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Developments in fintech is helping to drive down the cost of advice, making advice more accessible for a larger number of Australians, writes Marie-Anne Lampotang.
When Stone & Chalk was created in 2015 to be a centre of gravity for financial technology (fintech) in Australia, fintech originally had a narrow focus.
Back in the day it focused on lending, personal finance and asset management. But now it is much broader and includes payments, wealth, investment data, regulatory technology (regtech), Internet of Things (IOT) and property technology (proptech) – operating at the intersection of property and finance.
In our definition of fintech, which is based on our experience helping hundreds of start-ups over the years, we include back-office and front-office – technology to provide financial services or to streamline financial services. So, our definition of fintech is technology to enable, enhance and disrupt financial services.
The KPMG Fintech Landscape 2020 reports a total of 733 currently active fintechs, with an increase in fintechs within the lending category, Buy Now Pay Later (BNPL) providers and growth in blockchain and cryptocurrency fintechs. These findings are also replicated in the EY FinTech Australia Census 2020.
From my perspective, these findings are validated by the fintechs I see and speak to every day. There are currently more B2B fintechs than B2C fintechs at Stone & Chalk, but we have noticed a trend of greater adoption of B2C fintechs.
The concept of BNPL also applies to the small business space and we are already seeing variations of how this can apply in a range of funding situations. In addition, we have seen fintechs in what I call the ‘before pay’ market – interestingly, one of the fintechs rebranded to ‘Beforepay’ last year to provide better clarity of its purpose to the market. These companies are targeting users of the payday lending market to make it more sustainable for them to access cash in the short-term.
Open Banking went live on 1 July 2020 to allow consumers greater access to their own data. However, initial consumer uptake is predicted to be slow, as there is still plenty of work to do in this space to achieve the original intent of the legislation.
Threat or opportunity?
I asked Paul Feeney, founder of Map My Plan and Stone & Chalk resident, what this proliferation of fintechs means for the wealth management industry. I wanted to know specifically if the industry saw it as a threat or as an opportunity. Paul said there are two things that are top-of-mind for financial planners at the moment – the cost of advice, along with ensuring that client onboarding and ongoing engagement is cost efficient.
Many of you may be aware that ASIC’s CP 332 ‘Promoting access to affordable advice for consumers’ was released in November 2020, seeking information from financial advice industry participants on impediments to the delivery of good quality affordable personal advice.
Paul acknowledged that the cost of advice is high but expressed that the main cost for providing advice is not regulations or compliance, but rather a planner’s time. While he agrees that planners should be paid appropriately for their time and for the advice they provide, he also argued that increasing the access to affordable advice cannot happen if the provision of advice is the traditional model of a face-to-face offering. It’s simply too expensive for the vast majority of Australian households.
“The only way to cut costs is to provide a level of automation for the production of advice and alternatives for clients who can DIY or pay a one-off fee if they choose,” he said.
The advice process includes a considerable amount of time spent on internal processes and regulation, including information gathering, managing compliance and generating SOAs. This is where a number of regtech solutions can help financial planners – solutions that focus on know your client (KYC), ID verification, online approvals and so forth – and can help reduce the time spent at the outset, while still providing the level of compliance required.
At Stone & Chalk, we have a financial planner (I’ll call him Glen) who is a regular contributor at our wealth management events. Glen’s clients are all in their 30s and 40s and many of them work in technology enabled industries. So, it comes as no surprise that Glen’s engagement with his clients is very much driven by technology.
His clients use mobile apps to do almost everything and as a result, he is also expected to provide the same level of service digitally. Glen concedes that it can be challenging. “The financial advice industry is archaic and regulated, with recommendations to meet annually for a review, however, our clients expect us to engage with them in real time,” he said.
Before attending a meeting, Glen’s clients expect him to know exactly what is going on directly in their world through data feeds from different platforms, such as investments, bank and mortgage accounts.
As Glen has real time access to their information, they also expect him to be proactive about certain events and to reach out to them for advice as and when these events occur. For example, if they received a pay rise, just bought a property or if their credit card blew out over Christmas.
Glen uses technology to drive his back-office, as well as modelling software and a platform with third-party integrations, which offers a white labelled mobile app, so his clients can access information on their bank, investment and super accounts on their phone.
Streamlining the advice process
As someone who spent over 10 years working in wealth management and now in the fintech and emerging tech space, I am absolutely an advocate for both financial advice and the use of technology to streamline the advice process, or make new financial markets directly accessible to consumers where a financial planner is not required.
As a user of financial advice, I also strongly agree that the cost of advice needs to reduce significantly and that financial planners need to start engaging digitally and in real time with their clients. But it needs to be done securely.
The COVID-19 pandemic has definitely accelerated digitisation trends and trust in digital infrastructures, and the imperative data they carry.
Stone & Chalk has recently merged with AustCyber because we realise that cybersecurity is a foundational enabler of digitisation – it builds digital trust and gives businesses and consumers the confidence to transact online, adopt new technologies, and create new markets and commercial opportunities.
Did you know that, according to Australia’s Digital Trust Report 2020, a four-week digital interruption to Australia’s economy, such as a widespread cyber attack, would cost the Australian economy up to A$30 billion or 1.5 per cent of Australia’s GDP? This starts to significantly increase when the loss of trust in digital infrastructure and data integrity is taken into consideration
Fortunately, the financial services industry has the second highest level of consumption of cybersecurity services in Australia. The industry’s appetite is driven by the high degree of criminal attention it collects, as well as stringent regulatory and compliance obligations.
This good news suggests that this industry, which also represents the ecosystems that include fintechs, regtechs and other emerging tech, is taking digital security very seriously. This can only empower more financial planners to use technology to streamline their operations and deliver quality advice in a cost-effective, but safe and secure way.
There’s no going back
On a final note, Glen recounted that during the pandemic, when everyone was working from home, he had to print documents from his office to snail mail them to his clients who didn’t have access to printers. This was so they could sign them and snail mail them back for submission to various large institutions that only accepted inked applications.
While I admire Glen’s dedication, I’d like to think that a year from now, say 1 July 2022, that this is no longer a requirement in Australia. Who’s with me?!
Marie-Anne Lampotang is the General Manager of Stone & Chalk in Sydney. Prior to Stone & Chalk, Marie-Anne worked at BT Financial Group in a range of roles, including Regional Manager – Workplace Super (Northern Region – NSW, QLD) and National Manager – Relationship Management, Workplace Super. She has also worked at Minter Ellison. Marie-Anne has a Bachelor of Commerce from UNSW.