Novia’s Vasilieff: ‘What the offshore investor, and his adviser, need to know about the emergence of fintech’

Many advisers have been struggling to figure out how they are supposed to incorporate concepts like ‘fintech’, ‘robo-advice’ and ‘blockchain’ into their businesses, while realising that they could be left behind if they don’t – and soon.
Here, Bill Vasilieff, chief executive of the Bath, UK-based international platform provider Novia Global, says no need to panic…yet…

“Robo-advice”, “Bitcoin”, “Blockchain” – these are among the terms that we’re increasingly hearing bandied about the market, alongside solemn assurances that they are about to “revolutionise” the “offshore” investment industry.

Then there are the more esoteric new tecky terms, such as “emotion recognition” and “taxonomy” software, which are designed to help with the advice process.

In my opinion, advisers needn’t press the panic button just yet: because we are an awful long way from any of these new technology features and innovations making a significant change to the experience or behaviours of investors.

That’s not to say that I don’t think the offshore market will, eventually, go through a technology revolution, however. Far from it.

Let me step back here, and explain where I’m coming from.

Nine months ago, some colleagues and I launched Novia Global, a financial platform that would target the various key offshore financial services jurisdictions.

We did this because it was, and is, well known that the offshore savings market today is still very much carried out via paper and faxes, and, from a technology perspective, still has a long way to go to begin to catch up with the UK in terms of technology usage.

That said, there is a widespread misconception that those businesses that successfully utilise the most up-to-date technology will be guaranteed to be winners.

Because in actual fact, it’s quite clear that although technology is an enabler to efficiency and cost control, selling and marketing skills are ultimately much more important.

Indeed, the two arguably most successful retail savings businesses in the UK – the identities of which I’ll leave you to work out – are still, for now at least, operating by means of some pretty rudimentary technology, yet they’re able to successfully harness this, and therefore to provide an excellent service to their clients and thus to continue to rank among the industry’s “winners”.

‘Expensive and risky’

It’s also important to bear in mind that implementing new technology is always very expensive and risky, and should never be embarked upon lightly. You should always be clear about what it is you are looking to achieve, and what benefits exactly you are hoping to see well before you set out to adopt a “fintech” system, because the stories of eye-wateringly costly financial losses resulting from badly-conceived fintech attempts are becoming ever more commonplace.

Take robo-advice, for example. “Robo-advice” has become the buzzword of 2016, in spite of there being no clearly-agreed definition as to its meaning.

Two distinct ideas are emerging, though: the first being that it refers to consumers going on-line and using technology to make financial decisions for themselves; and the second, that it’s a reference to advisers making use of technology and on-line tools to make the advice process quicker and easier, and thereby able to cut down on the total advice costs for which they bill their clients.

This latter definition would seem to be the emerging consensus view.

Proponents of the first of these definitions argue that there is a new wave of investors coming through who are comfortable about using technology, and who will be keen to invest on a do-it-yourself basis.

The bad news is that there is no clear evidence of any solid example, anywhere in the world, that this is in fact taking place – as the proportion of investors seeking advice has never dropped.

True robo-advice examples ‘scarce’

Examples already exist in the US and the UK of businesses that have embarked on a pure do-it-yourself “robo-advice” strategy, but which subsequently were driven to provide advisers on the end of an old-fashioned telephone, to help potential investors through to taking action.

I myself have yet to see any new robo-advice businesses actually succeed in the UK: those DIY businesses that actually are successful, I’ve found, actually became successful long before robo-advice was dreamt up.

‘Adviser-initiated robo-advice’

The second of the two emerging definitions for robo-advice – the one that refers to the use of various technologies by advisers to make the advice process better and more efficient, and thus cheaper for these advisers’ clients – has actually been around for years, dating back to well before the term “robo-advice” even existed.

Call me a Luddite if you like, but I am absolutely convinced that most of those businesses piling money into robo-advice at present are going to get burned, unless they have an effective marketing plan to drive the business forward.

‘Bitcoin’, ‘blockchain’…?

Now, of course, the tech terms shaping up to be the buzzwords of 2017 are “bitcoin” and “blockchain”.

Both are related features in the business processes, and are concerned with making the back-end trading and settlement of securities and other instruments quicker and more efficient, and therefore driving out costs.

These features are the latest in a long line of innovations in this part of the trading cycle, and the evolution towards more efficient trading will undoubtedly continually happen, but they are unlikely to be seen by the typical investor, and are therefore highly unlikely to have any impact on savings habits.

We have, though, seen so-called investment “platforms” begin to dominate the UK savings market in a relatively short period of time, and we are seeing signs that the same thing is beginning to happen in many jurisdictions around the world.

Technology is only one part of this, but it has been an important component. Another hugely significant factor in the UK market has been regulation: the coming into force of the Retail Distribution Review in 2013 and 2014, and the Financial Services Act in 1988, were intended to give the UK consumer a better deal.

Cornerstones of this regulation are, of course, transparency and the banning of behind-the-scenes incentives; for example, undisclosed cash payments from product providers to intermediaries to place business with them.

These two new measures have had an enormous beneficial impact on the UK market, and we are now seeing similar regulations being introduced in many parts of the world, some of which make use of the same actual wording employed in the UK.

In the post-RDR world, platforms have been able to bring two new innovations to the market. For one thing, the way they utilise technology enables on-line trading and communication to become dominant, and does away with the need to rely on paper, faxes and the post box.

The business communication cycle thus is revolutionised, and human error becomes minimised, as “re-keying” of data disappears.

The other major innovation that platforms have brought to the UK market, post-RDR, has been the way that they allow a product wrapper to become a single point of trading into the entire investment universe of tradable assets, not just the investment solutions offered by the provider’s in-house investment team, no matter how mediocre the investments are.

The result of all these features coming together – transparency, the banning of inducements, technology, and trading choice – inevitably means a much better and more efficient consumer outcome.

To summarise, technology is an enabler that makes successful businesses – including those that involve the operation of platforms as well as those that make use of them – possible, but technology alone won’t make a platform a winner, any more than it’ll make your business a winner.

It doesn’t have to be the best or most up-to-date technology, but it does have to be successfully deployed, and continually updated to meet the specific requirements of the business for which it’s being used.

The UK financial services market has been transformed by the introduction of platforms over the past 16 years.

Now, with the changes in regulation that we are seeing in other markets around the world, a similar transformation is inevitable, as the bad habits of hidden charges and undisclosed commissions and inducements, all propped up by collusion on the part of providers and introducers, disappears, just the way it did in the UK.

Bill Vasilieff is chief executive of Novia Global, a recently-launched offshore platform based in Bath, England, which targets international advisers, wealth managers and intermediaries. Prior to coming to Novia, Vasilieff had been a co-founder of Selestia, the UK platform. This piece originally ran in the November issue of International Investment.

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