"In a digital world, seven years is about the same as two generations."
–- Ian McKenna
Ian McKenna founded Financial Technology Research Centre in 1995 nearly two decades before "FinTech" became part of the industry lexicon. A boutique consultancy, the firm focuses on how personal finance organizations can communicate more effectively with their customers and help them make better financial decisions. As part of this work the firm works with many of the U.K.'s leading long-term savings institutions, financial advisers and technology providers to identify emerging technologies that can transform customer relationships. More recently, the firm has added its own InsureTech and RegTech ventures to help advisers ensure they help consumers find the life insurance and workplace pensions solutions that best meet the needs.
In addition to developing a UK view, Ian travels extensively to identify similar trends around the world and the lessons that can be learned from other countries.
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This episode of Wealth Management Today is brought to you by Ezra Group Consulting. If your firm is evaluating new technology or looking to improve your current wealth platform, you need to contact Ezra Group. Don't spend another day using technology that doesn't offer an elegant user experience. Your advisors and clients deserve better and you can deliver it to them with the help of Ezra Group.
Topics Covered in this Episode
- Biggest trends Ian is currently seeing across the US [00:54]
- Why the life insurance industry in the UK is years ahead of the US [3:32]
- The goals of the FTRC [13:27]
- How Asia is outpacing the rest of the world when it comes to wealthtech [16:58]
- The place for skunk work businesses in large corporations [21:25]
- The biggest US wealthtech innovations that are heading for the UK [25:03]
- Ian's favorite automated advice applications [32:31]
- How US and UK robo advisor solutions compare [33:40]
- What is MIFID and why is it coming up more often at US conferences? [38:41]
- Global regulations and their impact [42:03]
- How demographic issues in China will affect the county in the future [55:58]
- Ian's list of top fintech conferences [57:11]
- Why the intergenerational wealth transfer is such a challenge [58:33]
- What's trending up and what's trending down? [1:04:05]
Companies & People Mentioned:
Apprise Labs [57:57]
Aviva Digital Innovation [20:23]
Cetera Financial [29:02]
John Hancock [1:03:45]
J.P. Morgan [22:53]
Technology Tools for Today [28:05]
United Income [26:04]
If you are interested in more information about some of the topics Ian and I discussed, these blog posts would be useful:
- 19 Ideas from the T3 Advisor Conference That Your Boss Needs to Know
- Mission: Impossible – Choosing the Right Digital Advice Vendor
- Acorns: We're Not Just Gathering Assets, We're Building a Brand
Complete Episode Transcript:
Craig: The Americans are coming, the Americans are coming! This is what some people might be saying in the UK about the influx of US-based wealth management technology, which firms are most likely to cross the pond and what will be the impact. All this and more coming up on the next Wealth Management Today podcast.
The Invest in Others Foundation is a nonprofit that recognizes financial advisors for their exceptional charitable work. The nominations window for the 13th annual awards gala is now open. I was fortunate enough to attend the gala last year and one of my favorite parts was the video interviews they did with each advisor about their charity work. It was an incredibly moving experience to see the tremendous impact that these charities provide back to their communities, and how Invest and others are helping. If you know a financial advisor who is actively giving back to a charity, please nominate them at investinothers.org/nominate by April 5th. Winners will have a chance to receive up to $50,000 yes, that's $50,000 for the nonprofit they support. This is a great way to highlight the good that exists within the financial services arena. I like to encourage all of my listeners to submit the name of an advisor they know to Invest in Others. I'm sure their charity could use some of these extra funds to help their cause.
I'm your host Craig Iskowitz, and I'm a strategy and technology consultant looking to share the latest in ideas, trends, and innovations for our industry. On this, the fourth episode of the Wealth Management Today podcast. It was so much fun to speak with my guest and good friend, Ian McKenna, all the way from jolly old England. I think you'll enjoy it very much.
Ian McKenna is a columnist and financial services futurologist. He founded the Finance Technology Research Centre back in 1995, which was nearly two decades before fintech became part of the industry lexicon. The FTRC is a boutique consultancy, focusing on how personal finance organizations can communicate more effectively and help their customers make better financial decisions. The firm works with many of the UK's leading long-term savings institutions, financial advisors, and technology providers to identify emerging technologies. While Ian is an expert in analysis of UK advice technology, around seven years ago he shifted his focus onto the evolution of digital financial advice around the world. He's an advisor to a number of UK regulators and government departments on policy and strategy for financial services products.
