'The wealth industry is the least innovative'

Speaking at the Lang Cat AdviceTech Catwalk yesterday (June 20) Handcock discussed how the industry was the least innovative because of the shape of it.

She said: “This industry has a remarkably long tail. We have 25,000 financial advisers in the UK with an average firm size of five advisers. It’s quite hard to innovate when there's only five advisers in your firm, everyone's really focusing on the day job.

“Then with the big firms ‘you can't rush wealth’ is something that people often say to me, it takes a long time to build a big firm.

"So when you look at them they've been around quite a while they know what they're doing. The technology is probably quite old by now, that's not their fault, it's just technology becomes obsolete quite quickly. 

“But critically, these big firms tend to make nice revenue. So they think 'what is the massive incentive to change? My business works, I'm making money, I don't need to do anything that differently'.”

These two things combined has meant there has been no real pressure for the industry to change but Handcock highlighted that it needed to start innovating more.

“Consumer duty, in my experience, is probably one of the bits of regulation where the FCA has shown its teeth sooner than everyone expected. So it's very clear to everyone that consumer duty is not just something that the FCA put out there to make everyone document things better.

“It is really expecting us to improve consumer outcomes and be able to track them. The way that we value businesses in our space is changing. People are going to start looking more at profitability and how much it costs to run a business as well as just the size of their business. 

"Scaling businesses in the space organically is hard and so you've got to find ways of unlocking and growing more quickly.

“Or if you like me, you get obsessed with the fact that heads rolled when Nigel Farage got debanked because that’s not okay. But people not getting financial advice, that's cool, let’s just ignore that. 

“The fact that 92 per cent of people can't get help with their long term money, why is that okay? Why do we continue to be okay with this stat? So that's my particular obsession and one of the big reasons why we have to change the way we run our businesses,” she added.

Technology 

Handcock said the industry will see more change in the next five years than it has done in the past 15 years, as a result of technology.

However, one of the challenges was the fact the industry does not have many “digital natives”.

She said: “Help is at hand. What we will see is the people who are coming into the industry now will save you, they are the people with new ideas. They're founders who are brave, who will think about breaking barriers. And they can do all sorts of things for you. 

“They can help you integrate technology. We know one of the reasons that many of the businesses in this space are operationally difficult to run because technology doesn't talk to each other. It's really irritating. And ultimately, customers are paying for technology not being integrated. So startups are way better at that and can be brave about regulatory models.”

Startups

Hancock believed startups could help advice firms modernise their business and help to deliver better customer outcomes but noted firms needed to understand these firms were in their infancy.

“We've got to remember that these businesses are babies and need dealing with gently because they're just finding their way. If you try to treat them like big incumbents with perfect cash flow, having done everything before, you are not going to get the benefit of that innovation. It's impossible when you're starting a business to get everything right the first time. 

“There's the classic phrase, if you're not getting it wrong half the time, you're just not moving quickly enough. So you've got to remember that the businesses you're dealing with are babies, and need to be treated as such,” she explained.

However, Handcock pointed out that founders of startups also had a big role to play and needed to think about integration just as much as function, understanding how their ideas fit into the ecosystem of a firm they are pitching to.

“Founders also need to understand regulation properly. This is a role that I think a founder can play or a small business can play in going, 'I've read this, you don't have to and I'm going to teach you about it'. 

“And frankly, if you're trying to sell to a regulated firm, without having done that, you're going to get unstuck very quickly, because at some point, you're going to sit in front of the head of compliance. If you don't know what you're talking about you are never going to sell anything. It might not be everyone's favourite task, but it's worth doing,” she added. 

Handcock urged the audience to work with people who think differently and who are the ‘early adopters’.

She said: “Work with the people that are obsessed with customer outcomes, because actually you can transform the world together, if you pick the right partners.”

alina.khan@ft.com