Perhaps only a decade ago, having somebody to manage your wealth was reserved for those who could afford it. If you could, your choice was determined by long meetings, reams of paper, and above all, trust.
Since the crash, consumers have grown increasingly sceptical of banks and financial services. Time is a healer, no doubt. But before this wound heals, it bleeds opportunity. A plethora of fintechs have risen to the challenge of innovating where the big players have failed.
The technological revolution witnessed over the last decade or so has increased connectivity more than at any point in history. Technology is an enabler, and through these firms, people are taking their financial affairs into their own hands.
Moneyfarm is one of the new kids on the block. Founders Giovanni Dapra and Paolo Galvani left behind their City careers to set it up in 2011. It’s an app-based digital wealth management platform, which expanded into the UK from Italy last year. Dapra, the firm’s chief executive, is on a mission.
“What we really want to do is give people the best solution. Ultimately we’re here to make sure that you make the most out of your money in the long term.”
Since moving to London, the business has doubled its user base, now managing £260m in assets across the UK and Italy.
In an era of ultra-low interest rates, it’s hardly worth keeping money in the bank, leading to a retail investment binge, enabled by technology. Many app-based stock brokers and CFD platforms have popped up in the last few years for those with the time and grit to pick stocks. What Moneyfarm offers is both ease and security. You pick the amount of risk you want to be exposed to, like a traditional wealth management service.
“You come to our site, we try to understand who you are and what your investment goals are, and we manage accordingly,” says Dapra.
The firm offers a portfolio of passive ETFs that are actively managed by its in-house investment managers. He says they picked ETFs over stocks, shares, bonds or anything else because they “allow variable diversification, great liquidity and transparency.”
The pair were ahead of the curve in terms of digitising something traditionally human. When they started out, the choice of online money management was between a savings account or a fully fledged adviser, with little in between. In the wake of the crash, says Dapra, people were thirsty to try something new.
“People were really looking differently at banks. They trusted them, but they were more inquisitive about financial services in general.”
Following collapses, bailouts and cutbacks, banks became less hawkish – they couldn’t innovate in the same way. “The reality is, says Dapra, “that it’s very difficult for those kinds of organisations to innovate and change – and I don’t think the economic incentive is there for them to do that. It’s difficult for the chief executive of a big bank to get their shareholders to buy into big changes.”
He adds though, that despite the sluggishness, banks will continue to dominate – they have millions of customers and purchasing power, and the erosion of their services is fractional.
Firms like Moneyfarm only have a sliver of the pie. This could change next year when the EU’s second Payments Services Directive comes into force. Among a raft of changes to make banking more open in the digital age, it forces incumbents to open up their financial data to smaller firms through APIs – something Dapra says will help Moneyfarm to offer better advice.
“We are a management company using data – data is in our DNA. If banks open up data, we can give better advice. It’s about the transformation of our service throughout your lifecycle – if we have access to your transactional data, we can adapt as your circumstances change in real time.”
The firm has recently integrated Earnest, an AI chatbot, into its service. Chatbots are more than just vogue though, says Dapra. They offer a more human-like interaction when managing your finances.
“Earnest is one of the best financial planning app bots,” he says. “It’s an opportunity to expand into chat-based services, and a key change in our UI. When it comes to financial advice, a conversational interface is very natural – it’s always been associated with a person.
“Leveraging data started with expenses and budgeting, but taking that same technology and applying it to wealth management is what interests me the most – improving the financial advice we give.”
As well as a partnership with Allianz Global Investors, and launching separate partnerships with Uber and Revolut, Moneyfarm is in the process of launching a pension product. Dapra says it is a “critical opportunity” and that “ultimately, pensions will be most important social problem in the next 10-20 years for people in the UK.”
Fewer people are saving into a private pension plan than at any point for the past 60 years. Auto-enrolment has gone some of the way to curing this ill, yet still there is a reluctance to think ahead.
“It’s difficult to think about pensions – you have to visualise yourself in 40 years, and very few people want to do that. You have to sit down and do maths, and no one wants to do that either. You have to save, which mathematically means no spending today for something you can’t envision. We want to make it as simple as possible, so our customers don’t really have to think about it.”
Elliott Haworth is business features writer at City A.M.