Interview with Fintuity’s Strategy Director – Edward Downpatrick
In a wide-ranging interview, we interviewed Edward Downpatrick, the Strategy Director for Fintuity. A serial entrepreneur, tech-enthusiast and native of the Scottish Highlands, Edward has had a long career in UK Finance and technology and became the Strategy Director in 2018– the UK’s only digital Independent Financial Advisory and growing fintech disrupter.
Against a backdrop of COVID-19 and major disruption to the global and consumer markets, Edward addresses some of the key issues facing the UK’s consumer finance sector today.
Fintuity is the first and only digital IFA platform of its kind in the UK – what was the inspiration behind launching the platform?
Well it all started with the Retail Distribution Review (RDR) which was introduced in 2015 and which had an immediate impact on the financial advisory industry. Before the RDR was brought in, financial advisers would often give clients advice free-of-charge but would in fact work with a small number of financial product providers who in turn give commissions to the adviser, with the clients being unaware of the exact figures. In reality it was identified that for transparency the clients should either pay the adviser direct or disclose the level of commissions paid by the providers. We wanted to provide this transparency and offer savings to the client.
We founded the firm having worked in a leading London based hedge fund, where the focus was on institutional finance – we had an idea that this model could work in the retail finance sector and after some extensive due diligence realised that there were no companies in the UK providing this service and at the same time using advanced tech to drive efficiency savings.
Having setup Fintuity we went about the business of identifying local IFA’s that we could not only partner with but service their clients directly and move their portfolio to our digital platforms. We appointed an acquisition director and went about the business of acquiring 5-6 practices. We realised that the UK consumer finance sector was as diverse as institutional finance and with lots of smaller asset / client finance classes there was a fertile ground to service a market that had been largely ignored to date.
It became clear that as yet there was no centralised portal or platform that could process and manage a portfolio across the whole of the UK. The idea was born to provide a cost-effective and technically advanced platform that could deliver real savings to those with savings or assets of between £50,000 – £250,000. We assembled a small team and left our fund backgrounds behind – Fintuity was designed to deliver the same service that we delivered to institutional finance clients to the UK as a whole, the platform that we have built not only sorts but collects and manages client data driving real savings for the end consumer whilst providing a much faster and compliant service.
The IFA industry has often been described as exceptionally traditional and based around a localised client base – how can Fintuity help IFA’s in today’s climate?
This is right – the IFA sector has always largely been a localised affair, with the exception of a few national and well known players. With lockdown easing, COVID-19 and the major economic turmoil that has been taking place, many people are re-thinking about the way in which they interact with service providers.
Traditional IFA’s often have a localised client base with a range of assets portfolios – we found that some 90% of IFA’s utilise face to face meetings, office and paper-based admin and processing. The traditional approach may of course work for some but it is a long winded process. The IFA will typically meet a client, complete paperwork and then return to the office where the data will be extracted manually and uploaded to a CRM. The adviser will then research solutions, compile advice and present solutions to the client via a suitability report with their recommendations. Once the advice is compiled a second meeting is set and the recommendations are explained and amended or accepted – all product forms are sent and completed, mandate forms filled in and returned to be scanned and sent to the providers. Only then do the product providers accept transfers of funds or fulfil their service obligations. In short it is a long winded and complex process which can take weeks!
Our process has significantly disrupted the IFA industry and has tech at its heart – we charge our clients less because our overheads are lower. We want to work with as many partners in the IFA community as we can to help drive tech-induced efficiencies.
How has the traditional IFA sector responded to date to you as an online platform?
COVID-19 has changed everything. When we started we contacted a number of online communities and we worked out that only some 30% of IFA’s were capable or willing to embrace new technologies which is not unsurprising. There are some 5000 IFA’s in the UK with an average age of 58 and company size of 2-4 advisers with support staff.
We have had a largely positive response but obviously some push back- we are excited about partnering with more colleagues in the IFA community.
We undertook some research into the B2B market and contacted a fair number of IFA’s in online networks to gauge their response to our offering. We have had a largely positive response but obviously some push back- we are excited about partnering with more colleagues in the IFA community.
How has Fintuity changed the face of the IFA sector?
As an industry we have all been impacted by MIFID 2 – in short MIFID 2 impacts the consumer pricing models used by the sector. Before it was introduced IFA’s would charge multiples of say 3-4% of recurring revenue for the initial advisory fee and between 0.75-1% of incomes for the annual review fee.
For many clients their circumstances may not change drastically year-on-year but the justification for the traditionally initial high fees of 3-4% is based on the complex risk profile reports, admin and identification of solutions – once completed the annual fee of 1% would be required to provide an update and amendment of plans. In short the amount of work that would go into servicing a client is the same whether they have a portfolio of 1 million or £100,000 – we found that some IFA’s were simply focussing on higher value clients and ignoring those with less profitable portfolios and would make good fees for very little work on an ongoing basis.
