Wealthtech Examined What Does Future Hold

The wealth management industry is digitizing, but the disruption isn't coming from where most incumbents expect. Sharmil Patois, founder of Opus Una, joins Merixstudio to examine the state of wealthtech — how client expectations are shifting, where traditional firms are exposed, and which parts of the market are still open for new players.

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Hello great LinkedIn family.

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It's three pm in Europe, two pm in London,

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nine am in New York.

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Hello all.

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This is the last year LinkedIn live show from

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Merrick Studio.

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Our today's guest is Sharmil Patois,

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a London based wealth tech expert.

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Hello Sharmil, how are you doing?

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I'm very good. Hi Mike, how are doing?

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Splendid. Just awesome.

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We have been discussing the weather.

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We have been discussing, how everything has changed.

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We have been discussing the matters of taxes.

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Sharmil, if you could introduce yourselves to us,

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tell a few words.

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What are your fields of expertise?

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What is Opus Una doing?

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So the organization that you're behind.

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Yeah, sure. So yeah, thanks for having me, Mike.

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Yeah, so I founded Opus Una back in twenty eleven.

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We've got two lines of business.

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There's a consulting business,

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which is focused on the wealth management ecosystem,

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and where we help clients build new products,

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build new services, even new businesses.

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And we help FinTechs with growth.

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The second line of business is an offshore engineering business,

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that's delivered in collaboration with partners

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such as yourselves.

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We work primarily with early stage companies

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who may not have all of the capabilities

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or capacity that they need in house.

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Part of our USP is that as well as having amazing engineers

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in lower cost locations,

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we've got deep domain knowledge and we can deploy that from the

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consulting arm as and when required.

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Yes thank you for introducing thank you for the introduction

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and thank you for mentioning us.

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As said when it comes to engineering and a grasp

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of fintech expertise we will be certainly happy to help.

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Okay then, we've got a pretty long deck of

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questions today.

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I hope we'll manage to cover all of them.

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Lots of, I would say juices and meat for the fintech experts and enthusiasts.

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Okay, despite Brexit,

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London is considered as the greatest fintech hub in Europe.

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What are the main trends and challenges in the local

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startups team from your perspective?

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Yeah, yeah, from my perspective.

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So there's a number of things going on

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at the moment that create an environment that's

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sympathetic towards all things personal financial

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management related.

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So in the UK,

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those things that are going on include pensions reform.

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There's a real focus right now on trying to help people who

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are causing what's called the advice gap.

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There's a real focus on addressing

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historical reluctance to save.

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And there's a real interest in doing good through investing or

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at least not doing bad when investing.

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So some of the trends that we see are

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around apps for financial education or some of the apps

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we see are apps financial education,

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we see apps to facilitate self investment,

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socially responsible investing apps and saving apps.

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So there's some interesting examples across these four

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areas, are kind of more UK centric,

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Claro, which is a digital financial coach,

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Genuine Impact, which is research delivered in

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a way that works for retail investors,

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Climate, which is all about online climate impact

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investing And then Offspring, which is

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that's an easy and secure way for people to

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collect cash contributions with family, friends,

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communities for any given goal.

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So yeah,

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those are the trends that we see.

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In terms of challenges,

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the ones that I'm particularly exposed to

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are for B2B FinTechs,

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definitely getting traction with the big banks.

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It's often underestimated how

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many stakeholders need to be brought into the tent to get a deal done

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with a big bank or a big wealth manager.

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It's underestimated how much process there is to run through

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and how long the sales cycle can be.

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Also, this difficulty in being taken

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seriously without good credentials,

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which is definitely a catch twenty two situation for startups.

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I'm also surprised by the lack of domain expertise

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in startups and even in early stage companies,

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which tends to be more evident in FinTechs that are

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B2C.

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And I think the reason for that is maybe when you're dealing

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with, when you're in a B2B

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and you're selling to experienced and often

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senior practitioners, you're gonna very quickly

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become exposed if you don't possess

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the relevant domain or business expertise.

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But in B2C, we still have too many founders in my

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opinion, who have a narrative around the

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disruption of an industry,

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which they've never really worked in,

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so can never really understand, which I think is a big problem.

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And then, I guess in terms of challenges,

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the final one that I'm really

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exposed to for today,

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I think is sourcing high quality developers in the UK,

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it's really, really hard.

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In fact, just before I jumped on this with you,

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I was in a dialogue about it with one of our contacts.

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Right now, this seems to be an issue across financial

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services, just in the startup scene.

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All right, then thank you very much for describing,

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and I really love the comparison with

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Catch-twenty two.

