A brave new composable world. Maybe.
Oh dear, I'm cheating now, I think. I'm writing another article this week. That's not allowed, is it?
But, here's the problem: I was reminded of a good article written by Peter Hilborne called Brave new world - creating a composable finance ecosystem. And Peter's thinking set me a-thinking and so that's my excuse.
The little summary at the top of the article (the TL;DR, I guess) explains that this is about "a flexible, modular financial system, where investment components can be easily combined in one place, offers a customised solution to meet unique client needs". The financial services professional in me likes this. Many moons ago, I helped set up KPMG's blockchain practice (as was) and Peter talks about "blockchain and distributed ledgers must also be adopted to create a fuller digital experience and reduce friction in trading". Music to my younger ears. He talks about "mobile phone apps for banking and trading across multiple asset classes, the need to enable instantaneous transactions and to manage their assets, of all types, in one place becomes essential". Digitalisation delivering? He pulls these technologies together as "now constructed from composable building blocks" enabling a "single digital operating model" offering "tailored products or services that match the client's needs". Sounds ruddy brilliant, doesn't it?
But something didn't sit right. And my brain wouldn't leave it alone. Yes, even all the way past Surbiton on that lovely train.
So, here's me jotting down some early niggles and I'd really really appreciate some folk setting me straight or confirming my uncertainty and educating me either way. Please.
What do I think would help in this thinking about delivering to client needs? Let's not jump to the solutions, yet. Let's wallow and indulge in truly understanding those client needs.
For example, what about the 'grey pound'?
As a starter hypothesis, it struck me that I've been told that most of the UK's wealth is held by the older folk, the so-called grey pound, and most of the 'wealth solutions' seem to be digital & designed for the under 30s.
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Exploring that idea, I found some great collated stats from NimbleFins (who I've never heard of before, I'm afraid) shining a light on the Average Household Savings & Wealth UK 2025. Calculating median wealth (physical + property + pension + financial) per adult, they came up with a figure of roughly ￡25k for someone aged between 25 to 29 and ~￡292k for a person in the oldest age banding of 65+. Crudely then, that over 65 year-old is ~12 times wealthier than the under 30-year old.
Commercially, it seems we should be starting with the oldies not indulging the youngsters (however soon that Intergenerational Wealth Transfer is coming!) How does that 65+ year-old want or need to be helped financially? I bet they don't care about the financial ecosystem...about reduced friction in trading...or even composable things. We might be better off engaging Mrs 65yo Miggins (although, remember, never ask a lady her age) through real people, understandable financial letters or even just pigeons. I don't know, but we should be open-minded and asking a lot more questions much more often.
Going back to those youngsters, for a number of years, Citisoft have been helping to run some financial services courses at Anglia Ruskin University and London Metropolitan University . There's a demographic we could survey and ask questions about what they really think about money, and investments and their financial needs. We probably have no excuses, and should start getting our clipboards out...
A client-driven mindset = starting and ending with that client
There's nothing wrong with improving the financial ecosystem. Except it may only fix problems that the financial services industry cares about. We know we have a massive problem with financial education, with providing for the elderly, with ensuring the financial wellbeing of all our youngsters...and given that we're not robots yet, we need to start with asking the very human questions, that probably need really simple & easy answers (think Google web page, not Black-Scholes) and focusing on psychology, human behaviour and laziness rather than ecosystems, blockchains and CBDCs.
As I said before, I'm a (financial services) scientist and this is just my hypothesis. I'm excited at being proved wrong, tweaking and trying again. Peter, I very much look forward to a good chat!
Have fun out there!
Audere est facere.
Chris, this is truly fascinating! I couldn’t agree more with your perspective on demographics. It’s intriguing how financial services have rapidly embraced digital transformation while largely overlooking the wealthiest demographic—older and middle-aged individuals.
Senior Financial Services change, transformation and value creation
1 个月Best blog!
Not often to have great minds like this coming together on one post (& in a small room under Bank). Congrats Chris Mills for getting the conversation out in the open (& in the 8 Club earlier this week). In my mind the problem is that collaboration can lead to outcomes but gets stifled by inertia. Examples - FIX solved the equity trading problems with Salomon Bros & Fidelity leading the charge. Similarly, ETC (electronic trade confirmation via SWIFT), upped the STP rates enormously. GSTPA was however stifled by intransigence cross border & vested interests (remember soft dollars anyone?). If only there was an adopted ‘open banking’ like standard for investment management- but as Al Murray would say - “it’s much more complicated than that”.
Multi-Asset Fund Manager at Schroders
1 个月Many relevant thoughts on facing wider industry challenges - what is describe at the beginning is how systematic investors have operated for years and how I run my desk. I don’t believe the challenge is one of technology for process; but application to the wider investment proposition in a way that gives discretionary investors (the vast majority of active investors) freedom to express themselves having built years of individual and institutional muscle memory so they can engage. To many the components feel like cages; not building blocks. This creates an emotional / behavioural barrier to broader adoption which creates a conviction issue and without this those investors cannot build their trust equation with clients to really explore the client need. In my mind, addressing these human interaction (platform / human interfaces) challenges is where the long term solution lies; not just for managing cost pressure / margins but for delivering appropriate client driven solutions at scale.
Strategic Change & IT Consultant - Investment & Wealth Mgt / Leadership Coach
1 个月Your challenge is fair Chris but I think you and Peter are talking about 2 different aspects of the same problem. Both are targeted at improving products and services for clients. There is huge friction and a lack of standardisation in the Investment process, this leads to increased costs and a reduced incentive to offer clients customised solutions that meet their specific needs. The costs get passed on to the clients and the cycle goes on. If we can standardise language (data) and offer less process friction then we can operate the core ecosystem for less cost and charge lower fees. This opens the door to spend more on customised solutions for clients that are made out of the building blocks of different asset types. Think about car manufacture and client choice, they manufacture to standards and share components across brands. Most clients care more about the size of engine, colour of the car, cool tech and interior features than how it’s made. The investment industry can learn a lot from the auto industry model it’s just that the manufacture part is more digital. I think Peter is tackling the manufacture and you are arguing that clients should have more choice. We need both aligned for next gen Investment Mgt.