The ecosystem and interoperability mega trend

In August 2022 I kicked off a series of articles on the 3 megatrends driving data management in superannuation with a summary of those trends. This is the third article in the series in which I expand on the second of those trends – ecosystems and interoperability.

On the surface of it, an ‘ecosystem’ sounds like a simple concept. But there is so much going on within a wealth management operation to make a fund work and then get that fund in the hands of the ultimate investor.

In fact, there has been massive change over the past decade in how wealth managers deal with service providers and how services are provided to those wealth managers. This is partly a function of the increasing size of the wealth management industry but also a result of the huge technological advances that have been made in many areas of wealth management administration.

Today, wealth managers are becoming increasingly like orchestrators of services and orchestrators of the integration and interoperability between a much wider range of specialist service providers than was ever available in the past. 

It is no longer enough for trustees to hand over all their administration and operation responsibilities to one provider. And while it may still be possible to do this in some cases, it doesn’t necessarily meet the needs of trustees, as discussed in my earlier piece, nor their cost requirements. 

There has been a real deconstruction of the services that are bundled together in an administrator’s offering and a breaking up of the services into a range of best of breed industry commodities. What wealth managers need to do now is orchestrate the integration of those services to create and design unique product and service offerings for their customers.

They could also learn something from the UK’s experience which has been grappling with similar issues for some time. I spoke with Sam Turner, Director (Wealth) at UK-based financial services software solutions and consultancy Altus and he shares some of his insights below.

The product layer

There are two parts to this ecosystem problem that wealth managers are trying to solve. The first is how to optimize interoperability in the manufacturing, or the product, layer. The wealth manager needs to construct the best possible service offering that sits behind their product disclosure statement (PDS).

This involves coordinating all the components required to make the product work, such as a call centre, the delivery of advice, the registry service, an employer service interface etc.  

In most instances, there is integration on a one-to-one basis between hardware and the different components in the ecosystem. The wealth manager’s job is to co-ordinate the whole process, so the pieces of the puzzle all fit together, and are integrated well. If it’s nice and smooth and efficient, and if it all works as it is supposed to, the wealth manager is able to deliver the service and the promise that results from putting that together to the customer. There are lots of people, different infrastructure, different applications all interacting and interoperating with each other making that work.

The distribution layer

The second layer where an ecosystem evolution is underway is in the distribution layer, where there is a much more fragmented model for how customers interoperate and consume the product and service that is represented by the new architecture in the back end.

The wealth management product, that is supported by the ecosystem in the first layer discussed above, now needs to be much more technically interoperable with a very wide range of distribution partners. 

This represents a change or expansion in how financial advice is delivered, which demands interoperability with bank and other financial app providers.

In the past, you’d seek financial advice from an adviser in face-to-face way or you might ring the call centre or you could log straight into the provider’s app. Now, the products and services that are being offered by the wealth managers are going to need to be available in other people’s distribution channels, so they’re going to need to be represented as an option in a much more fragmented architecture on the distribution side.

That is what I like to call a “one to many” problem. In the back end you’ve got one system needing to work with one system but at the front end you’ve got one ecosystem needing to work with many other ecosystems and that “one to many” problem is a very specific technical challenge.

To solve that challenge you need to build APIs, you have to build service interfaces that allow other people to consume your capability whenever and wherever they want and need it.

What can we learn from open banking?

It’s on the distribution side of things and solving the ‘one to many’ problem where open banking and the consumer data right should eventually be able to help.

Open banking as it relates to the banking ecosystem and other financial ecosystems such as superannuation and insurance is all about creating a more open and competitive marketplace where financial products and services compete in a more flexible domain at the consumer layer.

The CDR and open banking have only just begun in Australia. Banking services were the first cab off the rank, and the energy sector was added in November when consumers were able to share their customer data between major providers.

The UK is a few steps ahead of Australia with regards to open banking and how it relates to wealth management and Sam says that while there have been some hiccups along the way, ultimately ease of integration between services is helping the end user.

“So, the other interesting thing through all of this that I’ve seen… is moving towards a more componentised architecture, because typically over here, it’s been you deal with a single provider for your product administration and another to run advice and there has been limited integration between those two systems,” he says.

“We are now seeing, particularly in the financial planning sphere, a more componentised architecture and that’s as a result of the greater ease of integration.” 

There has been plenty of foot-dragging in the UK with the bigger players in the financial services space reluctant to give up their hold on customer and member information. 

There are organisations, like Dimply in the UK, that have been partnering with employee benefit services to offer employees aggregate spending data around their consumption patterns, but they are still facing reticence when it comes to extending that to pension and investment products. 

“[In terms of] the maturity of integration protocols and those sorts of things we’re absolutely geared up for it. It’s more from regulatory and operational perspective, that sort of has meant that these things haven’t quite yet been achieved,” Turner says.

What’s next?

Open wealth management may be some way off in Australia but as the UK experience highlights, providers would be well placed to start putting the right technological systems and processes in place now to be ready for these radical changes. It is not something that wealth management operators should be doing weeks out from the CDR being extended to their industry and those that start thinking about how to operate in the new world today, will be in a much better competitive position in the future.

There are plenty of data challenges facing the superannuation sector in the current environment, but they are not insurmountable, and they are all areas where Novigi has specialised expertise. We’d love to help with any data issues your organisation may have so please reach out to one of our consultants.

Ash Priest is the Chief Executive Officer at Novigi

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