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We just received an information

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that for a moment we may not be visible

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on LinkedIn.

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I would recommend to go on,

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and worst case scenario we would publish the YouTube

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link on LinkedIn because, on YouTube we're still live.

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Yeah, so let's go on. Okay.

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You're a wealth

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management expert and I must admit that in a

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two years relationship from the moment when we had the

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chance to meet, I had the possibility to learn

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what actually is wealth management.

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But I think it would be worth for some of our viewers to

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let's say explain a little bit what stands behind wealth management.

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Yeah, sure.

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So at a general level,

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management is about growing your wealth.

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It's about preserving your wealth.

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And it's even about how to spend your wealth in the

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most efficient way.

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At different wealth levels, the specifics of what's

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involved will vary, but in general,

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wealth management involves some form of financial planning.

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So that's the process that's concerned with

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understanding clients goals, their financial goals and their objectives.

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And then alongside of that,

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need some sort of investment management and which is

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concerned with generating the capital to

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fulfil these goals or to achieve these objectives.

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So the bottom line is everybody can benefit from wealth

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management, but until relatively recently

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quality services have remained inaccessible to

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all, the wealthiest few,

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per my comment about the advice gap earlier.

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So the most fundamental reason for this

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is that in general, what you pay for wealth

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management services is linked to the value of the assets.

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So the economics of servicing smaller clients

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historically has not been very appealing.

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Okay,

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thank you very much for this.

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Which areas of wealth management value chain do you

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consider as the most interesting?

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Where are the main opportunities for the industry?

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Okay, well that's, I mean, that's a great question,

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kind of allows me to talk about all the things that I'm interested in.

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For me, investment management is very interesting.

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It's a part of the value chain that's typically concerned with

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growing wealth or preserving wealth

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depending on where you are in life.

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So, I think the big opportunity here is

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that there is a massive need to

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improve the range of products and services and the

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quality advice that's available at lower

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wealth levels.

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So, know, where I mentioned a couple of times,

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we've talked about the advice gap, right?

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So doing this or addressing this

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issue actually makes a huge amount of

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socioeconomic and commercial sense.

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And being able to do that in a meaningful way is much more of

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a reality now as a shift from analog to digital

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means that the cost to serve has been dramatically reduced

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and therefore more accessible to more people.

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So open banking and the evolution to open finance,

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and then hopefully to open invest will help massively with

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a freer flow of the data that you need to make these types of

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experiences more insightful.

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So yes, so number one,

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investment management.

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Number two,

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terms of the value chain client engagement.

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So many wealth management clients

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who have discretionary portfolios.

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So those are portfolios that the manager looks after for you

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after kind of an initial consultation,

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would typically only see their relationship manager once a

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year for an annual review.

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And many clients have got advisory portfolio.

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So that's where there's a more interactive

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exchange between client and advisor,

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will get presented with exactly the same and often out of date

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investment ideas as the next guy or girl.

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So, can start to see and feel what the types of issues are.

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So, what are the opportunities?

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Well, first of all,

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in a world where face to face contact

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has now been restricted by factors outside of

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a relationship manager's capacity, I.

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COVID in recent times,

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the ability to more frequently engage with clients digitally

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is important.

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But even before the world changed,

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it was widely recognised and empirically

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supported that a higher level of relevant

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contact is better for the relationship.

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So clients don't wanna be bombarded with generic input,

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they want relevant content,

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they want insights that are relevant to them.

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So I think that any FinTech that is offering

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content hyper personalization, for example, is onto something.

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Actually, we're working with a really cool company called Adversant,

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who has a technology that does just that.

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Allows hyper personalization of content,

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whether that's research,

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whether that's news or whether that's kind of more thematic insight.

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Okay.

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Lots of information coming just from one question.

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But

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let's dig in.

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According to you, which areas of wealth management value

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chain think the greatest scope for change or disruption?

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Yeah, so some of this, Mike, know,

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of this ties in with the previous question around opportunities.

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So to answer that,

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in the area of the value chain that's onboarding, you

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would typically run a risk profiling process.

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There's no point doing a great job of investment

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management to allow for a certain level of risk in the portfolio,

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if actually the means for establishing the risk level in

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the first place is flawed.

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So historically, the process for doing this,

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particularly at lower wealth levels,

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that's been relatively rudimentary, very,

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very static, very one dimensional.

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But now there are a number of exciting technologies out

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there, which are doing this in a much more multi

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dimensional and scientific way.

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And many of those are based on behavioural science.

