By James Hickman, CCO of Ecospend
With the average age of a financial adviser sitting at around 55 and over 90 percent of financial advisers not making it past their first three years in business, there is legitimate concern that the wealth management industry is not evolving with the times. An ageing industry is a problem for a few different reasons, not least of which is that firms without a younger workforce may struggle to adopt new technologies and solutions that have the potential to support clients better and significantly increase returns. One such technology, which is set to revolutionise the industry if it can be embraced successfully, is Open Banking. Open Banking facilitates the process of financial institutions sharing data with regulated providers. This can create wide ranging benefits for the wealth management industry including improved customer onboarding, more cost- and time-effective payments, integrated accounts and maximised investment portfolios.
Improved customer onboarding
Customer onboarding has traditionally been a painful process for clients and advisers, with the due diligence process not only taking time, but also often being complicated due to manual errors or missing information. This is certainly frustrating, but can also lead to firms losing business and with customer abandonment levels at 68% in 2021, it is something that the industry must focus on correcting.
This is where Open Banking comes in. Open Banking services can be roughly divided into two categories: Account Information Services (AIS) and Payment Initiation Services (PIS). While both are useful to the wealth management industry, it is AIS which can add real value to the customer onboarding process for wealth management firms.
By allowing a business access to a customer’s personal account information, AIS can help wealth management service providers gain instant access to the most important details required for the onboarding process, while also verifying things like account ownership, available funds and payment history.
More cost- and time-effective payments
Facilitating deposits and withdrawals for clients can also be a costly affair, with the additional pressure from customers that, in a digital age, they want instant settlement for online transactions. PIS can go a long way towards solving this issue by allowing customers to pay directly from their bank, bypassing the cost and time associated with card payments. This can save businesses up to 80 percent of all transaction costs and streamlines the experience for customers.
Ecospend’s account-to-account payment services are already being put to use in the industry, having been selected by Hargreaves Lansdown to be their Open Banking partner. Ecospend’s solution will allow customers of Hargreaves Lansdown to make payments directly to their accounts, allowing for a simpler and more secure payment journey.
Keeping everything in one place
Most people’s finances are spread over a variety of banking accounts and products, including pensions, current and savings accounts. This can make it confusing for the customer to effectively manage finances, and more challenging for wealth management providers to have a clear overview of any individual’s complete financial situation.
Open Banking solutions can bring all of an individual’s financial information together and present it in one place. With the FCA’s recent decision to scrap the ‘90-day rule’, which required customers to reauthorise their bank accounts with their Open Banking service providers every 90 days, the likelihood that customers will use, and keep using, these banking ‘super-apps’ will only increase – something that wealth management firms should take advantage of.
Greater insight leading to maximised investment portfolios
For wealth managers, having all this information in one place, is particularly beneficial. It gives them the best possible picture of their customers’ finances and enhances the service that they can provide.
With greater and more up to date insight into a client’s financial situation than they have ever had before, wealth managers will be able to give better advice and maximise the investments that are made on a client’s behalf. In other words, it allows them to do their job better.
Open Banking is one of many new technologies appearing as the wealth management industry adapts to the digital world, but it is perhaps the one with the greatest potential. It stands out through the significant benefits it can provide to the industry as well as to the industry’s customers, by streamlining processes to make them more affordable and simpler for businesses, while improving customer experience along the way.
However, if the adoption of Open Banking is to be a success, it is not only important that we invest into the technology to facilitate its rollout more broadly, but also that both businesses and their customers are educated as to how it works and the benefits it can bring. The wealth management industry, in particular, must recognise the opportunity that the technology provides and proactively pursue its adoption.