A brighter financial future starts with better infrastructure


PUBLISHED: 17 February 2020
AUTHOR: Sam Handfield-Jones

News flash: we’re all living longer. Yes, okay, that deep insight won’t come as much of a surprise – but the extent of our ageing population might. By 2042, nearly one in four of us here in the UK will be over 65.

And while the fact that we’re cheating death for longer should be something to celebrate, it does spell some pretty bad news for our collective finances.

To keep our already creaking state pension afloat, the Government is now recommending that the national retirement age be raised to 68 a full seven years earlier than originally planned – in 2039, rather than 2047. Who knows, by the time today’s millennials reach their autumn years, there could be no state pension at all.

Which might not be so bad, if we were all financially prepared to go it alone. But nearly half of us (43%) have no idea how much we’ll need to retire, while others are confident only that they won’t have enough.

To top it all, too few of us are getting the money help we need. As part of its consumer research in 2018, city regulator the Financial Conduct Authority (FCA) found that just 9% of people sought qualified financial advice over the previous year.

And those who most need help are often the ones least able to afford it. Study after study has shown how advisers are regularly forced to turn away less affluent clients, with the so-called ‘advice gap’ seeming only to widen with time. Only 16% of advisers in 2019 would take on a client with less than £100,000 – down from 50% in 2014.

Depressing, right? Luckily, it doesn’t have to be like this.

Ambitious fintechs are changing the game

The pace of technological change that we’ve experienced in the last two decades is astonishing. YouTube was founded just 15 years ago. Airbnb and Uber have been with us barely longer than ten years, and Deliveroo not much more than five…

All of these companies have forever changed how we live, work and travel. And, thankfully, there’s no shortage of ambitious pioneers here in financial services, either.

Alongside the much-talked-about growth in digital banks, the past few years have seen a wealth of new offerings in the arena of investments and advice – each on a mission to bring financial opportunity to everybody, regardless of their level of wealth.

Companies like Multiply.ai, Penfold and Wombat are leading the charge, with their mobile-first approaches to financial planning, retirement saving and thematic investing. And despite the well-publicised struggles that so-called ‘robo’ offerings have faced, I’ve no doubt that we’ll see more and more entrants join the fray over the years to come.

But while there’s no shortage of ambition, it’s being held back by bad infrastructure.

An outdated tech stack

The infrastructure that underpins investments is inefficient, inflexible and unwieldy – built on siloed, outdated software and patched together by quick fixes and manual processes.

To put it in perspective, a typical financial advice firm will use as many as five standalone systems in the delivery of advice, planning and portfolio management, and two investment platforms.

Because these systems don’t easily integrate, staff have to key the same data between different tools. It all makes for slow and error-prone work – and underlines why most financial advisers can’t afford to help any but the most affluent.

But it’s not just traditional advisers who suffer. Fintechs can design the most intuitive and compelling user experience in the world, but it’s all for nothing if they can’t easily or affordably get to market. And, guess what, easy and affordable it ain’t.

For one, the technology that allows investors to buy and settle investment trades, or hold in tax wrappers like ISAs and pensions, tends to be prohibitively expensive for firms who are just looking to get a foothold.

What’s more, the job of looking after client assets means firms have to negotiate with large ‘custodians’, who are used to working with firms that manage billions, not young and asset-light fintechs. Entering the investment or advice market is costly and slow.

We need to rebuild the infrastructure of investments and advice

Just imagine, for a moment, that offering an investment solution in an app was as simple as embedding a Google Maps integration. I’m talking about truly plug-and-play access to financial markets.

Fintechs would get to market fast. Innovation would be shared. Ambitious businesses of all shapes and sizes could work together more easily than ever.

And now just think what that could mean to our financial futures.

Everybody would be able to access the financial markets more easily and affordably than ever. All savers – not just the most affluent – would be able to access high quality advice on demand, whenever, however they want it. And more people would head into retirement confident that their nest egg will last the course.

Sam Handfield-Jones is co-head of Seccl, the digital custody and investment API provider that’s part of the Octopus Group.

For more fintech insights straight to your inbox, sign up to the FINTECH Circle newsletter.