Emma Wall: Hello and welcome to the Morningstar Investment Conference. I'm Emma Wall and I'm joined today by Ian McKenna, to talk about the impact of technology on financial services.
Hello Ian.
Ian McKenna: Hello.
Wall: So, technology has disrupted and permeated so many other parts of the service industry whether it'd be holidays or transport, but it seems to yet to have really disrupted financial services and particularly the advice market, is that fair?
McKenna: Today it's certainly fair. But I think we are actually at the turning point. One of the challenges of course is that people are dealing with long term investments. So, if somebody started contributing to a pension plan 25 years ago. There is a reason why one large insurance company has only recently decommissioned a system called Pension 70. The legacy system has held things back. But we are now – lot of work being done by investment providers, pension providers to upgrade their technology and make more information available to both consumers and to advisers. So…
Wall: And it's particularly important as well we're targeting the retirees of the future. Because everything that they do is digitalised and so why shouldn’t the way that they invest, the way that they engage with their adviser also be digitalised.
McKenna: Absolutely and that’s been a major challenge with the financial services industry to get that industry to recognise that if you are not in – if you are not using the chosen mechanism that the individual wishes to receive their information on you are not actually in their line of sight. So those organisations who don’t deliver those services can rapidly become out of sight and out of the picture.
Conversely, I actually think it's really important for consumers to challenge the extent to which their financial advisers are using technology. Because if they are still receiving everything on paper the consumer is probably paying more than they should do because paper is expensive and time consuming to produce. Whereas the more advanced advice firms are now delivering information which can give consumers a holistic view of their savings on apps and other digital services.
Wall: Because it is not just about ease of use, is it? It is about cost, so what as an individual investor should I be looking for from my adviser to make sure that they are prioritising technology and therefore cost.
McKenna: Well I think a fair question to any adviser is how are they using technology to drive down cost within their own businesses. Consumers will now – new investments being made from the start of this year, of course we are seeing the MiFID rules come into practice. And there has to be an unparallel level of transparency over all the charges that are being made to consumers contract. In taking out new investments, they need to see explicitly stated in cash terms and percentage terms both the advice costs, the investment management costs, the cost of any wrapper or product or platform and any third party investment management services such as a discretionary fund manager.
And be able to add all of those up and actually see how much they overall reduce the level of return. Now that’s where we are today. From next year we'll have the so called exposed reporting which will show actually year-on-year how much money has been taken out of their savings. That’s going to be a real eye opener I think to a lot of people and it will be really interesting to see which of the firms that are driving down costs and which of the firms are just continuing to pass it on.
Wall: Now you've spoken here at the investment conference to a professional investor audience and one of the slides that you showed was the disparity in the industry between those individuals or those firms that are embracing technology and those which say that they are not going to try technology because they know it won't work. Its not very encouraging to hear from an individual investor point of view, but do you think we are moving in the right direction. Do you think that second part of the firms is just going to be left behind?
McKenna: I think it's a matter of – people should find the firm that works the way they want to. There are advisers that really want to continue to work in traditional ways. And if that’s what their customers want, fine. They are probably paying more than they need to. But if that’s what the customer wants and they are prepared to pay for it, fine.
Alternatively, there are an increasing number – one example is do you actually really need your financial adviser to come and visit you or do you need to visit them. The simple answer to that is you don’t anymore and there are a growing number of financial advisers, I can think of one example of a very successful adviser who will not meet clients in person.
They meet face-to-face, they do meetings out of three different screen sharing platforms, Skype, SaleMove and I can't remember the third one. So, the very effective working with customers remotely, but the adviser doesn’t have to come to them or vice versa. And there is actually some really interesting research that’s being done that shows that a lot of customers prefer that.
Wall: Ian, thank you very much.
McKenna: Thank you.
Wall: This is Emma Wall from Morningstar. Thank you for watching.
