in this case, providers standing literally in the middle and funding transactions themselves in an attempt to speed things up. We call this ‘prefunding’ and it shouldn’t be necessary.

So how will things change? Only when clients and those who represent them – which would be you as advisers – keep the pressure on. It’s incumbent, I think, on you to keep banging the drum for client outcomes. Not for abstruse and technical product-centric stuff about tracking difference or whatnot, but real things which clients really care about – and getting at their money when they want to, in the way they want to, is core to that.

Evolution doesn’t happen gradually. It happens in fits and starts. We need the guys behind the scenes to do what is hard; do what is right and get the infrastructure we all work with up to scratch, and change the game to one fitting 2015.

The alternative is a bunch of dongles hanging out the side of our clients’ financial plans, which is unsightly.

But not as unsightly as a £13,500 smartwatch.

Mark Polson is principal of platforms and specialist consultancy at the lang cat