FinTech is making a major impact on the financial services market. Products which automate investment, insurance and risk management, that employ artificial intelligence and intuitive, customer-friendly technology are becoming increasingly prevalent… even in a sector that has traditionally resisted technological change.
A survey carried out by Panacea Adviser in July 2016 found that 89 per cent of advisers regarded robo-advice as a threat to their business, rather than a potential opportunity. However, in a more recent survey, Panacea Adviser found that 20 per cent of advisers are either in the process of incorporating robo-advice into their offering, or (12 per cent) are considering such a move. Given that the digital-savvy millennial generation is now coming of age – and its members are becoming the current and future clients of financial advisers and insurance brokers – it’s no surprise that greater convenience and more rapid transaction speeds are expected from providers.
Could this be a threat to traditional financial services providers? Globally, 88 per cent of financial institutions believe that part of their business is at risk from standalone FinTech companies, according to PwC’s Global FinTech Survey 2017. And the rise of ‘robo-advisers’ such as Nutmeg and Betterment indicates a change in sentiment among investors: according to a 2016 Legg Mason Global Asset Management survey, 85 per cent of UK-based 18 to 39-year-olds were comfortable with robo-advice, compared to only 37 per cent of 40 to 75-year-olds.
Yet the same report shows a willingness among financial services providers to embrace the disruptive nature of FinTech: it indicated that in the UK, 81 per cent of financial institutions expected to increase partnerships with FinTech companies and bring their innovative products and services within their companies.
The benefits of FinTech are numerous. The algorithms built in to robo-paraplanner tools and their ability to record a full audit trail have implications for both greater efficiency (saving many hours’ of processing work) and compliance.
FinTech advice products, rather than create a digital barrier between adviser and client, can free up time for the adviser to actually advise and enhance the client’s experience.
The same is true in the commercial insurance market: according to The Chartered Insurance Institute’s Insurance Survey 2017, brokers spent an average of 56 per cent of their time on administration, as opposed to 44 per cent on client service. The difference that time-saving could make to these ratios could have huge implications for both broker and client.
The challenge of navigating through these shifting sands – and the impact of the associated pressure on profit margins – is pushing the market towards consolidation. Many advisers are now welcoming the opportunity to remove their businesses from the cost of FinTech and are attracted to the more powerful administrative and technological capabilities of larger financial services providers. This allows advisers to focus on what is important to them – their clients.
In this landscape, more innovative solutions are being considered. Over the last two years we have observed and worked with an increasing number of market consolidators, all of which take a different approach to structuring an acquisition.
Private equity is having a major impact on the sector, investing in consolidators for the acquisition of smaller operators. Whilst there is a vibrant market for consolidation, financial services businesses are in a strong negotiating position, given the large number of consolidators actively looking to acquire.
We’d therefore advise that you consider your options now and speak to consolidators to see if they share your ethos and reflect your values. Yes, the sales process may at first appear complex. However, good, commercially-aware legal support can help to create a successful outcome for all parties involved.