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Low tech continues to drive high stakes investment, finds new NextWealth report

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In 2022, a bank can transfer money from one account to another in seconds but many investment managers still rely on in-house systems based on spreadsheets, Word documents and SharePoint to track multi-million-pound investment decision-making.

This low-tech approach to investment management was discovered following research by NextWealth with over 50 senior executives in technology, operations and investment teams from advice businesses and DFMs for its Tech and the Investment Proposition report.

The report details some of the challenges of managing an investment proposition across multiple platforms and the demand for more sophisticated tools to support information-sharing to drive better investment decision-making.

Heather Hopkins, Managing Director of NextWealth comments: “We’ve seen a rapid rise in discretionary managed portfolios on platform but the tech underpinning these solutions is starting to fray. We expect to see a continued rise in assets in discretionary MPS. To support that growth, DFMs and large financial advice businesses need better solutions to reduce risk and increase efficiency. The biggest challenges are in working with platforms, in particular rebalancing portfolios across different systems and inconsistent fund availability.”

In addition to discovering a reliance on low tech solutions, other key findings of the report include:

  • Inconsistencies in platform interfaces and functionality add risk and cost to managing portfolios on platform. DFMs are in some cases limiting platform availability to avoid compromising their proposition.
  • A limited fund universe and the inability to consistently access ETFs means that DFMs often have to compromise from their ‘best ideas’ and revert to more ‘vanilla’ versions of portfolios.
  • Data and MI to DFMs is limited making it difficult to report to internal stakeholders.
  • Financial advice firms struggle to get consistent cost and charges data from platforms due to inconsistent interpretation of MiFID II disclosure requirements.
  • Client journeys are often disjointed with custody statements lacking context on portfolios.
  • Large financial advice businesses that are able to pursue a single platform strategy see big operational wins, but many say a single platform strategy is untenable.
  • Financial advice firms are looking for solutions to reach new client segments – younger clients and those with smaller portfolio values in particular.

Rebalancing

Rebalancing is a particular bug-bear for DFMs. Issues raised by the DFMs interviewed include:

  • Firms typically need to log into individual platforms to update models for a rebalance. In some cases, this can mean hundreds of models across multiple platforms, introducing significant business risk.
  • Inconsistencies across platforms: Each platform has a slightly different layout and different procedures for each platform increases the risk of error. The risk mentioned most by interviewees was someone in-putting information into the platform incorrectly – the wrong ISIN number, for example. The other risk was someone leaving the business that is familiar with the platforms: a new individual will need to be trained up, increasing risk of error.
  • Rejected trades: DFMs said they need to check manually to ensure the rebalance has gone through and that no trades have been rejected. Two added that this can only be done at the portfolio level, not the client level. Sometimes a rebalance will happen at the portfolio level but a trade will fail for a specific client. Only the adviser or client will have that visibility.

Heather Hopkins continues: “Some DFMs are taking a creative route for dealing with the issues, using a mix of old school tech and some new innovations to build their own solutions. This obviously helps them manage their own businesses but it’s a long way from a joined-up, industry solution that works for all the parties: DFMs, platforms, advisers and end clients.”

Andrew Back, Chief Commercial Officer at Multrees says: “With the rapid rise of both DFM and Adviser model-portfolio-solutions on platform, it is more important than ever for platforms and tech providers to step-up, not just their technology, but also their service solutions to meet these changing requirements. There is absolutely no justification for DFMs or Advisers to be forced to limit their propositions due to platform operational discrepancies or inefficiencies.  We are passionate supporters of the Investment Management sector and have offered configurable technology and custody solutions since inception.”

Tim Williams, Business Development Director of FinoComp, a Bravura Solutions company, says: “The underlying technology of many platforms in the UK was not originally architected to cater for the DFM – and it is now having to adapt to accommodate all parties. Commercially, the relationship between the platform, the adviser and the client remains the same, with the needs and aspirations of DFMs, unsurprisingly, not being front and centre of the platforms’ minds.

“The result is a fragmented marketplace, with the DFMs grappling to manage a growing area of their businesses, while relying on manual inputs and processes already in place. This research underlines my belief that those platforms that deliver for DFMs will win – and as their technology partner, this is an area of great interest to us.”

Nick Blake, Managing Director, Wealth, Redington says: “Our industry is constantly evolving; our clients expect more, and so do the regulators. The integration of technology into the investment process will increase efficiency, reduce risk and allow us to deliver better solutions to our clients. NextWealth’s report has enabled us to listen to the market and gain an in-depth understanding of the role technology plays in their businesses, both now and in the future.”

Wade McDonald, Senior Director, Wealth & Asset Management said: “The wealth management industry is going through significant change. Changes in investor behaviour, regulatory change and a strong focus on the investor and advisor experience. Technology innovation is at the heart of future thinking and is driving the need for transformation across the value chain. 

“This was evident from the key findings from the NextWealth research.  Being part of the NextWealth research initiative is an important feedback channel for our wealth business and the report provides vital insights into the challenges and opportunities identified by the participant firms.

“The most important priority for all of us in the industry is to ensure that the investors are well served across the accumulation and ‘at retirement’ phases of life and that the clients we serve have the tools and infrastructure to be able to deliver high standards of care, a broad range of products and a level of interaction that delivers service excellence to their existing and new wealth creators and their trusted advisers.”

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