MIFID 2 has had a major impact on the market – IFA’s are now obliged to provide a fully transparent service and aside the initial work that goes into setting up a client, a lot more work has to now go in to justify the annual reviews – in reality this means that IFA’s will often try to reject or pass to another adviser portfolios of between £50,000-£250,000 and simply focus on the higher value clients. We have also seen and heard how some IFA firms are trying to bypass the MIFID 2 process.
Whilst some IFA’s try to avoid those with smaller levels of assets, we want to work with them!
You mentioned how some IFA’s have tried to avoid signing up clients at the £50,000-£250,000 mark, what can Fintuity offer them?
Our business was actively designed to provide services to this asset class – we want to work with anyone that needs our help and will do all we can to assist them. From finding the right mortgages and pensions to savings planning there is much that can be done to help.
We have optimised our processes to streamline the onboarding, back office and delivery – as such our fees are more cost effective than the traditional IFA. In short we offer the same service but more flexibly and with greater savings.
How does Fintuity differ from traditional IFA’s and appointed representatives?
Well I already outlined the traditional IFA model above but as a digital platform we can respond quicker and pass the savings to our clients.
IFA networks are also very interesting and we differ from them as follows. An IFA network is essentially a network of appointed representative that sits under the banner of an FCA firm and appointed representatives simply provide as regulated as possible advice to the end client & shares the commissions and risk with the principle actor. We have seen some commissions going to the principle of up to 20%. Whilst this model works for some it is risky – a client can come back at a later date and say that the advice given was not what they expected, in short it is a risky model!
Embedded in our online IFA platform is a fully transparent and tech driven process that collates, securely stores and logs all written, video and attachment uploads – both the client and Fintuity are covered and there is thus a logical recourse should any misunderstandings occur. The process is quick and easy and we shave a lot of time off the traditional model and clients have to formally approve or amend every financial goal, product and plan that is presented. This way we mitigate all compliance risk which gives us an edge over the appointed rep networks.
When we first started we were told by our peers that an online platform would not work and that 90% of clients favoured a physical meeting – what we have seen is in nearly all cases the opposite! COVID-19 has further exacerbated this trend as well.
What is the next stage of your platform development?
We have some exciting plans.
Whilst a traditional IFA may be limited by travel and meeting obligations, we can hold on average 5-7 meetings per day per advisor given the remote and digital nature of the platform. Fintuity combines a tech-AI and human advice generation and adviser interaction mix for clients and documents, advice and products can be securely signed for and approved.
In due course we will be launching the Virtual Adviser as well – this is our next stage of Fintuity’s development. The Virtual Adviser is an AI led extension of our portal that further expands the mix of human and AI interaction to deliver a much greater mix of advice to the client, when and how they want to receive it. The new platform will allow us to service some 25 clients a day!
It is worth mentioning as well that as the Virtual Adviser is our next step plan, we also have ambitious plans to develop the Smart Marketplace. From home, car and medical insurance to mortgages, pensions and the such there are number of comparison sites out there but the Smart Marketplace is different in that it will be a fully functioning product ecosystem that will match the right products from all providers to the needs of the client.
We are looking to preliminary roll out the Virtual Adviser later this year.
In this period of uncertainty how do you see the take-up of digital resources such as Fintuity – post the Covid-19 crisis do you see digital platforms retaining their current rates of usage?
Well it is obvious in many ways – people have been stuck at home and unable to meet in person and yet their financial plans and liabilities have remained the same.
People are still in the process or looking for pensions, mortgages and insurances – for example there will be many thousands of people who would have retired in the past three months and they still need to make key decisions that will impact their pensions provisions for the coming 20 years. Whether someone is looking for a fixed sum or a flexible draw down – these things still need to be negotiated and approved. We would generally advise a flexible draw down on pensions as you can adapt to new circumstances.
We also see that annuities are low at the moment – whether it is the right time to select pension x or pension strategy y is neither here nor there and up to the individual – one thing remains the same and that is the need for advice and regulated support, remotely and cost-effectively.
People will always need a financial adviser – be it insurance advice, mortgages or pensions to inheritance planning, a pandemic, as we have seen with COVID-19 slows the process but people still need to make life-changing decisions. Take mortgages for example. People will still be looking for the most flexible and best package for them as they move homes.
Rather more controversially! We are also seeing an increase in divorce rates in recent years and this would not have been helped by an enforced lockdown! Separating partners will need advice regardless to best split assets, cash, plans and the rest. The point is that whilst this pandemic has impacted us all, the demand for good compliant advice is now more crucial than ever!
Do you have any international expansion plans?
Yes we do! In a few years we will be actively looking to expand our UK model to the German and French speaking clusters of Europe – a common European financial framework will make expansion easier and we will look to also explore a similar model in the Nordic countries at a later date.
We are actively growing and consolidating our business so this is a natural next step – we are one of the only players in the Europe space so we are excited about what the future holds! We are keen to work on long-term mid-low asset class frameworks and explore the European opportunities at the earliest.
For all queries or to contact Edward please contact Nic Cobb at nic.cobb@fintuity.com