Ian: Hi Craig, It's a pleasure to be here and interesting to share some views from an international perspective.
Craig: Exactly. Speaking of international, I just wanted to dive right in to some of the things we were talking about pre-podcast. You do a lot of conferences in the US, what are some of the things you're taking out of these conferences and what's the biggest trends you're seeing right now?
Ian: It's been seven or eight years now that I've been traveling around the world every 2-3 months, a lot in the US. What I am actually finding more and more is that the Far East is becoming very interesting as well. In fact, I think there is a growing view that perhaps things in Asia might be outpacing both the US and the UK. And I would differentiate the UK from the rest of Europe, not because I'm in favor of our impending exit from the European Union. On the contrary, I think that's a massive mistake, but one thing one does need to recognize about the EU is they move incredibly slowly when it comes to creating new regulations or legislation. It can take seven years to get a directive through the EU. In fact, I don't think there's any way of getting it through in less than that time. In a digital world, seven years is about two generations. But coming back to what I pick up (particularly from the US), what I find in the wealthtech space and the wealth management environment, I think there are two things that really scream out. One is that over the time I've been doing these regular trips, in my experience I can now map on multiple occasions where things happen in the US about three years before they happen in the UK. So those of your listeners who know Doctor Who, a British TV show about time travel, when I'm talking to people over here I frequently refer to my trips to the US as being a bit like getting in a short-term tardis, so I can go and have a look at what's going to be happening in the UK in three year's time. There is one big exception to that, which is the life insurance industry; the UK's life insurance is probably at least three or five years ahead of the life insurance industry in the US.
Craig: Why is that?
Ian: I think it's because the life industry in the US hasn't really embraced technology and seems happy with some very, very slow turnarounds and frankly, very poor customer experiences. One conference I find very useful in the insuretech space is the iPipeline Connections Conference, which the next one's actually in Las Vegas in the middle of March. But thinking back to last year's conference, there was one particular presentation where they were talking about how apparently on average it takes 56 days to get a life insurance policy underwritten in the US, whereas the comparable data in the UK is probably 80% of UK life insurance applications are accepted the same day.
Craig: Well that seems like quite a disparity.
Ian: Yeah, to be fair it was acknowledged that there are a lot of things that American companies could do and to give iPipeline their due, if people took full advantage of the capabilities that iPipeline have, both in the US.. they've also got a lot of technology in the UK because iPipeline bought an organization that had actually been set up by the UK life insurance industry to accelerate the way that technology could enable people to write new business. Things could be faster, but it's pretty much that's the way it works and everyone's used to it. I don't think that's a great customer experience, but there you go. It always strikes me that whilst in the majority of things the US is ahead, that's just not the case in life insurance. And there's one other area where that's not the case, which is regulation.
Craig: What do you mean?
Ian: Financial services regulation. In the UK what you're seeing is a very prescriptive model by many, but actually with benefit of hindsight it actually gives a lot of clarity. And coming across more and more situations where interestingly, actually last fall I was at a conference in New York where there were a number of lawyers talking about the comparison between the US and UK market. And several of the American lawyers were actually saying it would be so much better for the US to have a UK-type model. We still have what's called principles-based regulation, but there's a constant flow of information from the regulator in terms of what you can and cannot do, what's good practice, what's bad practice, and they've even gone as far as setting up a whole division within the financial conduct authority, which is specifically put together to facilitate and support organizations that wish to come up with new ways of doing things. It's called The Advice Unit. That in turn is part of a larger structure, which is called Project Innovate, or The Innovate Unit. That whole part of the regulatory activity is all focused on facilitating greater use of technology, improving customer experience, and delivering better consumer outcomes. And that's then led on to a situation where there's a group called GFin, which I've spoken to you about before, who is (depending on how you categorize them) it's broadly 12 different regulators around the world that are now collaborating on financial regulation, sharing best practices, and sharing approaches. And indeed, we had the head of The Advice Unit (the FCA), to a workshop we ran a couple of weeks ago. One of the things they were sharing was the fact that now through The Advice Unit, quite frequently if they take an organization into The Advice Unit.. and what you can do is if you have a particular project which you wish to run, you can approach the regulator, ask to be taken into The Advice Unit. They will take you through a process, where they look at everything that's being done. They don't actually give a seal of approval, but at the same time they're having a very close look at what you're doing. They tend to bring the Ombudsman, which is the compensation scheme in the UK, into the process to look at things. And they were telling me where appropriate, they'll bring in regulators from other countries if an organization is interested in operating, in other jurisdictions.