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In a nutshell, what that means is now your emotions,

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your biases, your cognitive limitations,

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those are all taken into account when dealing with what

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you're presented with from an investment perspective.

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So that's

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risk profiling for sure,

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lot of scope for disruption and there is some happening there now.

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In the investment management space,

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for me,

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area

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where something really could make a massive difference is

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around what I call the holistic view of assets.

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So I just talked about the risk on a portfolio.

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Typically at higher wealth levels,

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where clients might have more than one wealth manager and

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they will have assets with different managers,

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it's very difficult to get a proper view.

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So everything's together of the risk on your overall portfolio.

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Now, I'm not a professional investment manager,

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although actually, I did do my exams many,

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many years ago, you don't need to be

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an expert

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to understand the, you need to be able to easily

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see what you've got in order to understand what the risk on

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your overall portfolio is.

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So the problem here is mainly around data

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and access of data.

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And while open banking is fantastic when it comes to

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accessing payments related data, we've got a long way to

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go before investment data, which is far more complex is

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available in a similarly useful way.

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And I think with this one, it's gonna take government,

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it's gonna take regulators, it's gonna take banks and software

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companies to cooperate in such a way that we

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can crack this nut.

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But from a kind of disruption perspective,

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if there's a player out there who can crack this nut before

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all of that happens, which is going to take a long,

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long time as it has done with Open Banking so far,

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then I think, you know, that's going to be game changing.

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All right, and thank you for this.

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Since two thousand and eight,

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we are observing an increasing popularity of

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robo advisors, so called robo advisors.

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What are your predictions for these services?

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What is their future?

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Okay, so you know, with Robos,

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client acquisition costs versus lifetime value

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in general is too high.

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In general,

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the current range of products and services that are offered,

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it's too low.

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And actually both of these points,

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churn rates are relatively high.

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So the range of products being low and the churn rates being

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high, all links into the lifetime value of a client.

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Because obviously if you can give them more products and you

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can lose clients less frequently,

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your lifetime value goes up.

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So prediction one is I think there will be more

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collaborations

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between Robos and incumbents, the established players,

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whereby the robos can access the client

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base of the incumbents

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and therefore bring their cost of client acquisition right down.

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But I mean, that's just

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economics.

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So it's not an amazing prediction,

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but I think that's one that's gonna happen more for sure.

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Prediction two is related to my point around

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products and the range of products.

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I think it's gonna be,

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we're moving into a phase where there's gonna be an expansion

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of the range of products and services,

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which up till now has been pretty focused on

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equity, on fixed income and exchange traded funds in

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model portfolios.

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You know, what advice I think is going to be a service

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that you're going to see provided far more by Robos.

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And that will also

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enlarge their target market because it will give them

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access to clients who've got much more

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complex requirements.

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And a good example of where this is already happening is

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Nutmeg, who kind of recognized

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that challenge in the last couple of years and that

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recognized that there are a lot of clients who are not just not

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comfortable making big financial decisions without

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talking to a real person and they launched an advice service.

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So yeah,

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you know, what is their future?

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This is a scale game and the economics are straightforward.

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So if a client acquisition cost plus the cost to

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serve is more than a lifetime value,

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that's the end.

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So if you can reduce the client acquisition costs by accessing

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a pre packed client base,

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if you can acquire clients who've got meaningful levels of

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assets, versus kids who are in love with the

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technology, but don't have any money.

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And then give them more,

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but at the same time exercise good discipline from a cost

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base perspective, then you'll be in good shape.

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So basically, if you wanna kind of summarize all of that,

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I think what we're gonna see is a whole load of pivots from B2C

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providers becoming B2B service providers

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to wealth managers and banks.

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Thank you very much for this.

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Sure.

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Okay.

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This is this was this was one quite deep explanation.

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This would be probably a good moment to ask a question to our

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audience, but because of the failure on LinkedIn

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sites, we are today only on YouTube.

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So, so, we will need to skip this part.

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However,

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however, according to you, how do wealth managers

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engage with the newer wealth tax and

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vice versa?

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What are your predictions here?

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Yeah,

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building on some of the earlier points,

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wealth managers have clients and they have capital and

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they're seeking more effective technology

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to help them do business better.

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Wealth techs have technology and frankly,

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they can evolve it much faster

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than the wealth managers.

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They're looking for clients.

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So wealth managers are good at

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running money, hopefully making money,

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and wealth techs are good at building tech.

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When wealth managers start to think that tech is their core competency,

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then, you know, they're probably wrong.

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And if they're right, then they're in the wrong business.

