Open Finance – A Wealth Management Silver Bullet?

by | Aug 25, 2021

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Photo of Russell Andrews, Head of Solutions for SEI Asset Management Distribution.

By Russell Andrews, Head of Solutions for SEI Asset Management Distribution

Since the financial crisis shocked the world in 2008, the wealth management industry has been in a constant and escalating state of flux, and it isn’t likely to slow down.

In the last decade alone, we’ve seen:

  • the rise of passive investing
  • the introduction of innumerable forms of wealth management technology
  • the continued shift towards centralised investment propositions
  • ever-evolving client expectations
  • major regulatory changes
  • a significant increase in demand for sustainable investing solutions

Taken together, the pace and impact of this evolution is overwhelming.

 
 

So what will the next decade bring? Certainly more of the same changes that occurred over the last 10 years, including greater technological enhancements—accelerated by the pandemic— and the continued rise of sustainable investing . But other demands could have an equally profound effect on wealth management.

Open Finance

The evolution of open finance could well be the catalyst of more meaningful change Open Finance. While still in its infancy, open finance calls for further expansion of the availability and integration of end-client data, and it has the potential to upend the wealth management industry. This data, from both individuals and small businesses has the potential to unlock huge value for wealth managers, creating a more competitive playing field and reducing the barriers of entry for new non-traditional players.

 
 

Clients, industry participants and governments see the significant benefits of being able to share “everyday” information to improve transparency and enhance client outcomes and experiences. This realisation differentiates open finance when compared to other industry evolutions and drives its potential.

This development is significantly interconnected with other key themes that will likely continue to shape the success of wealth managers globally.

Hyper-Personalisation

 
 

The emergence of tailored and personalised services, underpinned by data, has evolved other industries, such as entertainment, in recent years. This expectation is quickly becoming universal, but achieving hyper-personalisation is not easy.

Meeting this need in an analogue manner is inefficient, potentially intrusive and reliant on having a comprehensive line of sight, and that’s before any information has been translated into actionable insights.

So much information that would ordinarily be captured manually (or not at all) is now suddenly available as data with open finance (upon client authorisation). With the right technology, intelligence and analysis, this data can quickly enable advisers to see a more complete and human picture of their clients, thereby enabling true hyper-personalisation.

Holistic Planning

In the same way that clients are expecting hyper-personalisation, many advisers are also making the complementary shift from transaction- based, product- focused advice to holistic financial planning.

Many advisers now see their value increasingly linked to empowering and enhancing their clients’ overall lives and less about solving for a specific need at a specific time. To be a coach, consultant and mentor, and to be equipped to address not only wealth needs but full life plans, advisers must have regular access to client information.

The realisation of open finance is likely to become critical for wealth management—not just from an adviser perspective, but also from a business perspective. With fee models under pressure and competition from new entrants and other industry players ramping up, using data to power the personalised planning process becomes essential.

Intergenerational Wealth Transfer

With hyper-personalisation and holistic planning serving as key themes today, they’re likely to be considerably amplified as baby-boomer wealth transitions to the next generation over the next decade and beyond.

The next generation of wealth holders is already displaying strong preferences to have a single, highly personalised relationship that considers all aspects of life planning and incorporates more choice of engagement models, digital optionality, and a higher–frequency, lower-touch approach.

To achieve such a proposition for the future, wealth managers will need to develop highly efficient models that build deeper relationships quickly. This is where open finance is likely to play a hugely important role, enabling advisers to understand their clients on a level of detail that hasn’t historically been possible.

No Time Like the Present

While open finance is not yet fully realised, it will ultimately be game-changing. It’s critical for wealth managers to identify a strategy to implement and benefit from the future integration of new, deeper levels of client data. Doing so will not only power their transition to a relationship-led advice model, but also protect against the inherent risk of client attrition resulting from the intergenerational wealth transfer.

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