Good morning.

Twice a year, I fly over to the US to attend conferences on emerging financial

technology.

At these conferences, I get to talk to a lot of firms who really are at the cutting edge
of online finance. They provide me with insights into their current propositions, and
tell me what they think the future holds.

Many of them view Canada, Australia and the UK as their secondary markets, so if we
want to get a view of the future of financial advice & technology in the UK, we should
look over the pond into our very own continent-sized crystal ball.

Let’s start by looking at the future of financial technology for advisers…

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 Back in April last year, I wrote a post on the Fincision blog about the back office
market in the UK; it wasn’t too positive, and I got involved in a couple of interesting
exchanges of view as a result!

Since then, in the UK we’ve seen Salesforce Wealth Management Edition go AWOL,
Capita’s Enabler project permanently disabled, and 1st Software passed from pillar to
post before being bought by the dark side.

Whilst some of the emerging adviser networks have made new systems their USP, our
established technology providers don’t seem to have moved on much over the last
year, which I find very disappointing.

Contrast this with the situation in the US.

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 In response to companies like Salesforce & Sungard upping their game, Pershing set
itself the task of leap-frogging the opposition and building the next generation of
adviser technology: NetX360.

Pershing interviewed more than 700 investment professionals, and more than 1,500
suggestions were considered.

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 Many firms told Pershing that they want integration and they want the ability to pick
and choose their software providers, but they do not have the scale or the
infrastructure to achieve their goals.

So Pershing is stepping in as a conduit. With NetX360, clients will be able to have

third-party integration on demand, and the products will often be available at a
better price than small firms can negotiate on their own.
There are also no long-term contracts to sign.

Furthermore, advisors can control access to third-party software through the

platform; so if a firm has 10 employees, but only two planners, the planning software
can be enabled for the planners alone.
If a firm wants to use a basic, inexpensive portfolio-reporting package for small
accounts and a more sophisticated one for large accounts, NetX360 will run both.

Pershing MD Suresh Kumar thinks the concept can be taken further still. Kumar has
talked about opening his platform to other developers, drawing the analogy with
Apple’s iPhone App Store. In essence, he believes that Pershing can and will offer
advisers an App Store for NetX360 soon. It could be revolutionary.

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 Like many applications, NetX360 will allow advisors to create their own home pages -
or dashboards- but it goes much further, allowing users to create and name multiple
customized pages, each made up of discrete views or elements, including data from
third-party providers that integrate with the system (such as CRM software &
investment research tools).

So, for example, first thing in the morning, an advisor might create a page that
contains today's appointments from his preferred CRM application, his alerts, a list of
top clients and a list of unrealized gains and losses across the practice.

Once the morning review is completed, the advisor can choose to use a second page
for the rest of the day. He could create several pages around common tasks, so there
might be one for equity trading and another for research.

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 Pershing wants to help advisors grow their businesses and reduce expenses. A single
integrated set of workflows helps with the latter and Pershing will allow firms to
combine their consolidated data with external information for prospecting and
wealth scoring.

Pershing is also considering anonymously tracking usage to identify how top-

performing firms differ from the rest. Are successful firms consistently viewing
particular screens that others ignore? Are they using a specific set of programs that
differs from those used by the majority? By distributing this information to all users,
Pershing could help raise the bar across its whole user base.

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 Pershing is even planning to release new NetX360 apps for the iPhone and the
BlackBerry shortly, and soon, American advisers might even see that NetX360 App
Store.

So where is the UK equivalent of Pershing? For the technologists in the house, that’s
your challenge.

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 And if that isn’t enough of a challenge, we should also consider the impact that the
rising tide of consumer-facing financial technology is starting to have…

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 Some pioneering american financial advisers are partnering with cutting edge
technology firms to embrace the internet’s challenge to their traditional business
models.

Together, they are designing and building online solutions across the whole spectrum
of financial education and advice.

Even given the turbulent economy of the past year, there have been a number of
significant angel & VC funding rounds for these fledgling collaborations, and as you’ll
hear a little later, a highly successful and very profitable exit for one of the better-
known players.

