For wealth managers seeking to thrive in a post-Covid world, Morgan Stanley and Oliver Wyman suggest the following three ingredients for success: Doubling down on technology investments, cutting costs and creating differentiated products.
Open Banking, the paradigm-shifting, data-sharing technology that has spurred a revolution in the way financial services are provided and by whom, enables wealth managers to deliver on the full triad. The only problem is lack of awareness.
While Open Banking and Open Finance have shaken up vast areas of the financial landscape, bringing consumers closer to their data than ever before and enabling businesses to offer new personalised intelligent financial products, it’s barely made a dent in the wealth space.
If wealth managers have considered Open Banking at all, it’s most likely been with data aggregation in mind. Whilst this is an important element, it is only scratching the surface.
Vast opportunities
Open Banking offers vast untapped opportunities for wealth managers, allowing them to re-engineer their businesses for cost reduction and revenue growth. And Open Banking is just the beginning: Open Finance extends the data-sharing principles even more broadly and that, in turn, is part of the wider Open Data movement that is transforming how we think, behave and act.
The tools used for Open Banking data aggregation can be turned to access internal systems of record and to both pool and refine data. Moneyhub’s technology has been used to combine internal data with external sources, which has had a transformational impact on customer onboarding, improving Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements and substantially reducing suitability checking costs.
Streamlining data-heavy processes in this way could be a huge win in an industry where inorganic growth through mergers and acquisitions is common and often brings with it complications in terms of IT system integration, business processes and propositions. Many wealth management firms have struggled to create a cohesive information architecture, which has inevitably led to inefficiencies and frictional costs, as well as compliance risks.
For younger investor clients, Open Banking-enabled wealth management is particularly appealing. A mobile self-service experience where customers can personalise content, benefit from payment nudges and a wealth of third-party services is exactly what a new generation of investors are looking for.
Payments efficiency
Payments are another area where Open Banking can reduce cost and improve efficiency. Current business systems rely upon BACS payments, Swift messaging and CHAPS to move and reconcile client money movements. Failed direct debits, the inability to check if clients are in-funds and the need to access cash are significantly improved by adopting payment initiation services, which can sweep funds simply and cheaply with customer-consent driven mechanisms.
There are also cost and efficiency savings to be had in what might be considered one of the core pillars of wealth management: financial advice. Though they form the bedrock of the industry, advisers and paraplanners are costly and require a lot of resources to build a picture of a client’s finances.
Open Banking and Open Finance can change the script here. A fundamental principle of Open Banking is that consumers can leverage their data for their own benefit; they are in charge of what they share and with whom, including their advisers. And the more data they share the better the advice they will receive.
Still, gathering data is only part of the process for advisers—an accurate machine-learning based categorisation engine, data enrichment and alert nudges are required if advisers want to engage with their client at a deeper level and deliver real value.
Open tax
Another point of differentiation for Open Banking is being able to tag income and expenditure accurately. And this is not just for retail spending but also for business expenses, and for helping to compile tax returns with an interface to HMRC’s Making Tax Digital initiative.
All this enables improved client reporting, offering them access to a net worth statement aggregating their assets and liabilities.
At Moneyhub we have launched a service that can categorise income and allowable expenses within buy-to-let property portfolios and help to prepare self-assessment income tax returns.
A holistic picture of a client’s finances can only be fully monitored if an Open Finance provider can connect to the full spectrum of financial services—including investment platforms and pension assets, savings, loans and mortgage accounts—and not just PSD2 bank accounts. This is where Moneyhub comes into its own as the premier Open Finance provider.
Being able to identify the assets and funds held by clients, on and off a firm’s platform, enables whole new levels of insight and product development.
For example, in an era of growing public concern about climate change, Open Finance can help clients analyse how green their lifestyle is with expenditure analysis tools. Linking personal behaviours to carbon footprints and sustainable investment is an example of the hyper-personalised customer experience available and is a service we are proud to offer to our clients through partnerships with the fintech pioneers Sugi and Connect Earth.
Open future
Open banking is just the beginning. Open Banking adoption is skyrocketing and the FCA’s Call for Input on Open Finance indicates a course to expand Open Banking principles into other areas of the financial services sector.
Wealth managers, facing the constant pressure of fee compression and intense competition, are an adaptable bunch. Yet to thrive in the world of tomorrow they need today to capitalise on the many opportunities afforded by Open Banking to deliver innovative products at competitive prices. The time is now for wealth managers to get onboard with Open Banking and seek out expert partners, such as Moneyhub, for the exciting road ahead.
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