Mapping Fintech To The Financial Planning Process

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MAPPING FINTECH TOTHE FINANCIALPLANNING PROCESSWhy fintech is not a threat

ContentsFintech: Friend or foe? . 4Do you know how to fintech? . 6Australians, planning and financial planners . 8The six step financial planning process . 10The benefits of planning for the changing consumer . 14The quest for efficiency, meaning, relevance and value . 17The fintech universe . 20Mapping fintech to the financial planning process . 23Threats to financial planners . 38AcknowledgementsThe FPA invited a wide and diverse group of providers within the fintech community to give input into the direction,development and findings of this work.This paper has been welcomed by the fintech community who have engaged throughout this process for its relevance inmapping the solutions to the financial planning process, and defining and quantifying the advice process efficiencies, in termsof cost and time for financial planner and client.The FPA would particularly like to thank Andy Marshall for the time, effort and considerable work he’s given to this report.We would also like to thank Advice Intelligence, Astute Wheel, Financial Mappers, Iress, Map My Plan, My Prosperity, Suiteboxand YTML for their support and feedback. 2017 Financial Planning Association of Australia Limited

“Human led and digitally powered, fintech presents a real opportunityfor our profession. However, what is lacking is a thoroughunderstanding of the solutions on offer to financial planners, AFSLs,associations and regulators, in terms of how they work and whetheror not these solutions can deliver on their promises.Dante De Gori CFP CEO, Financial Planning Association of AustraliaThis report is the first in a series of fintech-related projects the FinancialPlanning Association of Australia (FPA) will be undertaking over thecoming year. For many planners, fintech and robo-advice are thought ofas confusing and something to fear. This report highlights the significantbenefits technology can play in the financial planning process, and whyFinancial Planners should be exploring options to make their financialplanning process more efficient and more engaging for their clients.While there are many reports discussing the fintech market in Australia,this report specifically maps fintech solutions to the financial planningprocess to demonstrate where technology can assist specific parts of afinancial planning business.There is no argument that the process of financial planning is one ofthe most highly regulated processes of consumer engagement in theAustralian business landscape. Passing fintech solutions under themicroscope of the financial planning process cuts through and clarifiessolutions for relevance and effectiveness.The FPA will undertake further projects in 2018 to provide tools andresources to members as they look to take the ideas discussed in thisreport, and make them operational in their businesses.This project has been undertaken by the FPA to support membersin making their financial planning businesses more efficient, moreengaging and more sustainable in an environment of increasing costsand regulatory obligations.MAPPING FINTECH TO THE FINANCIAL PLANNING PROCESS3

Fintech: Friend or foe?With technology being part of everyday life, the modern client has shifted their expectationsaround efficiency. When it comes to financial planning, they desire easier and more efficientinteractions. However the planning process that a professional financial planner undertakes hasrequirements governed by the obligations of the best interest duty and a strict adherence to thefundamental six steps of the financial planning process.Many of these processes require detailed documentconstruction from the inputs gathered from deepclient engagement and exploration of a client’sfinancial world. That process of discovery historicallyis not a digitised one. Furthermore the componentsof a client’s financial world are often not digital. Achallenge presents. For the modern professionalfinancial planner, how do they engage with anincreasingly digital client and deliver efficiencies inprocess and client engagement in a manner that iscognisant of the financial planning process?In 2013, the FPA sought to raise the bar ofprofessionalism and issued a challenge to theplanning community. Guidance was provided aroundsolutions to meet best interest duty obligations.The solutions encompassed processes around, andsupporting of, the six step financial planning process.The FPA extrapolated these steps, defining whatprofessional financial planners do in their clientinteractions. Effectively, financial planners at thattime were provided a synopsis of what best practicelooks like on a daily basis for financial planners,such insights that can only be delivered from a trueunderstanding of what financial planners actually do.These behaviours have a focus in four key areas:Professional engagement – having transparentconversations with clients about the financial planningprocess, the financial planner's role and services,competence and experience to determine whetherthe financial planner can meet the clients’ needs.Professional competence – considering the financialplanner's limitations and authorisations and whethertheir education, professional entry, CPD to maintaincompetence, experience and expertise, enable themto meet the financial planning needs of the client.Professional diagnosis – analysing the client'sinformation, strengths and weaknesses, capabilitiesand preferences in managing money, tolerance andappetite for risk, to identify needs and scope of theengagement.Recommend in Best Interest – understanding therole of the FPA Code of Professional Practice inplacing the client’s interests first.4MAPPING FINTECH TO THE FINANCIAL PLANNING PROCESSCan these processes of discovery and delivery bedigitised? Can an algorithm deliver the necessaryanalysis that results in a financial plan that placesthe client’s best interests first? Can technology beused to enhance the engagement and thereforethe outcomes that a client receives from workingwith a professional financial planner? Or can therelationship with a financial planner be replaced by adigital portal? By an app? This report examines thesequestions.The report unpacks the central premise of bestpractice financial planning to discover whattechnology is available to financial planners tosupport the client journey and outcomes.There is clarity in what this report delivers: A navigation through the world of fintech inAustralia for financial planners; The mapping of fintech companies to the sixstep financial planning process; A snapshot directory of the relevant fintechcompanies that can be deployed in the sixstep financial planning process, and; An awareness of how Australians are beingengaged by fintech companies attemptingto win the hearts, minds and wallets ofAustralians.This report, because of the very nature of fintech –(being fast paced, dynamic, ever changing, blissfullyunaware of financial services regulation, legislationand embedded practice and thus at its core,disruptive) – will be an evolving work. Hence thereport has a digital delivery, allowing it to be easilyand quickly updated as the landscape, or rather thecloud, shifts and changes formation in the monthsand years ahead.The report is also the first step in a collection of workthe FPA will be developing for members. Over thecoming year, the FPA will be developing tools andresources to assist members take the ideas discussedin this report, and make them operational in theirbusinesses.

