The Future of Financial Advice

A couple of recent announcements have prompted me to think about future of personal finance and wealth management. On 10 Feb, the Financial Times reported that Lloyds are planning to expand their wealth management division with a goal of almost doubling their Assets Under Management over the next three years. Being squeezed in the traditionally lucrative areas of credit cards and mortgages, Lloyds are seeking new areas for future growth and, interestingly, this will put them in direct competition with St. James’s Place, in whom, Lloyds used to hold a 60% share until fully divesting themselves in 2013.

The second announcement was Goldman Sachs leading a US $60M Series E investment in Nutmeg, the online investment service. Nutmeg are far from alone in trying to bring investment to the masses; MoneyBox, WealthSimple and Wealthify are integrated with Starling Bank’s marketplace letting users open and invest directly within the mobile banking app. EXO Investing are taking a slightly different approach and offering low-cost, actively managed investments powered by Wall St-grade algorithms.

Even Apple appear to be entering the field with a rumoured Personal Finance application, modelled on their Health app, using data from a new credit card they may launch in collaboration with Goldman Sachs.

All this means that Lloyds are entering a market with precious little whitespace; while there will always be a part of the population that desires or needs the personal touch of an independent financial advisor who intimately understands their family’s long-term goals, the mass-market has never had more options.

• If you are a knowledgable investor, great - pick some sensible, low-cost passive funds from Vanguard.
• If you know that you should be doing something but are unclear on the specifics, then Nutmeg, EXO and their peers will serve you well.
• If you are not even sure where to start, then this is where Open Banking and the democratisation of data can really help.

Democratisation of Data

Today’s sophisticated Personal Finance Management (PFM) applications can help everyone take better control of their finances. A good PFM app should, at the very least, have the following features.

• be able to show the consumer details of all their accounts across multiple different providers to quickly provide a holistic view of current accounts, credit cards, savings, pensions, loans, investments and much more.
• spending should be categorised to help consumers understand where every penny of their money is going, and
• this is the really clever bit, offer customers individually tailored, specific & actionable insights to let people manage their finances as seamlessly as they keep on top of their social media.

Setting your Finances to Auto-Pilot

At the moment, to help people manage their money, long articles or complicated flow-charts have been prepared to show people how to get started. While these are truly a great first step, and I applaud their authors, where they do fall short is that it’s almost impossible to offer generalised advice that is applicable to everyone’s own circumstances.

This changes in 2019.

The wider adoption of Open Banking and the improved ability for third-parties to securely access your bank details will mean that many innovative solutions can be brought to market to help customers get the very best value from every penny that they possess. Imagine receiving the following series notifications from your mobile banking application:

• “We notice you have a loan at 7.5% interest, would you like us to switch it a different provider at 4.5% interest to reduce your monthly payments by £22? Alternatively, you could switch and keep the monthly payments the same to clear the loan four months earlier.”
• “We notice you have £1,950 saved in an account earning 0.1% interest; would you like to earn another £27.30 interest each year by switching to a different provider earning 1.5% interest?”
• “Great work with your savings. You’re 80% of the way toward reaching your goal of having three months saved as a safety net. If you can keep this up, you should reach your goal in ten more weeks.”
• “Congratulations, you have a good safety net and now might be a good time to start investing for the longer term. Would you like to open a Stocks & Shares ISA to save for the future? If you can afford to put this money away for 3-5 years, we would suggest investing in XYZ funds.“

A lot of people have worked exceptionally hard over recent years to break down the walls surrounding this data. When all the raw data is combined with sophisticated machine learning to powering these recommendations, banks can offer advice that is perfectly tailored for individual customers’ spending patterns and financial position. I am tremendously excited about the ability for everyone to receive the very best in class financial advice to support their individual goals.

Financial Happiness

Working for Tink, the rails and brains of Open Banking, I fully acknowledge that I am far from impartial on this topic. However, when you read about the crushing weight debt has on people, anything that can be done to nudge people towards financial happiness will have a big impact on a lot of people’s lives.

lf you’d like to join Tink, we are hiring for many positions as we expand from Stockholm into the UK, Germany, France, Italy and Spain.