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A war cry for advisers: disrupt or fail

27 June 2022 Gareth Stokes

Climate change, coronavirus, inflation, monetary policy experiments, supply side squeezes and war: the world is in state of flux, demanding flexible and intuitive approaches from asset managers and the financial and investment advisers that work alongside them. This was the positioning statement that kicked off an enthralling CEO panel debate held at the Investment Forum 2022 under the title ‘Radical disruption and how the investment management industry is responding’. Panel moderator and CEO at PortfolioMetrix, Brandon Zietsman, observed that change was a breeding ground for disruption, and that the financial services sector was not immune.

Established players can disrupt markets

“Tackling disruption involves trying to solve for pain points that are not being adequately addressed by industry incumbents,” said Derrick Msibi, CEO at STANLIB. He pointed out that established businesses were quite good at protecting their market share from established competitor firms, but warned that disruptive mega trends were creating opportunities for people outside the industry to enter and shake-up the market. 

David Hufton, CEO at Sygnia, agreed on the potential for new players to disrupt the established industry, but was adamant that established players could be disruptors too. “Disruption comes from start-ups and from smaller players who have nothing to hide; they must be prepared to take on the giants of the industry,” he said. He singled out the passive investment trend as “a disruptive force that is hiding in plain sight” in South Africa, and something that would become mainstream in the future. 

One of the problems facing diversified financial services group is to identify the parts within their businesses that can benefit from disruption, or are threatened by it. Zietsman challenged Jeanette Marais, CEO at Momentum Investments, on which of the moving parts in her business were “most ripe” for disruption, given it was a broad-based financial services firm with many moving parts. Advisers and the value of financial advice got first mention. “We cannot ignore what is happening in the advice-focused parts of the industry which is widely represented by the financial advisers in the audience today; and then platforms, which are where everything comes together,” said Marais. 

Challenging advisers to self-disrupt

Digital platforms stood out as critical for all stakeholders in the industry, from clients or customers, to financial advisers, to asset managers and discretionary fund managers (DFMs). It is easy to get locked into a traditional or tried-and-tested way of conducting businesses, and attendees were reminded of the need to self-disrupt within the overarching disruptive themes. “Our numbers tell us that only 30% of financial advisers are using our straight-through processing or dealing with us in a digital way; if you hold on to paper you are probably going to be disrupted, and [may even struggle] to survive,” Marais said. 

The topic shifted to some of the more extreme applications of technology in asset management, namely artificial intelligence (AI). Panellists were concerned about what the looming singularity would mean for stakeholders in financial services… Nersan Naidoo, CEO at Sanlam Investments summarised the singularity as a point in time when AI surpasses human intelligence; but we like the following definition from an article on Forbes.com, which describes it as “an event where the AIs in our lives either become self-aware, or reach an ability for continuous improvement so powerful that it will evolve beyond our control”. The disruption posed by the singularity to a financial adviser or financial advice practice is clear: because under pervasive AI, a piece of software will be able to outperform humans on every measure. 

The singularity poses challenges to asset managers too. Naidoo opined that the tech-backed mega trends being discussed midway through 2022 would prove moot if the singularity came about within the next decade, which many experts believe to be the case. “If you look at the Web 3.0 space, where you already have things like automated market makers, cryptocurrencies, decentralised finance and programmable blockchains, [you can be sure that by 2032] you will be looking at a very different world to what we live in now,” he said. 

Getting to grips with demographics

Zietsman steered the conversation towards demographics, observing that sub-themes under that mega trend were “massively diverse” and included things like age, culture, gender and race. “Demographics is multi-dimensional,” agreed Hufton, before commenting on two major demographic shifts taking place presently. “On the one hand, you have poorer or developing countries where the proportion of younger people as a percentage of the overall population is getting larger; and on the other extreme, you have developed or richer countries where the proportion of elderly people is growing,” he said. There are a number of European Union member countries where 25% or more of the population is 65 or older. 

For financial advisers, these ageing population / rising mortality statistics fall squarely into the “opportunity” space, with the challenge being to not only help your clients to achieve sustainable outcomes at retirement, but to guide them through decades of financial decision making in retirement. “We need to help our clients and customers to understand the risk of living longer, the risk of outliving their capital,” said Hufton, adding that he was not “advocating guaranteed annuities across the board”. Instead, the optimal solution requires getting the balance right, and taking a flexible approach to saving for retirement and providing a pension through it. 

Some philosophical reflections

Msibi offered some insights into the millennial generation’s approach to financial services based on conversations with his son, who has studied politics, philosophy and economics at university. “There are three main topics that I get quizzed,” said Msibi. The first is the lack of financial services start-ups that resonate with millennials; the second is that retirement and savings outcomes remain diabolical despite this being a decades-old gripe among industry stakeholders; and the third is the return erosion caused by the fees charged by savings and investment product and service providers. 

Turning to South Africa, Naidoo observed that the country’s unemployment rate and its inability to create jobs, especially for the youth, was a major constraint. “As an industry we must ask: what is our role in this; how do we assist in job creation; and how do we drive more job creation?” he said. The question quickly extends to how asset managers tackle global systemic issues such as climate change. This means that the narrow focus on wealth creation and wealth transfer might have to expand to address environmental and social concerns, such as how to achieve impact through sustainable investing. “The challenge as an asset manager, as both a business and allocator of capital, is to identify the things we need to do better to address the real world problems that we are facing, because if we do not do that, we are not going to have any industry left to talk about,” concluded Naidoo. 

Final thoughts for advisers

“To be sustainable as a business requires digital adoption across our platform, we need to do business a lot more efficiently; and we need advisers to adopt that,” concluded Marais. “If you are not using digital platforms then you are going to be heavily disrupted in the next while … we need to work together, and platforms can help advisers on their future journeys”. 

Writer’s thoughts:
The Investment Forum 2022 CEO panel discussion offered plenty of food for thought… The morsel I would like readers to reflect on is whether the broader financial services industry should shoulder some of the blame for South Africa’s continuing poor savings and investment outcomes. If yes, what would you suggest to fix the problem? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].

 

Comments

Added by roy horwitz, 27 Jun 2022
ABSOLUTELY. There is no doubt in my mind that the financial services industry should shoulder some of the blame for SA's continuing poor savings and investment outcomes.
I am a Chartered Accountant, 63 years of age and i will be one of the few and certainly the only one of my friends to retire comfortably at 65. But it has not been easy. I have spent hours and hours learning your trade for me to be able to understand the various products on the market, and, i admit, i still do not know everything. Reg. 28, the various Annuities, maintaining units, drawdown percentages, initial monthly investment guidelines etc etc are all so confusing that, dare i say, even the experts do not know. So how must Joe public.
Once and for all, i wish that a guideline for the MINIMUM saving requirements should be published. What i did was to just save and save equally in RAFs and UTs with various degrees of risks in both. I started young AND I JUST SAVED AS MUCH AS I COULD BLINDLY because i did not initially understand the jargon you guys gave out. I AM MOST UNIMPRESSED WITH THE BROADER FINANCIAL SERVICES INDUSTRY because i have seen no change over all the years of saving. I have many ideas but no forum in which to express it because i am Joe Public. Unfortunately, i see no change in the future. I am just glad that when i retire, i will have, but no thanks to the industry.
roy horwitz
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