MAPPING FINTECH TO THE FINANCIAL PLANNING PROCESS5

Do you know how to fintech?Here’s a statistic that might shock. Since 2010 in the US alone 50b USD has been invested infintech companies1. Many of these companies are scoping to provide financial planning adviceto consumers that is relevant, time appropriate, efficient and priced appropriately. The biggestissue for financial planners is not that this is happening. That fact is irrefutable and there is norewinding of the progress that has been made in the virtual advice forays that has already occurredacross markets such as the US. What is and what should be more concerning is that the financialplanning solutions that are being provided are purported to be more collaborative, personal andcomprehensive than ever before and the suggestion is that they are as such rivalling the face toface proposition of the average planning business.Many of the tools being utilised by fintech are available to all financial planners and some have been availablefor some time. They have to a degree been ignored due to a combination of factors such as confusion aboutthe fintech landscape and the speed of change in technology.Financial planners today can use fintech to engage clients in complex modelling scenarios to client friendlyportals. Yet as an example very few financial planners have adopted the client portal online capabilities of theirCRM software.Our research suggests there are three main initiatives that an adaptive financial planning businesses can enact:1They can offer clients a personal financial management site,application or document vault.These sites and apps, host a clients financial information and provide a complete snapshot and then anassessment of a clients financial position. By adding in expense and income flow, this becomes a valuableresource for a client but also a trigger for planning conversations many of which that can have triggersautomated by notifications and thresholds that deliver key information to a client when most appropriate.2As a result they can deliver financial plans that are not generic.By capturing appropriate “vault” and cash flow information, the financial conversations and plans that can befacilitated are not generic but highly tailored. Further they follow life stages and ignore the fall back of genericstrategy such as modern portfolio theory recommendations (think a generic balanced fund or fund of fundseries across a risk profile that is a snapshot in time of how a client was feeling on a particular day!). Ratherportfolios are structured based on lifestyle analysis co-ordinated with real time data on a clients financialbehaviour.3Communication steps up to the modern age in a modernplanning business.Have you Facetimed anyone lately? We do it with friends and family all the time. Expressions, excitement,anxieties all become very tangible. It’s because you see them eye to eye. Wendy Lea2 in her book The newrules of customer engagement wrote “when the person can see eye to eye, they feel more comfortable andnatural”. Wendy was writing about video meeting engagement. According to Cisco recently3, the new breedof simple, accessible, high-definition video conferencing has ushered in a new era of face-to-face collaborationover distance. From one-on-ones to team meetings, candidate interviews, training sessions, sales presentations– nearly any meeting you can do in person, you can do over video, and equally effectively. Financial plannersaround the globe are already forging business models around video meetings and live chat that combined arereducing the cost to serve4.6MAPPING FINTECH TO THE FINANCIAL PLANNING PROCESS