Before, we have a look at some of the leading firms in each of these areas, let’s just
recap where we stand in the UK market…

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 If anyone doubts the scale of the consumer interest in using the internet for financial
research, consider this:

Martin Lewis’s moneysavingexpert.com website was visited by 7,920,000 different

people in July, and they looked at over 68 million pages.

In one day, 710,000 people decided Martin Lewis had something interesting to say
about their finances.

We don’t have a true internet-based full advice service here yet, but I’m aware of a
number of well-funded ongoing projects with that will deliver such a service within
the next few months.

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 In the US, not only have they gone further up the triangle into providing full advice
online, use of services in all of these segments is sky-rocketing as people’s financial
habits change in the wake of the credit crunch.

A whole new area of macro financial planning is emerging, focusing on short-term

goals and savings in such areas as credit card accounts, mobile phone plans, utility
tariffs, reverse auctions for high interest savings, and peer-to-peer short-term
lending.

And people are accessing these services not just from their computers, but on their
mobile phones too. As Steve Jobs likes to tell us, there’s an app for that – in fact there
are currently 1160 finance apps available for iPhone alone!

Let’s start at the leading websites operating in some of these areas

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 The next generation of comparison shopping site is already delivering a much richer
user experience.
Billshrink is the leader of the pack, and is probably the most advanced comparison
site I have ever seen... ... and its free...

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 In the UK, we’ve already seen GoCompare spend a fortune on TV advertising to
promote their new user experience, which is still way behind what you’ve just seen
from BillShrink. But for us here in the UK, the real fun will start when Google enters
the fray.

Here’s a screenshot of what Google has been trialling on a very stealthy basis, but is
rumoured to be launching soon!

This is going to force the other comparison sites to really up their game and, who
knows, maybe we won’t have to wait much longer to see that much richer BillShrink
experience in British colours. I think I prefer it to dragons & meerkats.

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 Last year, I talked a little about how consumer versions of tools that have traditionally
been the domain of professional advisers were appearing.

The trend is continuing, and this year I’m going to show you another planning tool
which is blurring the lines between amateur and professional.

Green Sherpa is a new web-based cash flow and budgeting solution that allows users
to go beyond reports of actual spending, or static budgets based on historical
averages, and instead create a plan much like a professional would produce.

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 The tools and services we’ve looked at so far stop short of providing what we view as
financial advice, although you could argue that billshrink is muddying the water
somewhat.

So lets have a look at two of the web-based services that are attempting to deliver
financial advice…

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 Mint was built the Silicon Valley Way. It started in CEO Aaran Patzer’s apartment,
where, with two other partners, he built the software on a shoestring budget using
mostly free open source technology. Mint’s founders interviewed their first real
professional, a VP of engineering, in Aaron’s kitchen.

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 From those humble beginnings, Mint has grown to be one of the most popular
financial websites on the web... ..and yet again, it’s free...

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 Mint automatically pulls together bank, credit card , savings and investment data,
much like Green Sherpa...

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 But it also provides personalized money–saving and money–making suggestions.
Users identify an average of $1,000 in savings opportunities during their first session.

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 Just a few months ago, Mint extended its macro financial planning focus and
launched a limited financial advice service, that it developed in consultation with a
number of CFPs, called Financial Fitness to it’s 1 million plus users.

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 Yesterday, exactly two years after launch, Mint was acquired by NASDAQ-listed firm
Intuit – the company behind Quicken and TurboTax . The deal is worth around $170
million. In all, Mint raised $32 million over three venture rounds, so that’s not a bad
profit for all those who invested – about a 5x return.

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 I would imagine that Simplifi’s founders would settle for a similar exit, and who
knows, it might just happen…

Simplifi is leading the way in delivering full independent financial planning advice
over the internet. They even have a virtual financial adviser called Sophie, who guides
users through the advice process.

