Digital innovation is shaping the financial services business on many levels – from new financial products to tools that link financial advisors with their clients.
The past two years have seen both simple application releases and major fintech launches. A recent example of the latter is RBC InvestEase Inc., Royal Bank of Canada‘s robo-advisor. As well, traditional financial firms and digital wealth-management players have formed partnerships, such as Toronto-based CI Financial Corp.‘s agreement to acquire a majority stake in Vancouver-based robo-advisor WealthBar Financial Services Inc. All these developments are steps toward improving your service to your clients.
But while digital technology lends itself well to financial planning and client/advisor communication, the financial services industry faces challenges in keeping up with the pace of technological change. Those challenges include implementing new technologies throughout large institutions and adopting new tools in a secure and compliant way.
According to Robert Vokes, managing director, financial services, Canada, with Dublin-based consulting firm Accenture PLC in Toronto, one goal in harnessing technology within the financial services industry is to personalize services further by transforming core technologies and management systems in a way that can be scaled across multiple lines of business and geography.
That’s a tall order, Vokes says. Most firms, banks and insurers have legacy technology that was built 20 or 30 years ago, and their technology often works on the assumption that all customers are the same in their planning and investing needs.
“We know [customers] are not all the same,” Vokes says. “So, the conundrum becomes: it’s really expensive to swap those core systems in order to gain flexibility and give clients what they’re looking for.”
In fact, while global fintech investment rose at a record pace last year and reached slightly less than US$58 billion in only six months, Canada’s fintech market has taken a breather. After a steady stream of developments throughout 2017, including Toronto-based Wealthsimple Inc.‘s global expansion, the beginning of 2018 brought with it fewer launches. Instead, security and regulatory issues dominated. Several research reports on cybersecurity risks were published, while the Ontario Securities Commission created a fintech advisory committee to help track the rapid growth of technology in the industry. Internationally, G20 leaders pushed for better regulation of cryptocurrencies.
Meanwhile, the Investment Industry Regulatory Organization of Canada (IIROC) applied a three-part strategy to support and monitor the growth of fintech services – a priority IIROC plans to continue through 2020. At the Investment Industry Association of Canada‘s (IIAC) Fintech Summit held in June 2018, regulators discussed the importance of technology oversight and supervision, and knowing and properly disclosing how clients’ data are used.
Despite these limitations, innovation will find a way.
For Vokes, there are three drivers of technology to watch: the adoption of cloud-based computing (through online services such as those offered by Alphabet Inc.’s Google and Amazon.com Inc.); the use of application programming interfaces, through which third-party data sharing could accelerate; and the growth of artificial intelligence capabilities, which could lead to predictive modelling to help you better understand options for your clients from a planning and product perspective.
These back-office developments will allow for more detailed profiles of client demographics, outlining their financial needs.
“I foresee a path for really changing and differentiating consumer experiences,” Vokes adds. “However, you have to balance the ‘creep factor’ when it comes to the use of people’s information.”
Using data to gather information about clients and prospects more efficiently is more prevalent in the U.S. than in Canada. But it is growing here, says David Hurd, leader of the wealth and asset management consulting practice with Toronto-based Ernst and Young LLP. Using client data in this way can include leveraging demographics statistics as well as public data (such as social media profiles), among other sources, to tailor services proactively.
Hurd foresees more partnerships forming between wealth-management firms and fintech firms for front-office tasks and more outsourcing of tasks such as portfolio modelling and management.
For financial services firms with bigger budgets, Hurd says, the goal will be to “enable advisors and to aggregate information” through the design of more flexible planning dashboards or portals.
This goal won’t be restricted to larger firms, Hurd adds: “Smaller firms can take advantage of some of the fintech solutions out there. There [may even be] more ability for smaller players to put together a technology suite for advisors” because those firms don’t have legacy tech to revamp. Still, they might not customize as much if they’re instead partnering with and using an established third-party service.
Financial services professionals may remain skeptical about the industry’s evolution, if firms choose to move slowly. In a recent survey of financial advisors by New York-based Broadridge Financial Solutions Inc., more than half of survey participants rated their firms poorly for their efforts to leverage technology, based partially on compliance and talent acquisition issues.
But patience is important, according to a report by Cambridge, Mass.-based Forrester Research Inc. released in late 2018. Precise and well-planned strategies will help firms pull ahead, the report stated. This is due to potentially high costs and difficult implementation of introducing new platforms, which would especially be an issue if the economy slows.
Looking at RBC InvestEase’s late 2018 launch, the parent bank has entered the fintech space and will continue to look for technology that offers more choice in the range of services offered to the bank’s clients, says Rajan Bansi, senior director of investments and advice, with RBC InvestEase.
Both RBC InvestEase’s services and the MyAdvisor dashboard (which involves traditional advisors) are “key areas of investment, and this is just the start,” Bansi says. “There’s so much investment going into recognizing different clients’ needs.”
As this occurs, firms and advisors must ensure they meet their regulatory requirements under new business models, according to Sean Sadler, partner, securities regulation and investment products group, with McCarthy Tétrault LLP in Toronto.
“Anytime you’re embracing a new product or technology,” Sadler says, “it must be put through the lens of: ‘How does this work in the client’s best interest?’ If clients are rushed into things, you risk of having a client come back at [you] directly in the form of civil litigation or of the regulator coming to [you].”
The best way to incorporate new tools and processes, Sadler says, is to assess them from a gate-keeping point of view by asking whether they’re actually useful for clients. Then, you need to set up a comprehensive supervision framework that scans frequently for technical issues.
For advisors, Sadler adds, questions to ask are: “If a technology is new, do you understand it? Do you feel confident that you know everything you need to know in order to look after the client?”
If your firm introduced the technology, Sadler adds, it has the obligation to offer training and to identify and manage conflicts.
And, as the fintech industry evolves, securities regulators must follow. In a newsletter published in 2018, IIAC president and CEO Ian Russell pointed out that a “silo” approach taken by self-regulatory organizations and national watchdogs will create an oversight gap between digital wealth managers and traditional advisors. To accommodate hybrid business models better, Russell wrote, all firms that offer online or tech-based account setup services could be subject to the same streamlined onboarding requirements as robo-advisors are.
While new technologies – such as online tools to help with account statement delivery or a new customer relationship management dashboard – can be enticing, don’t let the novelty cloud your judgement.
If you don’t take the time to understand the technology fully, you could be putting yourself, your clients and your firm at risk.
Ultimately, Sadler says, clients should be the focus: “New products or technologies don’t really change the firm’s or the advisor’s overall responsibilities. Everyone is supposed to be looking out for the client. That’s the job.”