Over and above all of this, what technology is doing for financial planners, is allowing them to implementplanning models that showcase the benefits of financial planning, and deliver it to clients in an efficient andhighly engaging manner and where compliance / regulatory requirements are inbuilt into the process.However in Australia the question that remains is: have financial plannersleft themselves open to disruption (read: the loss of customers) by: N ot changing business models and creating efficiencies in theirbusiness I gnoring technology available (example: CRM customer portals withopen access to collaboration tools) Employing old processes that are inefficientDISRUPTION A nd as a consequence a resultant inability to see more clients /prospects.We believe that the adaptive financial planner and planning business can: Have a CRM that is open to clients for collaboration M aximise the data in their CRM for identifying trends andopportunities in their client base Map their clients' social and employment circle C reate news items and alerts to clients and their social circle basedon an analysis of demographic and lifestyle factors that tap into socialnetwork platforms Create efficiencies in advice via virtual meetingsADAPTIVE M inimise advice risk via meeting recordings that are embedded intoclients' files and planning documents and communications.The benefits for the adaptive financial planner are plentiful: Higher conversions from prospect to sale Greater retention and no opt in leakage Referrals Higher than average net promoter scores H igher profitability and margins well above the average advicebusiness.BENEFITSMost importantly they are fintech disruption proof which equals thriving inthe face of change and changing client engagement protocols.https://www.slideshare.net/Huxley isco, Sept 20164http://www.xyplanningnetwork.com/123MAPPING FINTECH TO THE FINANCIAL PLANNING PROCESS7

Australians, planningand financial plannersAn often quoted statistic when it comes to Australians and their engagement with financialplanning and financial planners is one in five, and sometimes the figure that is quoted is a lot less5.But at the “upper end”, only 20% of working Australians are engaged in the planning process. Thelandscape in 2017 has changed somewhat. The basics of what people want regarding their financialplanning needs, seems significantly simplified with the basics of cash flow, savings and forwardplanning being the desired “goals” of the average Australian6. This statement gains credibilityconsidering the recent Access Economics research (ASX Australian Investor Study) that providesan insight into the psyche of the Australian population and their attitudes to investing especially asit relates to seeking planning and their understanding of investments.This study of 4,000 Australian consumers provides one of the most representative samples of the populationin regard to their investment attitude, but of particular interest, their objectives, desire and willingness to seekadvice. For this body of work on the fintech landscape, the ASX study is of particular relevance as attitudestowards the utilisation of solutions such as robo-advice are also assessed. In reviewing the data from the ASXstudy, we find that: T here is in general a low risk appetite with a highpreference to stable or guaranteed investmentreturns, with 70% of Australians seeking thesetypes of certainty and stability in returns, withthe preference especially high in youngerAustralians;engagement is desired so as to be able toobtain ‘on demand’ advice for efficiency andtimely access; T he opportunity remains relatively untappedfor financial planners with 11,000,000 Australianinvestors seeking solutions; L ife events are at the core of the reasons whyAustralians invest; T he goals and objectives for ‘next generation’consumers are wealth accumulation (savings),home deposits, funding travel, obtaining tailoredadvice, getting investment ideas, getting help ondiversification; A t levels of 40% advice is sought from financialplanners, however the belief is that a higherintended investment amount is required in orderto seek specialist advice; F or the ‘wealth accumulator’ (gen X) their goalsare planning for retirement, accumulating wealthand supplementing current and future income,through financial planning that offers tailoredadvice; minimises risk through diversification;gains access to investments not readilyavailable; T his is supported by the average householdincomes of the younger group, cited as 80,000, and the feeling that solutions fortheir situations do not exist from a full financialadvice scenario; F inancial planning is seen as a tailored solution,but also as a mechanism to control risk in aportfolio, and the jury is out in regard to anunderstanding and appreciation of the benefitsof financial advice; A nd for ‘retirees’, goals include planning for andnavigating retirement, supplementing incomeand accumulating wealth, through financialplanning that is tailored , diversified andnavigates tax and administration. R obo-advice is still in the minds of Australiansan unknown, however a shift to tevisibility-on-spending-goals7Deloitte Access Economics, 2017, ASX Australian Investor Study, study.htm58MAPPING FINTECH TO THE FINANCIAL PLANNING PROCESS