Here’s CEO Bryan Link demoing Simplifi at Finovate Startup…

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 Last week, I talked to Bryan, who used to be one of you - a financial planner - and
asked him to comment on how you should be thinking about the threat of automated
advice…

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 “As an adviser, I would think about this concept of online advice as another
dimension to the types of services a face-to-face adviser could bring. The way we
look at it, with the organisations we work with is, we want to be part of their
segmentation plan. We want to provide advice for that group of customers who
either don’t qualify for face-to-face service because they don’t have the assets or the
income, or they want to opt out of that process. There are a number of folks out
there who are just uncomfortable with sitting face-to-face with a professional at this
point in their life. They feel like for whatever reasons, a combination of psychological
factors, and maybe embarrassment about their own situation, they’re just not ready
to take that step. So we feel that the online advice approach is a great first step into
building an advice-based relationship, and then having an adviser come into that role
as the relationship develops over time”

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 Food for thought.

I admit that I’ve painted a positive picture of online financial services so far, but there
is a down side. The internet’s various privacy and security issues are well
documented, but in a financial context, these are even more serious.
Identity fraud and account hijacking are very real threats, and users should be
continuously on their guard when using these services.

For financial professionals, a thorough due diligence exercise against any online
service that a firm is considering using is critical, because when things go wrong, they
go very wrong indeed, as we are about to find out…

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 Back in May, a financial website called Rudder suffered an embarrassing email glitch
that affected a large number of it’s customers.

In the pre-Internet days, no one other than those few hundred customers, and some
of their friends, would have heard about it.

Even last year, the story might have died without ever crossing over to the mass
media. But when it comes to breaking news and company gaffes, 2009 is a whole
new ball game.

Everyone wants 15 minutes of fame as an investigative reporter, even me...

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 …and this is the dream platform: Twitter!

I'm going to recap how the news broke, because it illustrates the power of social
media services such as twitter, facebook & blogs

As the story unfolds, it’s worth taking time to think about how you would respond
should something similar happen to you – remember you’ve got just 6 hours to
survive!

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 So, what triggered this incident?

According to Rudder, a pre-planned system upgrade on the18th of May caused over

700 users to receive email containing balance and transaction information for other
users.

Rudder pulled the plug on the upgrade after realising it had all gone terribly wrong.

Besides seeing private data in the email, unauthorized users were also able to click
through links to access the full website account at Rudder.com.

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 How did the news break? At just after 2:30 PM our time on 19th May, Adam Briggs
of Beech Grove, Indiana, used twitter to alert his 600 or so followers to problems at
Rudder.

He didn't stop at that. He also took the time to search and warn several Twitter users
who'd recently mentioned "Rudder.com“. Briggs went on to tweet 21 times that day
about the Rudder problem.

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 I was one of the people who heard from Briggs - having just tweeted about several
companies, including Rudder, that I'd seen in San Francisco.

I spent some time background checking the story to make sure that it wasn’t a hoax,
and also tried to contact Rudder’s CEO Nikhil Roy via twitter and telephone, but
without any success.

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 Briggs then sent me screenshots of his Gmail inbox, full of email meant for other
Rudder users...

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 …plus a screenshot clearly showing this Rudder user’s paycheck details, mobile phone
bills, bank account and credit card balances.

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 Based on this evidence, at 5pm I decided to run the story on the Fincision blog .

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 Within minutes, the story was being retweeted around the internet, and the blog had
over 500 visitors within an hour.

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 At just after seven pm, I got in touch with my friend Pete Cashmore who runs a blog
called Mashable.

A half-hour later, Mashable, which is the fifth largest blog in the USA, published a
post on the Rudder problem. From Mashable, the problem was retweeted 120 times
within 20 minutes.

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 Then at 9 o’clock, the second largest blog in the USA, TechCrunch, which has more
than 2 million subscribers, posted the story.

And because of high comment activity, it stayed on the top of TechCrunch most of the
next 12 hours.

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 Finally, just over 10 hours after the error was first reported on Twitter, Nikhil Roy,
Rudder's CEO, broke cover to post a detailed reply on TechCrunch and Mashable. Roy
apologised for the error and explained what had happened.

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 Rudder also created a special blog which listed the steps they were taking to fix the
problem, and offered users a complimentary subscription to an identity fraud
protection service.

