FINTECH’S IMPACT ON WEALTH MANAGEMENT Jessica Lomazzo December 2016 -
Ivey Disclaimer This report was developed by an IFP team of HBA students from the Ivey Business • School in partnership with the Scotia Digital Banking Lab. It is intended solely for the internal use of the Scotia Digital Banking Lab and may not • be provided to any other person or entity without the express written consent of the client. While every effort was made to ensure accuracy and completeness, neither Ivey nor • the report authors are able to warrant the degree of accuracy or completeness of this report. This report was prepared on a best effort basis and is only intended to assist • management. The reader should not rely solely on the report’s content to make business decisions.
Agenda * 1 Project Overview 2 Evidence + Analysis 3 Insights 4 Appendix * Note that this is a summary of my final deliverable and therefore only includes key slides.
PR PROJECT OVERVIEW
The industry and popular press confuse whether fintech companies are delivering innovative and / or disruptive solutions in products and services within the wealth management space ISSUE / PROBLEM STATEMENT And what impact will these ‘solutions’ have This project determined whether on the industry? cu current fintech ch solutions in the space are… Innovative and /or Disruptive
The overarching goal of the project was to create a heat map identifying key areas of the value chain ripe for innovation and / or disruption OBJECTIVE / GOAL Differentiate current initiatives in the • MFDA value chain on the basis of innovation and / or disruption; Identify areas in the MFDA value chain • that are unusually sensitive to innovation and / or disruption (understand a ‘future’ looking value chain); Identify opportunities and ideas to • reduce the amount of processes within the wealth management value chain; Identify areas in the value chain where • behavioural finance techniques and concepts could be leveraged.
The project took a dealer’s perspective on innovation and disruption in the space and focused on the first portion of the value chain SCOPE Current / Traditional MF MFDA Wealth Management Value Chain 1 Advisor Dealer fundSERV Client 3 2 Vendors LEGEND Evaluate the MF MFDA value chain 1 Take a de dealer’s pe perspe pective 2 Stop analysis at fu fundSERV 3
EV EVIDEN ENCE CE AND ANALYSIS
Interviews across stakeholders led to consistent themes surrounding the failure of the current processes in the wealth management space RESEARCH THEMES Current Wealth Management and Value Chain Themes COSTS CO Costs are going up across the value chain, with bleak signs of growth EF EFFICIEN ENCY The lack of efficiency creates redundant tasks and increases costs AR ARCHAI AIC TE TECHNOLOGY Technology could significantly improve efficiency in the value chain ST STRATEGY Strategies should revolve around digital and fintech solutions
A current state process flow of the onboarding process was created to analyze “where we are” to understand “where we need to go” Paperwork sent to Tier 1 Ti 1 Compliance CURRENT ONBOARDING PROCESS FLOW * Julie at Head Office (approval + signature – sends forms back if NA NAF necessary) Mi Michelle Advisor confirms client • De Decides to identity Detailed account De Invest In New account includes • info in Michelle can KYC Michelle fills out • She may do go to either: Otherwise • more forms, the Paperwork sent Her bank research on-line • annually type depending to Betty the MFDA before going to • Branch see an advisor advisor on what kind of Managers IIROC • account(s) she’s T23033 form T23033 Ti Tier 2 2 Compliance advisor opening If needed – to move assets (reviews suitabilit y + all paperwork – from Institution A to Michelle sits sends forms back Institution B down with if necessary) Mi Michelle and Christina to Trading Tr Christina sign all Ch Da Data entry discuss her paperwork Instruc Inst uctions ns Enter & pre-populate financial plan fi • (manually) data; or and in investment goals (IPS) go Enter data and fill • into system Client Ch Cl Cheque an and / or PA PAC Ch Cheque deposited Michelle writes a and forwarded to Disclosures Di Christina sug suggest sts s cheque to the fund company General • mu mutual fund X based Christina’s or custodians Relationship on information • institution Privacy • Christina determines Client complaint forms ... ... • wh which account Michelle might be best suited for Michelle co completes numerous (TFSA, RRSP, etc) forms to assess her: goals, risk, fo Mi Michelle = Investor / Client Tr Trading biases, constraints, suitability of Ti Ticket investment, life balance sheet, tax Ch Christina = Wealth Management Advisor profile and market expectations Be Betty = Branch Manager Ju Julie = Head Office Reviewer * This process may change in some ways depending on the technology advancement in different firms (ex. pre-population vs manual entry)
The current onboarding process involves numerous timely steps from the time the client walks in, until the time Tier 2 compliance is complete EVALUATION AND INSIGHTS OF CURRENT PROCESS FLOW SUM SUMMARY: AR ARCHAI AIC Almost 40% of an advisors day is sp spent on on adm administrat ative an and lo low va value adde added ta tasks . • Solutions that increase efficiency throughout the process wo would gi give adv advisors ar around an an ho hour ur to to ho hour ur an and a ha half bac back pe per day day (time that could be spent on clients). 1 Technology that does exist and that has been implement is old and not efficient – • platforms lack integration, systems / technology are still manual which leads to human error and wasted time. The entire process lacks efficiency and foreword thinking . For example, why is • compliance only done AFTER advisors have assessed client suitability? The ever increasing compliance costs will not be sustainable in the long run. • The amount of forms in the process is overwhelming, unnecessary and redundant. • Lack of integration continues to reduce efficiency and wipe away margins. Simple technology such as pre-population, automated form selection and • suitability tools would improve efficiency and reduce errors throughout the process. 1 Grosser, Dana. "Wealth Management Industry Must Reinvent the Value Chain, According to SEI and WISE Gateway Report." Marketwire. SEI, 4 Apr. 2016. Web. 10 Oct. 2016. <http://www.marketwired.com/press-release/wealth-management-industry-must-reinvent-value-chain-according-sei-wise- gateway-report-nasdaq-seic-2111468.htm>.
Robo automates nearly every step of the current process flow, which ultimately increases efficiency, reduces errors and lowers costs throughout ROBO PROCESS FLOW 16 16 Michelle selects an st steps investment account and fills out her application Michelle Mi De Decides to In Invest An algorithm assesses her risk tolerance, financial data and goals to create an investment recommendation that is most suitable for Michelle Michelle goes online and finds Robo X. Michelle discusses wit h vs vs She creates an a compliance person t o account (without allow the account to 6 6 leaving her home) begin trading st steps Michelle adds her banking information, signs the form and Michelle co completes forms to assess starts investing her: identity, financial situation, goals and risk tolerance
Robo on its own is not disruptive, as it lacks the ability to give ‘advice’ – it is purely automation of tasks. When combined with AI, this duo will completely eliminate the need for advisors. ROBO ANALYSIS “so what”? “s t”? CURRENT CU Financial plan, Advisors Current value holistic view and Product 1 2 cu current lies in the advice value AD ADVICE (disrupted by robo) FU FUTURE Robo + AI Financial plan, Is Is the here value ue Product holistic view and eliminate el e the e 1 2 in the in advice need for ne advisor? ad ad advisor (d (disrupted by ro robo) (disrupted by AI ) (d The industry is on the verge of being disrupted Th
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