As a consequence, many questions arise for a financial planning business as well as for product solutions (thinkthe desire for capital protection versus the attainment of retirement goals): T o what depth do you have an education processor ‘library’ that can assist consumers navigateand discover, in an efficient and low cost way; D oes your business have a solution for thegrowing number of younger consumers,including low cost and efficient investmentsolutions; A re your solutions and conversations in line withthe goals and objectives of consumers; H ow can you assist education arounddiversification as well as the value of advicebeyond portfolio construction;These challenges are great opportunities for anevolving financial planner and planning business.At a base level, the elements are relatively straightforward.Financial planners need to demonstrate that financialplanning is fundamental to the achievement of lifeevent goals and that planning is more than portfolioconstruction.Financial planners need to solidify their educationprocess around advice fundamentals and createeasily replicable, deliverable and trackablecurriculums around planning topics. T o that end how can you demonstrate thebenefits of financial planning to reduce theperception of a lack of value and high associatedcost; T o what extent can technology and technologypartnerships assist you in delivering theserequirements; C an technology assist you to engage abroader range of clients in line with changingdemographics and wants, including those whohave never invested before?Therefore in this report, fintech solutions are mappedto the six step financial planning process. Thefinancial planning process is one of the most highlyregulated consumer engagements in the Australianbusiness landscape. Passing fintech solutions underthe microscope of the financial planning process cutsthrough and clarifies for relevance and effectiveness.The result is a sub set of Australian fintechs that canthen be assessed by financial planners and financialplanning businesses to determine which solutionsfit into their business objectives in the quest forengaging with their desired target market. For thatreason, the benefits, weaknesses and inefficiencies ofthe financial planning process require unpacking.Financial planners need to create new levels ofefficiency in the engagement of consumers and inthe delivery of planning including the review process.And financial planners need to become marketmakers in regard to a new generation of planningsolutions that are low cost, easy to implement and inline with the stated wants of consumers.To a significant degree such solutions exist, poweredby technology and a wave of innovation fromthe fintech sector. What is lacking however is anunderstanding by financial planners, associations,AFSLs and regulators of what is available, how itworks and whether or not these solutions actuallydeliver what they say they do or will. This is animportant point. Any solution that is presented to apotential investor from any source needs to pass thescrutiny of regulation. Any failing of a technologicalinvestment solution creates ripples far beyond thepiece of technology. Any negative from a failing ofan online investment solution reflects, unfairly, on thefinancial planning profession, especially where andwhen any online solution is presented as ‘planning’.There are serious and significant ramifications.MAPPING FINTECH TO THE FINANCIAL PLANNING PROCESS9

The six step financial planning processThe delivery of good advice takes time and resources. There is an onus on the client to beengaged in the process and a requirement for the financial planner to utilise resources that have alower unit cost to enable the provision of planning at a palatable cost to the consumer. But at thesame time, reflect the cost to serve and provide for a profitable businesses venture. When mappingout the advice process, the difficulty in solving for that equation becomes immediately apparent.Comprehensive Financial Planning ProcessThe average time taken to deliver a comprehensive financial planning solution is 26 hours. Depending on who istaking care of the planning steps, construction of the SOA and completing the administration requirements, thecost of a comprehensive planning scenario can range from 3,715 through to 6,0638. At the upper-end, efficientsolutions are certainly required not only to provide a cost saving, but to reduce the time taken to provide advice.This scenario does not take into account protracted insurance and underwriting conversations and processing orconsolidating accounts and transfers and such. Consequently, it is a conservative estimate of the time per client peron-boarding process from first meeting through to implementation.Based on costs Adviser 250 per hour, paraplanning 100 per hour,admin 60 per hour and adviser time 9 hours and paraplanning 13.5 hoursthrough to all work performed by the adviser.810MAPPING FINTECH TO THE FINANCIAL PLANNING PROCESS

This process of financial planning delivery is dictated and subsequently designed for and by the accepted six stagefinancial planning process. While simple in its description: defining the scope of engagement, identifying goals,financial situation assessment, financial plan preparation, implementation and review; these steps paradoxicallycreate an array of complexity and inefficiency. As well as mapping the client’s needs in relation to cash flow, debtmanagement, investments, risk mitigation, estate planning and the structural arrangements for all of this, thefinancial planning process also involves the careful, tactful, engaging communication of the elements that set thefoundations for best practice advice delivery.MAPPING FINTECH TO THE FINANCIAL PLANNING PROCESS11

Encompassed in the six planning steps are the touch points of:1Identifying a client’s potential financial planning needs over the short term, medium term and long termhorizons, including any financial planning needs a client may be unaware of.2Communicating these needs to the client.3Identifying the types of professional services the client may require during a financial planningengagement.4Identifying possible gaps between the client’s anticipated financial planning needs and thecompetencies, skills, experience, knowledge and relevant authorisations the financial planner, or thefirm they work for have or can call on, to help the client, as well as potential conflicts of interest thatmay result should the engagement proceed.5Identifying the client’s financial planning and other life goals and objectives.6Identifying areas of potential conflicts between the client’s objectives, needs and priorities over short,medium and long term time horizons.7Identifying financial planning issues that will need to be addressed through the financial planningprocess and the priority areas of the advice.8Communicating each of these identified elements to the client.9Identifying the client’s instructions, the subject matter of the advice (whether expressly identified bythe client, or implicit having regard to the client’s identified needs, objectives, and circumstances) inestablishing the professional services that will be provided to the client.1012Scoping and prioritising the client’s advice needs that will and will not be addressed in the financial plan.11Identifying the client’s relevant quantitative and qualitative information and the client’s relevantcircumstances.12Identifying additional information about the client that may be required to be able to provide advicethat meets the client’s needs. Financial planners should also identify whether this is information theclient will source and provide, or that the financial planner will gather from the appropriate source (eg.Government department);13Determining, preparing and communicating the proposed terms of engagement with the client.MAPPING FINTECH TO THE FINANCIAL PLANNING PROCESS

