The first day of this year’s Finovate Spring left me thinking I had witnessed a real lesson in how technology can extend financial inclusion to a level many traditional advice firms may consider inconceivable. The west coast Finovate show is always the one where you see the wackiest ideas, but it is also the event that stretches creative thinking the most, making it well worth traveling eight time zones.
In one day I witnessed technology that can make profitable lending practical to people who might normally be declined based on all normal credit assessments. Into the bargain I had sight of the sort of service that could replace traditional investment platforms delivering a far more personalised service to consumers at a fraction of the cost in just a few years. To cap it all I saw how services usually reserved for those who can afford to spend $1,000,000 a year or more on their financial advice and private office fees can be accessible to mere high net worth families.
Ironically one of the presenters are actually based at Euston Tower on the Euston Road, about two miles from F&TRC’s offices in Islington. AccountScore are a British start-up spun out of Safety Net Credit. Five years ago Safety Net started taking banking data extracted using a Yodlee aggregation feed and enhanced the categorisation of the data to provide detailed insights into the ability of borrowers to meet credit obligations. The service is not intended to replace traditional credit references but to compliment them. It provides a far more personal analysis of the individual’s ability to pay. The new business is now providing this service to other lenders.
Their service is designed to enhance underwriting decisions for debt management, high-cost short-term credit, guarantor, and second charge lending as well as traditional first charge mortgage lending. This can include both loans to SMEs as well as private individuals. The key element of Accounts Score’s process is that they take the last 90 days banking data and categorise it in far greater detail than from a standard Yodlee fee.
This enables them to clearly identify specific behaviours such as possible loss of income e.g. if the salary has not arrived on a regular date, missed financial transactions and returned direct debits.
In addition the company can identify where job seekers allowance or similar benefits are being claimed and even if there is an online gambling habit.
This not only enhances new loan underwriting, but can be used as a technique to monitor the financial health of existing customers. It can enable lenders to make offers when they might decline and help them recognise when granting further credit is not in the borrower’s interest. Given the current regulatory focus on forgiveness it can provide crucial insights into borrowers’ on the verge of serious difficulties.
AccountScore launched in the UK last September, have opened an office in India and were launching their US operation at Finovate yesterday. Overall their proposition is designed to enhance affordability assessment, improve credit decisions, enable better customer management and account repairment management whilst at the same time identifying vulnerable or distressed consumers where forbearance may be appropriate. It is easy to see how this approach could deliver huge benefits to consumers and lenders as well as addressing an area that the FCA are very focused on currently.
Hedg are a really interesting example of what may be the shape of the sort of services that will replace platforms in a few years’ time. Not everyone agrees with me that the UK platform model is terminally broken, but with the real consumer value increasingly being recognised as in financial planning, rather than asset management or product wrappers serious price compression is about to take its toll on each of these elements so it’s the organisations who can help advisors add value to client relationships who will come to the fore. That Hedg provide highly personalised investment solutions for just 25 bps helps demonstrate the further downwards pressure such services will put on platform pricing.
Company founder Bob Rutherford is particularly scathing of most robo advisors suggesting they do not provide adequate personalisation and tend to bundle too many clients together by using only a small range of portfolios. The Hedg answer to this has been to build a business which is designed to create opportunities for established financial advisors to identify new, younger clients and deliver ways in which they can interact with those clients at low cost digitally before they are viable for a traditional face to face service. This digital advice service is specifically targeted at traditional advisors who want to reach Generation X and millennials.
In their on-boarding process Hedg capture far greater details of personal preferences around investment styles, ethical constraints and other personal tastes designed to support service where advisors can build specific investment structures using the Hedg platform to buy into markets for indices but with specific investment types removed.
The advisor firms put content on the Hedg platform outlining their specialist areas of operation and experience giving potential clients the opportunity to select the advisors they feel the greatest affinity for. Advisors pay for putting content on the Hedg platform and a success fee when they attract a client. Hedg are now partnering with US advice software suppliers to reach a wide range of advisors. This a very different approach to the way Unbiased and VouchedFor work in the UK.
Not all of the elements of this platform could be easily adapted to the UK regulatory environment nonetheless I find it a very refreshing approach particularly the split economic model where part of the charges are paid by consumers but these are supplemented by payments from advisors looking to attract new clients.
Onist Technologies showed how there are still plenty of ways in which the Personal Financial Management concept can be extended demonstrating a multi-disciplinary virtual private office service that can allow a wide range of professional advisors to collaborate to support clients through a virtual private office service where wealth advisors, insurance specialists, tax and legal professionals could all share information and deliver a range of solutions via a single service.
Typically this level of integrated advice is usually the preserve of families whose wealth can be measured in many tens of millions. Their service however could be deployed so typical IFA clients might benefit. I could see such an arrangement working really well in towns where a range of local professionals frequently serve the same clients.
This provides the client with an enhanced portal service where different members of the family can access information and could be a very effective way for advisors to protect against the loss of assets which so frequently occurs when wealth is transferred across generations. Various studies suggest that between 80% and 95% of children aim too fire their parent’s advisors and there are similar numbers involved when husbands die and wives take over. Onist is available either as a direct to consumer proposition or via professional firms who host the software. To accommodate such firms the company are in the process of building a range of API integrations with more traditional advice software. I see this as a critical success factor. This highlights how APIs can facilitate levels of integration that would have been unthinkable just a few years ago.
The services are also targeted at financial institutions who wish to offer a private office type service to clients for whom it would not normally be economically viable to. Although in the UK Personal Financial Management has not been as widely adopted as in the US it's rare to see true innovation in this space. Onist deserve considerable credit for creating an environment that will enable diverse