Craig: That seems really handy for a company that is looking to expand across multiple countries and needs to get regulatory approval.
Ian: Well, I think it's one of those things that obviously with Brexit we as a country are going to need to be even more international in our outlook. And I think if you look at the jurisdictions that are actively engaged with GFin, includes Hong Kong, Singapore, Australia, a number of the Middle Eastern states, Canada; it's a very forward-looking group of nations collaborating, and I think creating a lot of opportunity. It certainly has been my view for some years, and the things that I see going on around the world at the moment strongly support this. If you look at what people want from financial planning, it doesn't matter your age, your nationality, your ethnicity, or your religion; broadly, you want the same things for your family and your future. So my view is very much that over the next five years or so, we will actually see the foundations of global regulation for financial planning, and that potentially opens up enormous opportunities for businesses around the world. A lot of the Australian software companies are using GFin as a mechanism to support them coming into the UK to sell their services. If you look at a lot of the investment platforms in the UK who are broadly analogist to your custodians; when you compare the industries in the two countries, a lot of the roles are the same it's just the names of the actors are different. But three out of the four largest technology suppliers to the equivalent of custodians in the UK are actually Australian or New Zealand businesses. It's just the way that this sort of globalization is taking place. I think having said that, there is a challenge; enterprises that operate in the English-speaking world need to get better at understanding the needs of nations that speak other languages. It's always an interesting test, for example if I go and speak to a company in the US or perhaps Australia and talk about, is a product multilingual? So often you're told, well no it's not, but that's easy to do. And the first thing that tells me is they haven't even looked at it, because if you talk to a Dutch software company and say, is this product multilingual? You'll get quite a scathing look like, well we've got three languages in our home nation, what do you think? And when you actually talk to them about what's necessary to make a product multilingual and multi-currency, you've absolutely got to do it at the core kernel. And if you don't, then you need to go back to square one and rebuild it from scratch.
Craig: Let me just jump back one second. I'm really interested in the Financial Technology Research Centre, but I don't think a lot of our listeners know what that is. Could you explain the goals of the FTRC?
Ian: Sure. We're a boutique consultancy that basically looks at how technology can be used to improve the delivery of long-term financial services to consumers. So we don't get involved in banking or debt, we get very involved in typically anything that a financial advisor would sell. So savings, investment, life insurance. And we work with a lot of the insurance companies, investment platforms, large financial advice practices in the UK, to help them understand how they can use technology to improve their business, improve how they're servicing their customers, both the advisor firms at the institution service, and the end customers that the advice firms are servicing. And then we spend a lot of time looking around the world at what's going on elsewhere, and looking at what the lessons are that can be learned and where there's the opportunity to share learning and experience. We produce a number of different research studies that look at various products in the market, we have one particular study that looks at all the different software that different advice firms in the UK might use. We're actually in the process of trying to globalize that because again, we're seeing the emergence of a growing number of global advice software companies in the same way as we saw global banking software companies emerge in the 80's and 90's. So for example if you look at Iris, while they don't operate in the US, elsewhere in the world (they're originally an Australian company) they're the second largest supplier of advice software to UK financial advisors. They also operate in Canada, South Africa, and a number of other jurisdictions. So, we're very focused on where there are opportunities for organizations to take services that are built for one jurisdiction and reuse them. Another recent example is a company called Practify from Australia. We were both at the Invest conference in San Francisco in December. They were there presenting what they could offer the American market, but they're also opening in the UK at the moment. So that's another example of the sort of situation where you see organizations from one jurisdiction building services that can be reused globally.
Craig: Speaking of globally, you mentioned earlier that Asia is outpacing everyone, the UK, the EU, the US. in what ways is Asia, specifically in wealth tech, outpacing the rest of the world?
