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Technology is bringing about one of the biggest storms to hit civilisation as we know it, the Digital Age, leaving in its wake significant changes to the way we engage in our daily activities and carry out our jobs. Financial Services is fast approaching the eye of the ‘digital storm’. It’s hard not to get lost in the plethora and excitement of it all with FinTech, Big Data, robo-advice and Chatbots all making their debut. Established financial service organisations preferring to wait out the storm in the hope that it passes, will very shortly find their business being buffeted by organisations standing out in the open field, embracing the storm head on with conducting rods in their hands. Like it or not, this storm isn’t passing. Although initially behind the FinTech curve, not only is the UK financial services catching up to the rest of the world in developing and providing automated financial services, but having learnt from early international adopters, in some cases are already showing signs of leading edge superior functionality. With an actively engaged, forward thinking, and pro-digital government and regulatory body you can safely bet on the UK continuing to make great waves into automating financial services. The main driver for government in automating financial services is to engage the mass market in saving for their future. The diagram below identifies the key steps a consumer should go through on the journey towards building a sustainable and successful ‘Financial Life’. Multiple studies identify one of the greatest causes of human stress, ill health and unhappiness is the lack of knowledge of how to manage income, expenditure and debt. Our analysis highlights a glaring failure within most of the market is the lack of focus on assisting the consumer in managing these three components, in order to help them prepare for longer term savings. For consumers, managing their finances can involve making some of the most important and challenging decisions of their lives, yet they frequently do not have the means to understand the information on which such decisions should be based, nor do they have support in making the right choice. While the UK is churning out a significant number of low cost investment propositions (step 6), our analysis identifies a gaping hole in the market. This presents a real danger that new services may not penetrate the mass market. These consumers do not currently have either the financial education or the financial means to embrace these low cost automated investment propositions. We crawled before we walked, before we ran. Each of us went on a personal journey, taking our bumps and bruises along the way, before we were able to run. So too is this true in our financial life. To assist consumers actively engage in their long term savings goals (step 6) it is imperative that we take them on a journey from the very beginning and assist them in dealing with their finances of today. © F&TRC 2016
Landscape of UK Automated Financial Services propositions F&TRC’s DigitalWealthInsights.com team are actively monitoring over 130 organisations within the UK that are currently in various stages of developing their digital financial service propositions for consumers. Like most things in life we start at the beginning and continue our journey, progressing one step at a time, until we reach the end goal. So too should this be applied to our Financial Life. My Financial Life Step 1: My Financial overview. How am I doing? Get an overview of your current financial situation i.e. income, outgoings, assets and liabilities. Identify the problem. Step 2: Reduce debt & start micro savings. Take action. Engage in real-time budget planners, debt management and micro savings tools to improve the way you manage our daily income, expenditure and debt. Step 3: Emergency cash reserve. Build up a cash saving’s pot for those unforeseen emergencies, typically a cash ISA / savings account. Step 4: Protect myself and my family. Consider which protection policies need to implemented to protect yourself / family against loss of income, illness, death etc. Step 5: Buy a home. Look to invest in an asset to build independence and security for your family. Step 6: Start investing for medium to long term savings goals. Consider contributing towards pension savings, ISA and investment accounts. Step 7: How do I want to retire. Determine your income, expenditure, debt, level of savings and ill health options in retirement. The graph below illustrates which step of the consumer’s financial life the various propositions we are analysing cater for. 68% of automated financial service propositions provide an on-line investment service. Of these propositions approximately 80% do not address the consumer’s income, expenditure and debt (steps 1 -3), but instead jump right in at assisting the customer towards investing for the medium to long term (step 6.) The government’s motivation for driving the automation of financial services is to engage the mass market in saving for their future. To be able to save for the future, it is critical that we understand how to save for today first. Research conducted by PWC in 2015 identified that 63% of the employees they surveyed were not saving for retirement because they had too many other expenses and 46% said they had debt to pay off first. Consumers need assistance in getting the relationship between the three key elements, income, expenditure and debt working well and to a level where they physically have sufficient surplus income available to allocate towards long term savings. Is it fair then to say that 80% of automated investment propositions currently in the UK are not optimised to help the mass market with their long term savings? My question then is, how much longevity and customer loyalty will these propositions have when the debt managers and micro savings tools start to gain momentum by actively helping customers improve their financial life?