Not a bad response, but Rudder could have used social media much better. The
company's Twitter page and that of its CEO were silent all day. A short Twitter
posting, even "we've stopped all emails and are working on it" would have reassured
users and potentially made the story less alarming. Also, Rudder didn't have a blog,
so there was no place where they could post updates during the day. It was complete
silence for 10 hours, other than the interview with TechCrunch.

The big lesson here is the need for damage-control procedures that take into account
the power and speed of new media. The entire episode could have, prior to Twitter
and the blogs, been known to just a few customers of a very small company, but
instead traveled from a lone tweet to a large splash across the homepage of a major
publication, all within a few hours.

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 The wounds inflicted on Rudder within that 6 hour period have been significant; in
the following month they lost over three-quarters of their customers, and to date
they have not recovered from that position.

The internet can make you, and it can break you. Be prepared for both…

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 Last year, I talked about the threat from the net. This year, I hope you will take away
the message that there are many opportunities to be explored, not just threats to be
avoided, and perhaps seeing how the american market is developing will inspire you
to think about how your business might gain from the digital revolution we are
experiencing. I want to talk about new opportunities right now.

Our industry is no stranger to change, but there is one particular aspect of change
that is regularly promoted to advisers that troubles me, and that is the assertion that,
in order for financial advice firms to survive, they must first segment their clients,
which is OK, but then get rid of the unprofitable majority.

I’ve read stories of up to 60 or 70% of existing customers receiving a polite letter from
their newly-converted new model adviser telling them that, in the nicest possible
way, they can’t afford him or her any longer and should look elsewhere. Years of time
& effort in marketing, networking & relationship-building are being sacrificed in the
name of progress. But why are these customers now unprofitable? Why do you have
to show them the door?

It’s that last bit I have a problem with, and I know some of you do to. Well, this is my
message for you…

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 I can’t think of any other profession that believes it can have too many customers
right now. Too many customers isn’t the problem. This is the problem:

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 Yes, you don’t have enough time in the day to physically see all of your customers,
but that’s a distribution problem. If you could deliver your service without having to
see your customers, they would become profitable, and the problem would go away.

And really, it’s not a problem. Certainly, as we’ve seen & heard in the past 20 minutes
or so, our American friends don’t view it as a problem. They see the opportunity, and
they are acting on it…

So, imagine this…

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 What if there was a way to distribute your firm’s financial advice via the internet?

What if there was an advice distribution platform that you could rent, brand, customise, load
up your own advice processes and decision trees, choose the products and providers that you
want to recommend, and then introduce the platform to those customers that you can’t
afford to see?

People still want a trusted adviser, ideally someone who is qualified and experienced, who is
regulated & insured, who can help them with their financial problems, but they want that on
their terms, and when it suits them. They also want validation; they want someone to tell
them they are making the right decision – in much the same way that Amazon’s people like
you bought this...” works.

This platform would show who else has acted on your recommendation & whether they
thought it was a good suggestion, but Financial Advisers are still the people best placed to
provide the initial guidance, but there are challenges to be overcome.

The skills to build such a platform lie outside our industry, which means we need technology
partners. The costs of building such a solution, plus the challenge of scaling it across the
number of supporting firms it would need to make it a viable ongoing service, is not
something that one individual firm could take on; it requires collaboration.

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 There are regulatory and process challenges that would require an imaginative and
engaging user experience to overcome them and compel your customers to use the
service.

The opportunities would be vast, though. Products, investment portfolios, advice,

books, seminars, videos, premium advice via skype & webcam, could all be sold via
such a platform, and could revolutionise our industry in much the same way that
Pershing’s new platform will in the USA.

We are at a time where there is a perfect financial storm underway. The events of the
last 12 months have changed the way the masses view financial services. More
people are saving, it’s harder to get credit, people are far more realistic about there
financial situations, and they are coming to the conclusion that they need expert
help.

We should be engaging them, not turning them away, and distributing your advice via
internet is the way forward.

It’s a wonderful dream, and if you like the sound of it, come and talk to me later. The
advice distribution platform may just be a little closer to reality than you might
think…

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 Contact Mike Linskey:
mike@fincision.com

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