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So the trouble right now is that in

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reality, it's very difficult for a big wealth manager to

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sort the wheat from the trap.

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There's fintechs springing up everywhere.

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In my opinion, within the bigger organization,

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big financial services organizations responsible for

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actively searching out.

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Those wealth techs that will be useful to them,

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they're inexperienced.

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So that's not really the right model for doing this type of thing.

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Now, there used to be,

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in terms of wealth managers getting with

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wealth techs, there used to be a lot of incubators

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accelerators out there, but the good ones are expensive to run.

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Having been involved in some of the better ones,

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but the success rates

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where particularly where they're startup

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focused have historically been quite low, right?

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Which makes sense because the startups are at such an early stage,

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it's very difficult to see whether they're gonna be

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successful or not.

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So even when these accelerators and

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incubators result in a proof of concept,

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it's typically a very long road before anything that generates

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revenue for the startup happens.

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And moreover,

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banks procurement process is still not really designed

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in a way to get things done fast.

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It makes it very difficult and expensive for early stage

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companies to have finite runway.

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If in a twenty one month sales cycle and you're a

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startup, you know,

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if it doesn't go well with that particular bank,

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you've committed all that time and effort to, you know,

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you're probably gonna have run out of money by the end of that process.

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Alright, then, thank you for this.

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We've actually got a question from the audience through

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YouTube.

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Oh, wow. Yes. Good.

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Mateusz Anyoa is asking us,

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what do you think about growing interest in

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ATS, especially when it comes to private investors?

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How do they compare to robo advisors and what's their place

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in the wealth management services?

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Okay, so, Mitesh is, talking about exchange

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traded funds.

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Now,

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I mean, actually,

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he sort of asked about comparing them to robo advisors,

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but I think it's kind of important to note that

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many of the robo advisors, many,

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I would even say most use exchange traded funds as

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what we call the route to markets.

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So the instrument that is used to make the investment.

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So robo advisors ETFs, they are definitely not mutually exclusive.

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Now what Matej might be alluding to is that actually,

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it is now very easy for retailer investors to

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self invest in exchange traded funds.

24:58 → 25:01

And because exchange traded funds

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represent a basket of assets,

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there is some built in diversification.

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And because of the way they're structured,

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whilst they give you the type of diversification that you'll

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get from a long only fund,

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they give you that diversification

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at a much lower price.

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Okay, so it's much cheaper to hold an ETF than a

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long only fund and they trade like an equity.

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So your costs of trading are similar to if you're buying a

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stock, because that's effectively their representation.

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And so what Mitesh might be alluding to is there's a lot of

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platforms out there, Vanguard,

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which is one of the biggest asset managers in the world has

25:49 → 25:52

got a very strong,

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basically ETF offering, a self invest ETF offering.

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So yeah, I mean, I think they're definitely one way or

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another, whether it's kind of via robo advisors

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or direct investment,

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it's definitely

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an area that will continue to grow massive because the ETF

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market has grown massively and continues to grow

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because it's got so many,

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it's got the good characteristics and liquidity of

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highly traded shares

26:29 → 26:32

along with the type of diversification

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that you get from a front, but at a low cost.

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Okay, thank you very much for explaining this and Vatayush,

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thank you very much for your question.

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Okay, let's get back on track in terms of our agenda.

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So, Sharmli, can you give us some examples of

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collaboration between wealth managers and wealth

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techs that have been successful in your opinion?

26:58 → 26:59

Right.

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So, so my, there's different types of collaborations.

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So, so some say that

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imitation is the best form of flattery,

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but most attempts by big banks to build

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robos, so you know, to imitate,

27:16 → 27:19

have not been very successful.

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So in this case,

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I would say that actually acquisition is the best form of

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flattery in this particular context.

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And the most recent good example of this,

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and so this is, for me, this is one form of collaboration,

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but it's the acquisition of Nutmeg by JP

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Morgan.

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It addresses,

27:40 → 27:43

collaborations about addressing needs you both

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have, and this addresses a need they both had, right?

27:45 → 27:48

So Nutmeg needed clients

27:49 → 27:51

that they could acquire at a lower cost.

27:51 → 27:55

And JP Morgan wanted a brand name

27:55 → 27:59

in markets where they don't do so much retail investment

27:59 → 28:02

business and they wanted robo technology.

28:02 → 28:04

I mean, it remains to be seen whether they hang onto that technology

28:04 → 28:05

or just use the brand,

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but they've all achieved their objectives and

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it's kind of win win.

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So that's a great one in my opinion.

