I was doing a fun project the other day, which had to do with designing a robo-type mobile app prototype for a life company in one of our European neighbours. (I like to do as many of these as I can before it becomes insufferably difficult to sell our services into Europe; thanks Brexiteers.)
During that process I spent some time roughing out a welcome screen for investors that showed seven things:
- Client details;
- When you started investing with the service;
- Your goal, and your progress towards it, colour-coded for if you’re on track or not;
- How much you’d paid in;
- How much you’d taken out;
- Investment returns (in euros and percentages);
- Fees (in euros).
One of the use cases for this small proof of concept is for the provider to develop a white label service for advisers to use at a low cost – sort of like the Parmenion robo service here, except with no actual advice.
I mention this because I showed my shiny prototype (stop sniggering at the back) to a couple of advisers and we got into quite a heated discussion about what a client should be able to see and what they shouldn’t.
And that’s our subject for this month – how much information is too much?
It’s a timely question to ask. We’re now in the world of Mifid II quarterly statements, and the first round of ex-post disclosure will be on us before you can say ‘encore un pression, s’il vous plait’.
Investors will be exposed to a terrific amount of information, which of course many – maybe most – will be ill-equipped to deal with. (Smart advisers will help with this, as it’s better for you to do it than, say, the Daily Mail.)
A recent study by the Lang Cat found that relatively few advisers were promoting client portals to their clients. We asked the reasons why, and broadly speaking the responses fell into three buckets:
1. Not convinced the data is accurate enough to expose it to clients;
2. Clients shouldn’t be looking at their investments regularly;
3. Don’t want to stop asking me questions, la la la I’m not listening.
Bucket three happens more often than you’d think. But in this sunny, relaxed time of reflection I’d like to dwell on bucket two.
Now we all know the adviser alpha type story, that you make your clients behave rationally when it comes to finances. You stop them buying at the top and selling at the bottom. You keep them saving towards their goal, stop them fiddling about with asset allocations based on whatever they’ve read in the paper that weekend, and so on. And that’s all true, probably, and valuable, most likely.
But most portals don’t let clients do anything of the sort. Those that are provided by back-office providers definitely don’t. And even those platform-provided ones that do normally limit stuff to ‘read only’.
The advisers in bucket two are similar to the ones who didn’t like the welcome screen on my prototype. “What do they need to know all that for?” was the response.
My answer “because transparency and that” didn’t seem to do the trick.
Disclosure and transparency, like spouses, deliver diminishing returns. There comes a point at which it’s just noise. But do we really object to our clients hitting the recliner, pouring a glass and idly checking the value of their self-invested personal pension? Do we believe that out of sight is out of mind? And is that a good thing?
Polarisation
I’ve found over the years that advisers tend to be really polarised in this regard. There is a cohort of firms who are happy to open things out – to an extent – and view any concerns that come out as a result to be positive in terms of cementing the relationship with the client. It also helps lift the veil on what the adviser is doing to earn her fees – not so much in year one, but in years two-to-X when the romance has gone.
Equally, and oppositely, there is a cohort who thinks that if you pick at it, it’ll never get better, and you have no business looking at it anyway, and that it’s the adviser’s job to tell you how things are going, and it’s that which cements relationships, not some fancy-dan app.
Providers of portals will tell you that they drive engagement and usually have stats to back it up. Advisers will tell you that they know their clients very well and don’t need them. As one (fairly venerable, quite refreshed) adviser put it to me: “I’m a walking bloody platform, why on earth would I put myself out of a job?” No answer to that.
Low trust scores for financial services don’t make any difference to the behaviour of the sector, and people keep investing, so it can’t be that. Behavioural finance biases give us some clues as to the sorts of heinous behaviour investors can engage in, and it’s advisers’ job to nip those in the bud. But there is one bias which, according to Baker, Ricciardi et al, might be worth looking at, and that is ‘worry’.
Worrying in this context tends to mean that an investor is outside their risk tolerance, and the obvious fix for that is for them to rebalance their holdings into your carefully created centralised investment proposition, of course. But what if there are other worries that you can’t prevent niggling away?
Out of sight
I think there’s a thing in here about something we’ll call ‘tangibility’. Financial services is mainly a will-o’-the-wisp; you can’t see it or touch it. It all works on trust – you trust the adviser, the adviser trusts the platform (ha!), the platform trusts the custodian, and so on. This is why blockchain has an application in this market, by the way.
But what if you don’t trust? Not in an active ‘I hate you’ way, but in a low-level susurration of lesser angels on your shoulder sort of way. We saw instances recently where, as a consequence of difficult replatformings, some clients on Barclays Smart Investor (and never was there a better disproving of nominative determinism than that) and others saw zero balances where once there was a healthy Isa.
No one had a zero balance, and everything came back to where it should be eventually. But imagine what that does to someone who has handed off their investment to a bunch of folk they’ve never met – even if you as an adviser are involved – and their attitude to keeping in touch with their investments?
My contention is that we need to use the technology at our disposal from platforms, back offices, reporting tools or whatever, to bring investors back closer to their money. They don’t need trading access if they have an adviser, but it is surely right to let people see the seven things I popped on to the welcome screen about 1,000 words ago. We can’t dole information out like sweeties; our system is too abstract for that.
When it comes to client reporting, there are a few examples out there worthy of note. The True Potential client-side experience is nice. XPlan has a nice client portal; so does Intelliflo. Fastrak from Sprint still does a nice job; I like the Ascentric integration with it, and so on.
I don’t think we can expect clients to deal with ludicrous amounts of disclosure. I do think that taking the issue in both hands and taking back control (sorry) of what is important information, but also allowing the client to choose when to engage with that like a grown-up, is the right thing to do.
And with that, it’s back to the sun loungers for you lot. You’ll have noticed the FCA’s interim platform market study has now been published, and you’d better believe I’ll be writing about that next time. One to look forward to.
Mark Polson is principal of platform and specialist consultancy the Lang Cat
