They began back in the 1990s as the best way to aggregate financial products and distribute them to retail investors. Now, financial platforms are evolving into a new digital future.
This was one of the themes at a technology workshop held by Australia’s Financial Services Council in Sydney recently. It saw industry practitioners discussing the transformation of platforms by combining improved functionalities around investment, compliance, and reporting.
The Massive Leap
Andrew Alcock, the managing director of funds and investment platform Hub24, told the Workshop that platforms were “going to the next phase” of connecting customers to global investments. They also offer new levels of control and choice while also introducing data management to their offering.
They were, he said, “light years ahead” of where they began several decades ago. The technology now promised unprecedented levels of engagement and customization for investors.
“There has been a massive leap in terms of the technology challenging the unitized model, and now we have managed accounts where the investor owns the asset, and the next level of technology is about connectivity,” Alcock said.
(Originally, platforms offered primarily unit funds, but these have waned in popularity and usage. They were replaced by separately managed accounts where investors can own the assets, which are mostly funds, and manage them more effectively as bespoke portfolios.)
“Technology has enabled people to engage with their outcomes, their retirement savings, in a way they never did previously. And technology is creating this engagement, which itself creates consumer expectation and demand, which challenges the status quo."
He envisaged an “app-based world" where investors could "plug and play," filter their investment choices and asset allocations in an "open ecosystem" where customers were not tied to any one platform.
Rooting Out Lazy Money
The panel moderator, David Brown, the head of Global Client Coverage at the Royal Bank of Canada, set the context for the evolution of platforms.
Describing them as the “original fintech” when they emerged in the late 1980s, Brown said they were the “cornerstone technology” for the modern-day advisory offering, which had moved through the master trust and wrap phase and into the era of managed accounts.
As of January 2018, Brown said there was AUD 821 billion in funds under administration in Australian platforms, 48% of which was in the accumulation phase of superannuation with 32% in the retirement phase.
The second panel member, Lisa McCallum, the executive general manager of Platform Services at the OneVue Group, said that in addition to delivering “dynamic asset allocation” options for investors, platform technology was also driving down costs for users, both for investors and advisors, and also saving time.
She welcomed infrastructure developments such as Australia’s New Payments Platform (NPP) – launched last year to facilitate faster payments - as a catalyst in driving down costs and putting “lazy money” to work through the ability to transfer funds in real-time, rather than waiting three days for cheques to clear and funds to be honored.
“There is far too much lazy money in the value chain,” said McCallum. “It takes too long to get money from the investors’ account and into the investment itself.”
OneVue, she said, had recently researched which banking provider was making best use of the NPP, and the firm was about to change its transaction banking relationship to deliver fast transfers to its customers.
Technology, she said, was also the solution to driving down costs to allow people with smaller balances to invest. Where it has been uneconomic for some platforms to take investments of less than $20,000 or so, in future costs would come down so that people with as little as $2000 to invest could use the technology.
Fat and Happy Land No More
Referring to McCallum’s comments on the NPP and fast fund transfer, Alcock made the point that many of the current and future changes in the platform business would be “driven by data.”
Where previously platforms had been custodians of funds, they were increasingly moving to also be “custodians of data” which – when tied to technologies such as artificial intelligence – could deliver new layers of value to investors and advisors.
“The regulators are pushing in that direction, and the technology is driving us there,” he said.
The industry, however, had some catching up to do despite its advances.
“We’ve lived in ‘fat and happy land’ for many years with closed architectures and vertical integration, and giving customers available systems,” Alcock said.
"And that has really worked against us as an industry, reputationally, and as an industry, we probably let ourselves down by not using technology as well as we could.”
The industry had lived in a technology "status quo," challenged by several factors such as customer expectation and also by regulators.
“The industry has to catch up in some areas,” Alcock said.
“It can’t be acceptable that it takes years to find out who received a piece of advice or a product, because we’ve never collected that information and it lies with a licensee. The solution has to be technology and data.”