28:16 → 28:20

Another one, which is some

28:21 → 28:22

similar objectives,

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but executed in a different way would be Scalable Capital and

28:24 → 28:25

Barclays.

28:25 → 28:28

So Scalable really started life as a

28:28 → 28:32

sophisticated B2C robo.

28:34 → 28:37

But in the UK market,

28:37 → 28:39

they never really got any scale.

28:39 → 28:42

They were bigger in geographies like Germany,

28:42 → 28:44

where they sort of started.

28:46 → 28:50

But now they've got out of market,

28:50 → 28:52

they've got out of the B2C market,

28:52 → 28:56

assuming the retail market, and they are now powering

28:56 → 28:58

Barclays' plan and invest proposition.

28:58 → 29:02

So they're basically, in the UK,

29:02 → 29:04

they are a B2B service provider.

29:04 → 29:07

So hence, they've done this sort of partial pivot because in other

29:07 → 29:09

markets they're still fully B2C.

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Okay, thank you very much.

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What types of collaboration can we hope to see in the future?

29:18 → 29:19

Okay, so that you know,

29:19 → 29:21

we've touched on lots of different types of

29:21 → 29:25

collaboration, but I think the big big game changing one, which again,

29:25 → 29:28

I've already sort of alluded to in wealth management,

29:28 → 29:31

and the one which I'm really interested in making sure

29:31 → 29:35

happens is open finance.

29:35 → 29:36

So this is the

29:37 → 29:41

extension of open banking to other

29:41 → 29:46

non banking and credit product asset classes.

29:46 → 29:47

So

29:48 → 29:51

basically open banking for investment data.

29:51 → 29:55

Now this requires this complex collaboration between

29:55 → 29:58

regulators, between banks, between infrastructure

29:58 → 30:02

providers, and it requires buy in from the end clients.

30:02 → 30:05

So really, all participants in the ecosystem have got to get

30:05 → 30:07

on the same page.

30:07 → 30:08

So,

30:09 → 30:11

when you say what types of collaboration we hope to see in

30:11 → 30:13

the future, I hope is the operative word here,

30:13 → 30:15

because this is very hard,

30:15 → 30:19

but in terms of easier to achieve

30:19 → 30:20

collaborations,

30:22 → 30:26

I think that we're gonna see a lot more

30:26 → 30:30

tech companies that originally badge themselves as

30:30 → 30:33

disruptors, allowing themselves to be acquired.

30:33 → 30:38

So my definition of collaboration includes allowing

30:38 → 30:41

yourself to be acquired and we're gonna see a lot more

30:41 → 30:46

B2Cs pivoting to become B2B service providers

30:46 → 30:50

because it kind of deals with the economic issues

30:50 → 30:54

around the cost of client acquisition.

30:56 → 30:58

Ketan, thank you very much.

30:58 → 31:01

I think we have everything covered.

31:01 → 31:04

That was very intense.

31:04 → 31:07

Lots of knowledge in a very short

31:07 → 31:08

distance of time.

31:08 → 31:13

Ladies and gentlemen, if you would like to consult,

31:13 → 31:15

if you would like to learn more,

31:15 → 31:18

if you have a feeling that perhaps services provided by

31:18 → 31:22

Opus Una delivered by Sharma could be useful for

31:22 → 31:25

you, please feel free to reach out.

31:25 → 31:27

Sharmel is available via LinkedIn.

31:27 → 31:29

Sharmel would be also available through other sources.

31:29 → 31:33

We will be glad to share his contact details.

31:33 → 31:36

Also, if you would like to leverage some software

31:36 → 31:38

engineering skills,

31:38 → 31:40

feel free to reach out to him as well as to us.

31:40 → 31:44

Together we will be very very glad to help you with all your

31:44 → 31:49

concerns in regards to software development around financial services.

31:49 → 31:53

By the way, if anyone of you would like to launch a mobile project,

31:53 → 31:55

reach out as soon as possible.

31:55 → 31:58

Your first invoice will be issued in this tax year.

31:58 → 32:01

We have a very good availability. Yes.

32:03 → 32:07

All right, Mike. Well, thank you so much for inviting me.

32:07 → 32:09

Thank you for the brilliant questions.

32:09 → 32:13

And, yeah, I look forward to talking to you very soon.

32:13 → 32:16

Yes. And we're looking forward to hear from you all soon.

32:16 → 32:18

Thank you very much. Have a good day.

32:18 → 32:20

Have a very good rest of the week. Bye.

32:20 → 32:22

Thank you. Bye bye. Bye.

Let's connect and build together