Wealthtech Examined What Does Future Hold

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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.

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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

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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

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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?

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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,

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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,

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collaborations about addressing needs you both

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

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So Nutmeg needed clients

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that they could acquire at a lower cost.

27:51 → 27:55

And JP Morgan wanted a brand name

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

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business and they wanted robo technology.

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

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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.

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Another one, which is some

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similar objectives,

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but executed in a different way would be Scalable Capital and

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Barclays.

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So Scalable really started life as a

28:28 → 28:32

sophisticated B2C robo.

28:34 → 28:37

But in the UK market,

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they never really got any scale.

28:39 → 28:42

They were bigger in geographies like Germany,

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where they sort of started.

28:46 → 28:50

But now they've got out of market,

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they've got out of the B2C market,

28:52 → 28:56

assuming the retail market, and they are now powering

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Barclays' plan and invest proposition.

28:58 → 29:02

So they're basically, in the UK,

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they are a B2B service provider.

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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?

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Okay, so that you know,

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we've touched on lots of different types of

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

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

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

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happens is open finance.

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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

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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.