Technology poses threat and opportunity to wealth managers - Tria Investment

While the Future of Financial Advice is the immediate concern for wealth managers, rapid changes in technology may have a greater impact than many realise, posing both a threat and an opportunity to traditional wealth management business models.

That is according to the latest Tria Dimensions report from Tria Investment Partners (Tria) which has announced the "big five" technology trends changing wealth management.

According to the report, the developments transforming the industry include advances in platform technology, the spread of wealth management and customer relationship management (CRM) software, and AQUA II - the next phase of the Australian Securities Exchange (ASX) regulatory quoting system which could potentially source the components of an investor's entire portfolio via an online broking screen.

Tria said the Internet alone has carved "a path of destruction" through one industry after another, with retailers of standardised products and intermediaries proving particularly vulnerable.

Due to the regulation of wealth management and the domination of platforms, financial planners are bypassing managed funds by building portfolios of direct shares, warrants, listed investment companies, and now exchange-traded funds. Self-managed superannuation funds (SMSFs) now have around 40 per cent in listed securities and only 15 per cent in managed funds, according to the report.

"At 15 per cent, SMSFs have around $65 billion in managed funds, but if they had 75 per cent in managed funds (as an advised client might), that figure would be $330 billion - a gap of $265 billion, together with perhaps $2 billion of revenue lost," Tria stated.

Tria found that advances in platform technology have also broadened product choice beyond managed funds, while the need to obtain a periodic renewal from a client - if opt-in is to proceed - has enhanced access to direct investments. 

In a development that may see advisers dispensing with platforms, Tria said that financial planning and CRM technology is weakening the imperative for a planner to centralise their clients onto a single platform for efficiency purposes.

"Planners may still gravitate towards a preferred primary platform, but with CRM technology, they now typically need a powerful incentive to move existing clients," stated Tria.

Tria believes technology has increased the ability to bypass both fund managers and platforms - the main sources of revenue for the industry.