Fintech on Friday: Hybrid models key to successful evolution of digital wealth management

Although Elisabeth Dana, CEO of tech-driven wealth provider Infinity Circle, is in full start-up mode, still searching for investors and ready to recruit 12 staff over the next 24 months, she is thinking big. Currently based in London’s Mayfair, she is preparing to launch her firm's fintech platform at the end of 2019, before opening offices in Hong Kong.

“Classical” wealth management, she believes, is due for a major shake-up. “I have spent years in oak-panelled, historic settings, just like this,” she says, waving her hand around the Morning Room of London’s Carlton Club, the centrepiece of which is prime minister Benjamin Disraeli’s Cabinet table from the 1870s.

“These ways of doing business are not exactly dying out,” says the former Barclays banker. “But they will certainly not have the same market share in two years’ time.”

Change is coming

Her peers and ex-colleagues in the industry – in London, Switzerland and Hong Kong – can all see the change coming and are trying to position themselves either as front-runners or enthusiastic developers of digital projects, but many do not possess the energy and desire to change which Ms Dana has.

“It is a generational thing,” she says. “We spent a few weeks with a family office in London, where all the staff were aged 50 to 65, tuned into the classical model and none of them felt the need to change.”

But while family offices may be experiencing inertia, they do understand their costs are too high and that finding new clients outside of their founding families is an uphill task.

Younger bankers aged between 30 to 50, however, do not fear change and know they must be part of it. “It’s more a case of ‘if you can’t beat them, join them’,” says Ms Dana.

“We had a young member of staff who came to us after finding our website and realising here was a wealth manager she could relate to. She just could not recognise herself within the UBS or JP Morgan model.”

The future of digitalised wealth management, believes Ms Dana, lies in the advent of “smart contracts”, allowing data to be stored and maintained in a secure environment, where it cannot be altered. “This will vastly reduce both the cost and time of transactions,” she suggests.

Face-to-face

Despite this devotion to a digital alternative, Ms Dana feels the time is not ready for de-materialised businesses. Robo-advice, she says, is just for the mass market, with the wealthiest clients valuing advice from trusted professionals.

She raises her eyes dramatically skywards when discussing soaring business rents in London’s Mayfair. “In today’s world, with a digitised platform, you would think you don’t need an outpost,” says Ms Dana. “But the first time you meet a new private client, they always say, ‘let me come to your office’ and they expect you to be based in the West End.”

The other question they will ask is about the custodian of assets. “Physical firms bring credibility and history, they reassure clients worried about counterparty risk,” she says. “Wealthy clients don’t want to deal with an unknown, mystery custodian who can suddenly disappear into cyberspace.”

The private banking sphere, she believes, has become increasingly commoditised. “All of the top players competing in the market have similar products, solutions and fees. UBS will have an equivalent product to anything produced by either Credit Suisse or JP Morgan.”

Electronic platforms, such as that being built by Infinity Circle, in conjunction with a collection of top custodians, can vastly reduce these charges.

“We are talking four basis points, down from 25 for custody for wealthy clients,” she suggests. But clients will still need to pay for physical advice on top of this, perhaps getting a better deal, now that competition is increasing.

“Private banks will not simply disappear. What will happen is that fintech players will push down the price, as clients have been overcharged until now, with providers relying on a level of opacity to command such a premium. Clients should not be paying 1.5 per cent for wealth management.”

This notion of clients prepared to pay for advice, but at a lower price is central to Ms Dana’s thinking. “All the big players are investing massively in fintech. UBS and Barclays are not ignoring the changes, they are investing in the shift through accelerators and incubators,” she says.

“Clients value a personal adviser rather than a machine. Digital wealth management needs to be a hybrid system to be successful. The classical model is far from dead, it just needs to evolve.”