TechnologyAug 16 2021

An investment in technology is necessary to engage emerging savers

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An investment in technology is necessary to engage emerging savers
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On a positive note, it suggests that some young consumers are willing to engage with their long-term financial security far earlier than ever before. Conversely, it begs the question how many established personal finance organisations, both investment providers and advisers, have the right proposition to attract these young consumers? 

Has Hargreaves, because of its online proposition, been able to cream off a large percentage of those young consumers who want to save? I fear this may be the case. Indeed, it is clear that advice businesses, of all shapes and sizes, need to be able to give consumers the online propositions they appear to want if they wish to attract the younger generations of savers. 

Hargreaves’ results make a compelling case for substantial investment in the technology and services necessary to engage emerging savers. It should also be recognised that a far higher percentage of these young savers will also now benefit from employer’s pension contributions via auto-enrolment, so they are already building their financial portfolio. 

New customers are the lifeblood of a business

New customers are the long-term lifeblood of any business. Any organisation that is not taking on new customers is slowly dying. For some time, advice business consolidators have been keen to understand how a business has been growing its customer base as part of their acquisition process. The value of companies where the client base is people in retirement with declining assets is reducing. 

Any assessment of the young savers market should also take into account micro savings propositions like Moneybox and Plum. By providing tools to allow individuals to save very small amounts very frequently, these companies are attracting hundreds of thousands of savers.

I believe their impact is far more significant than the so-called first generation robo-advisers, who in reality, for the most part, just offer an online way to invest in a limited range of investment vehicles, typically via ETFs. They invariably use no robots and offer no advice.  

It is a reasonable assumption that young customers will expect an outstanding user experience and on-boarding process. While there may be some exceptions, overwhelmingly this generation lives on its technology and will not expect, or indeed accept, anything else when it comes savings and investment.  

Where should the tech come from?

I believe there is an important question to ask about who is best able to meet advisers' needs to support such customers. Should this tech come from the business that provides the practice management, financial planning and portfolio management capabilities or even their client portal services? Or is this a genuine opportunity for platforms to extend their collaboration with advice businesses?

In practice only the largest companies will have the financial resources to build their own software to support such customers. 

I can see reasons for and against each option. By independent technology suppliers extending their capability there will obviously be deeper integration from outset with the adviser’s existing technology proposition.

Indeed, in the case of those supplying their financial planning tools and portfolio management capabilities many of the processes necessary to build a simple automated advice tool will already exist in-house. 

On the other hand, platforms will have greater expertise when it comes to conduct of business rules, trading and best execution responsibilities. 

It is only fair to recognise that True Potential have been delivering their impulse save tool, an ideal vehicle to offer young consumers as part of their proposition, for many years. But the company is vertically integrated between the practice management and platform capabilities. 

Platform tools

If the online tools are built via platforms it may be easier to stick to any model portfolios that the advice business uses for other clients. 

One important issue to consider if platforms wish to build their own tools to support advisers’ younger clients is to ensure such tools have the capability to use whatever the risk-profiling tool of choice is within the company.

Using more than one risk-profiling tool within an advice practice will cause difficulties and inconsistencies in the future if the adviser needs to move a client from one to another. Historically platforms have not been good at building technology that could work well within advice companies. There are many important lessons for them to learn. 

That said, it has long been my belief that third and fourth generation platforms will increasingly add value by delivering additional technology capability, at a fair commercial cost, rather than free to their advice partners. I am seeing a few enlightened organisations already moving in this direction. 

It will not only be younger customers who can benefit from such technology. There is a growing belief that consumers across all generations are widely embracing digital communications, but to attract the next generation of savers, outstanding technology will be essential. 

Ian McKenna is founder of FTRC and AdviserSoftware.com