Wealth management and insurance in the UK
Tony Klim, Chief Executive Officer, EMEA at Bravura Solutions discusses the extent to which wealth managers and insurance companies need to invest in technology tools to remain competitive and explains how Bravura Solutions is positioned in this market.
During the financial crisis the life insurance sector in the UK was hurt quiet badly. What is your impression of how UK clients have reacted in terms of IT budgets and cost cutting programmes etc?
During the crisis, the market stagnated with virtually no new developments or product innovation. There was very little discretionary spend and some organisations tried to consolidate systems onto a single platform environment in order to achieve operational cost savings. This has changed over the last year; we have seen significant new activity with, in particular, investment platforms. In the past, technology solutions operated as “silos,” primarily focussed on a specific product or application. Most organisations are now looking to launch new “joined up” services on platforms, where a number of products are supported on a single product architecture focused on a common customer centric model. These so-called “Wrap” solutions are now taking off quite dramatically in the UK, and some organisations are looking to replace their legacy systems with this new approach.
There are also a number of regulatory changes underway such as the UK government’s Retail Distribution Review (RDR), which is really shaking up the market at the moment. This review will result in a considerable change to how retail financial products are distributed in the UK, effectively moving away from commission based sales and advice. This has ramifications on the underlying technology platforms and will require financial organisations to consider updating or replacing their technology platforms – this can only be good news for Bravura!
Have you only seen these developments since the financial crisis?
Our sales pipeline has started to pick up over the last six to nine months. It’s also interesting to see that many companies are reporting increases in funds under administration. This does indicate that confidence is gradually coming back into the underlying investment market.
In terms of business strategy for life insurers and investment managers, is there a change in product focus?
Although there was a lull during the financial crisis, the changes that were taking place were evident before the start of the crisis. The Financial Services Association (FSA) in the UK had been laying some strict guidelines over a number of years. We haven’t seen a great take up in new product lines, but we have seen changes in the way they are serviced and supported, as discussed above. We have also seen a number of new entrants to the Wrap account and investment management market and this is where the major future growth is anticipated – growth in assets on UK investment platforms has grown at around 37 percent per annum over the last few years and is expected to grow from around £100bn this year to around £300bn in 2013.
Is risk management now more of a priority and is this a result of the financial crisis?
Guaranteed products which offer a degree of protection to the investor remain quite complex and expensive. Interestingly, the launch of these products was starting to happen before the crisis, but there seems to be less interest now, which is contrary to the trend we would expect to see. I think this means that there is a danger of attaching too much relevance to the financial crisis when it comes to product design.
In terms of customer portals, do you see a trend in investment platforms offering more? Has this trend already emerged?
That is exactly where Wrap platforms are going. They offer a joined up proposition and enable users to undertake illustrations, buy and switch products, and report everything online in a unified model. At the moment, most Wrap models are only offered through the advisor community, but I think it’s only a matter of time before they are offered to the consumer.
To date, most financial institutions have tried to offer customers and advisors a joined up proposition by aggregating a range of products through a common internet frontend. Whilst in some cases this approach was successful from the customer perspective, it has proved to be highly inefficient and costly to support. This is because each underlying product administration system still maintains its individual customer database and associated support functions such as charging. The Wrap model is the next generation – all products are developed on the same product architecture using a common customer model and product support function. Only in this way can financial organisations achieve the necessary operational efficiency to survive in a new world and this is very much the Bravura approach.
There certainly seems to be a new requirement for wrap platforms in the UK. Are they all the same or do you have to customise systems to meet specific client requirements?
The customisation tends to be in branding and product configuration. From Bravura’s point of view, we believe we have a flexible product that can be configured in a number of ways. To a large extent, the underlying product wrappers – pensions, bonds etc – have already been commoditised. Nevertheless, every organisation is keen to have its own unique offering so customisation can still be quite significant.
Do you think that individual financial advisors have gained in importance?
As in most industries, whoever owns the distribution section of the value chain will win in the end. Whilst the RDR will result in fewer independent financial advisors in the UK – some say as many as 10,000 fewer – there will be an increase in overall calibre. With the emergence of more open platforms supporting a range of underlying investment assets, rather than those from one particular provider, we are seeing movement in the value chain. Life companies are looking to become distribution support companies. Advisors are also looking to create and administer their own product lines, run their own model portfolios and are packaging up their own wealth offerings. Many believe that the big UK retail banks will step in to fill the gap created by fewer independent advisors. Again, all of this should be good news for Bravura.