Ian: Well I think part of it is that the sheer pace at which they're embracing; one of the advantages that Asia has is they don't have the bricks to replace with the clicks. The best example of that is Africa, where it's well recognized. The most advanced mobile banking in the world is in places like Kenya, because they've never had a physical bricks and mortar banking network, for example. They've only ever had mobile banking. Again, it's quite fascinating what's going on in South Africa right now, where they're making huge advances and being able to deliver really innovative services. And what they don't have to worry about is having a legacy of the number of financial institutions who might see a digital path as being a good thing to do but don't want to do it because it might disturb their established business and their established distribution. I think there's a huge lesson that we can all learn from Jeff Bezos and Amazon; if you go back to the days when the business was primarily about selling books, he set up a separate business two states away, deliberately geographically located away from the core business, with the objective of cannibalize what we do. And actually, I believe very strongly that financial institutions have a duty to their shareholders to create a business within their group, and make it entirely independent with the objective of cannibalizing what they do. Because if you don't do it yourself, somebody else will do it to you, that that's just a fact. How many times does one come across a situation in the wealth management industry where the only reason something isn't being done is because it would disturb an established main that is seen as a profit center. If there's that much disturbance that can be done, someone's going to do it. And if you wait until somebody else has already started to eat into your margins, guess what? You're never going to catch up.
Craig: The innovator's dilemma.
Ian: Absolutely. It is a dilemma, that's why I think it is so important for organizations to set up and establish independent units. For example, Aviva in the UK have done some great work, which originally started in their digital garage in Hoxton, which literally is this use garage. They now own most of Hoxton Square, one way or another. But they've actually got garages all over the world. They've got garages in Hong Kong. They've done some amazing work with artificial intelligence for creating product, but the only way they were able to do that was to create a totally independent unit and say, if you hurt the parent company, that doesn't matter because if anybody's going to take business from our parent company, we'd rather it was us. And I think that can apply right the way across the industry. I think there are a number of reinsurers going down the same route as well, and there are other financial institutions doing that, and they absolutely should.
Craig: Do they see them as, this is something we're always going to be running into? There's always going to be the biggest firms blocking innovation, because it's a threat to them? And isn't innovation part of what makes big firms have barriers from smaller firms?
Ian: No. We're rapidly approaching the third decade of the 21st century, and yet you're still hearing financial institutions plead legacy systems as to why they can't do things. But at what point does it stop? And frankly, if that's been an issue (it certainly has been in the UK, and my guess would be that it's been the same in the US) at what point does it stop? At what point do those organizations say, actually we've got to take a clean sheet of paper and start again. Now I know that's not easy, but at the same time it's necessary. Otherwise more and more organizations are going to come along with a clean sheet of paper and build alternative solutions, which will be challenging.
Craig: Oh, sure. Jamie Dimon just came out and said that he thought that JP Morgan should have been innovating, and Acorns came and took that innovation that they should have been doing. But does he not realize that Acorns is something that he could never do because of the size of his company?
Ian: That's the whole point of creating an independent unit, so that you can get the best of both and you need to liberate. If you're going to have an institution with a disturbance business, it needs to give that business the freedom from the parent to do what's right for the disturbance business. Don't be operated as a unit within something else, because sooner or later someone's going to knock on the door and say hey, I know you think this is a good idea, but it'll hurt our core business.
Craig: I misspoke, it was a Square. Because Square had done things that he wished JP Morgan had done. But how could they actually do that? Because as you said, even if they set up a separate unit, there's still going to be rivalry. There's still going to be people at the board level saying, what are you doing funding that skunk work that's going to take business from us?
Ian: Well I think you need buy-in at the highest board level to recognize that the alternative of not doing that is essentially saying your business will cease to exist, or cease to have it's scale and size in the market at some point in the future. Because if you don't have a skunkworks in the digital world, what's your future? And that's a fact of life in a digital economy.
Craig: So looking at some of the innovations that you've seen, what is one of the biggest wealth tech innovations that you've seen in the US that are soon to be appearing in the UK?
Ian: I think there's some really sophisticated stuff being done in the automated advice market. One thing that is now happening as a direct result of the regulatory regime that we've got forcing people to be far more creative. I have seen some solutions, particularly for the decumulation markets, that for the most parts are more sophisticated than are happening in the US.
Craig: Any specific companies? For decumulation, would you be looking at LifeYield?
Ian: In the US I'm really impressed by what United Income have done.