This degree of discovery is time consuming and addsto the entire financial planning process in excess ofthe mid 20-hour estimate as previously illustrated.The need for efficiency across all aspects of theplanning process is clearly apparent.The initial process of engagement, education,knowledge area illumination and fact finding, allpresent opportunities to utilise technology thatdoes not diminish rapport, but engages the clientin their financial planning journey. Thereforefreeing a financial planner’s time through the useof a technology solution that enhances rather thandiminishes the value and relevance of what is beingdelivered.In relation to the actual construction of the financialplanning solution, software that personalisesthe process while providing a compliant, but yetengaging document, is the nirvana sought by allfinancial planning professionals.The implementation process through efficientdocument exchange, explanation and execution byclient and financial planner, and then the enactingof the instructions by the investment, platform andinsurance houses is yet another process step wheretechnology systems are required for the delivery ofseamless execution and efficiency.Finally, the review process, so heavily reliant on anup-to-date analysis of the client’s portfolios and theirpersonal life circumstances, has to date relied upondata feeds that require validation and a re-engagingof the client in a questionnaire format rather than afluid and live process. Like a heartbeat, this providesa dynamic flow of information to create the snapshotdiscussion that provides the foundations of theongoing relationship, well above an annual reviewprocess.Can technology meet the needs of modern financialplanners and clients? Do financial planners need tocreate efficiencies in financial planning process?A way of determining the relevance of thesequestions, and whether fintech solutions are required,is by discovering whether or not the financialplanning client has changed and to what extent doesfinancial advice positively impact on the wellbeing ofpeople who have been through the financial planningprocess.MAPPING FINTECH TO THE FINANCIAL PLANNING PROCESS13

The benefits of financial planningfor the changing consumerResearch has uncovered that people either have a smart-money mindset or they don’t9. It alsofound they are struggling to “grow up”. They want a short form master's degree in growing up.They want good topics to choose from in a self-paced study format with a curriculum that coverseverything from investing in a SMSF, to having that hard talk about a budget, to how to pick good,cheap wine. They want to identify with a brand. They want a digital platform with some of the mostsophisticated financial planning tools, and a hip set of collateral and they want connection and theability to ebb and flow into advice when they need it10.A study by Accenture11 questioned what the standardfinancial planning process is. The report defineda new generation of consumers “generation D”representing tech savvy consumers. These consumersare not who you might think they are. They are notGen Y’s, they are a group that represent 27% ofmillennials, 39% of Gen X’rs and 64% of baby boomersand it is this group that value digital financial planningtools that offer education, information, modellingtools that can be used by the potential investor toexplore and define parameters of their own situationbefore they engage financial planner (if they do soat all). In 2011, Cerulli Associates discovered throughtheir research that only 1 out of 2 clients of currentwealth managers in the 30-49 age group weresatisfied with that wealth provider, citing a lack ofcollaboration and value add tools as main reasons12.working towards their ideal life14. The study focussedon the impact of advice on a client’s psyche andrelationship demonstrating that clients who receiveprofessional ongoing financial advice experienceadditional positive social and personal benefits,compared to individuals who don’t. It was foundthat ongoing financial planning clients are15:These findings, from non-peer reviewed surveys, of adisengagement with financial advice and the processof financial planning don’t ring true compared to thebenefits of financial planning and the six step financialplanning process that have been demonstrated froma series of university studies and the connection ofpositive well-being to the financial planning process.How is this possible? It seems as if the process offinancial planning positively impacts on cognitive andpsychological processes. In the seminal work16 on thepositive impact of the financial planning process, KymIrving identified the key elements of pla

around efficiency. When it comes to financial planning, they desire easier and more efficient interactions. However the planning process that a professional financial planner undertakes has requirements governed by the obligations of the best interest duty and a strict adherence to the fundamental six steps of the financial planning process.

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