An often-one-sided debate has flared over the past year about whether the investment that platforms make in technology upgrades is economical. Recently, industry commentator Heather Hopkins of consultancy practice NextWealth, produced a more balanced article on “re-platforming” for New Model Adviser. As one of the main suppliers of those systems, I am sure it will come as no surprise that we are advocates for investing in technology.
The transformation we are seeing in platforms, or indeed financial services, isn’t unique. Companies throughout all industries are overhauling their business practices through technology. This change is being forced by both external market forces and internal forces.
The reason is simple: competitiveness and corporate performance. Businesses across the globe are “digitalising” their offerings with most industries being more advanced in this process than financial services. This is not just about updating websites or online services, but a fundamental transformation in the way businesses operate – and innovate.
All financial services businesses, not just platforms but workplace savings providers, life insurance companies, asset managers and financial advice firms – are forced to change when there are disruptors in the markets they operate. The biggest technology transformation drivers that we see at Bravura impacting the platform space in the UK are cost, regulation and products. In the future, I’d expect to see emerging technologies and their application within businesses starting to make a considerable difference to consumer buying habits and engagement. There is a “demand side” disruption happening in the consumer retail markets that is impacting customer servicing and the delivery of truly personal engagement, and financial services will not be immune to these changes.
Prices are being squeezed across the value chain. This is partly driven by regulatory scrutiny of value-for-money and price clustering, but it’s also cause of competition. Workplace-savings providers have had to trim costs to operate within a charge cap. The asset management market is adapting to life under PS18/8 – Asset Management Market Study, with fund managers justifying to their investors the charges taken from the funds they manage in the context of the overall service and value provided. The regulator is continually scrutinising the costs and charges levied by firms across the supply chain. Platforms are subject to their own FCA Market Study due to be published in the summer, where price and the intangible “value for money” will once again be under the spotlight.
If margins are being squeezed, the benefit of having newer systems in place means that businesses could achieve savings tactically, through implementing specific technological components such as document management systems and digital signature tools with the aim of lowering processing costs, risks and oversight; or through strategic plays such as embedding workflow or business process management (BPM) systems to deliver wider and extended process efficiencies. And of course, there are plenty of savings to be made at the front-end such as integrating modular services through APIs or cloud hosting.
Regulatory change is constant. The Retail Distribution Review transformed the business models of most asset managers, platforms and financial advisers. The pensions freedom reforms rocked insurance companies with the effects of these changes still being felt today.
With new directives being forced on the financial services industry regularly, notably the GDPR and MiFID, it is onerous to constantly update systems so they are compliant. In the US, it is estimated that the financial services industry spends over $270 billion every year on regulatory compliance. Firms running on modern technical systems are better able to adapt and change, both at a micro level through improved workflow processes to handle e.g. anti-money laundering checks, or at a macro level by implementing cognitive technologies, such as IBM Watson, to better manage overall risk and compliance.
Products are the third market transformation. Many products offered by financial services companies – particularly life insurers and pension providers – can attract policy holders for as long as 50 years. A lot will change in this time and while no one can foretell the future, it is essential that the providers invest in their technical infrastructure to be “agile by design” making it easy to respond to change. This includes technology upgrades, adapt to regulatory changes, respond to downward pressure on fees and perhaps most importantly of all, change to reflect the dynamic needs of customers – does a product brought 25 years ago have enough flexibility to adapt to the customer’s changing circumstances? Truly personalised products and bespoke solutions should be relevant to core needs and recognise unique circumstances and “pain points” through intelligent use of data, such as spending and investment habits – can old systems really deliver on this? When it comes to receiving advice or guidance on these products, the customer of the future will expect this to be timely and relevant, tailored to their unique circumstances at that point in time.
The large-scale technology projects that are being witnessed at the moment are not just about IT change but are part of a larger organisational strategy.
In the past, as new products were introduced, each one was usually introduced with its own back-end system. That might have made business sense at the time, but it doesn’t make sense today. Mergers and acquisitions have also contributed to a proliferation of systems. These “legacy products” lead to “technical debt” that needs to be maintained.
Older systems are often expensive to run and rely on highly complex middleware to integrate features. This holds companies back from investing in the latest technology and delays product launches and innovation. Ironically, by servicing the past, firms forego the future.
There are firms that we all know who have worked hard (and invested heavily) in producing slick web front ends that provide great digital experiences (e.g. real-time access, efficient UX and straight through processing) but are failing to replicate this experience when it comes to administration at the back end. Without administration system modernisation, businesses will find themselves spending huge amounts of time and money on “manual workarounds” and experiencing processing lag caused by processing information from multiple legacy databases and other sources, ultimately undermining the front-end experience.
This is clearly not a sustainable business model and companies should look introspectively at their existing technology stacks, but also working towards removing any barriers between e.g. Chief Information Officers responsible for delivering the foundations of a digital platform, the Chief Operating Officer who makes sure that business runs smoothly and the Chief Technology Officers who are expected to drive digital business transformation.
And it’s not just about systems – it’s also about people. The skills needed to run and maintain older systems and middleware are steadily declining as new workers focus on learning the modern kit. Those with the skills to support legacy systems – that offer less value-add – command the plumpest salaries.
What is underappreciated is the opportunity that new technology can provide, not just to minimise costs over the long term, but to enhance profitability. Efficient technology enables clients to re-engage back-book cases as potential clients.
The pace of change in technology means that by standing still firms risk getting left behind. In the digital revolution, organisations from all industries require digital business visions driving change. For pensions, savings and investment businesses, it is about realising that vision through execution across the value chain: front-end customer engagement, slick operational efficiencies and a solid technology foundation. Failure to do so will inevitably have significant consequences.
 PS18/8: Asset Management Market Study remedies and changes to the handbook – Feedback and final rules to CP17/18