Cloud computing and financial advice - opportunities and risks
Decimal's Jan Kolbusz says cloud technology could be the key to providing end-to-end, seamless financial advice.
Much has been said about this thing called cloud technology. But very little has been explained about the potential positive impact of the cloud as it relates to financial advice.
This article seeks to fill the information gap. It aims to first define what cloud is and does; show what threats and opportunities it presents to the advice community in Australia; and finally, provide a simple guide for those who wish to pursue a future using cloud-based, software-as-a-service technology.
Definition
When I use the expression “cloud technology”, I encourage you to first think big. Imagine web-based functionality delivering seamless, unlimited opportunity without boundaries.
If that is too big, think of what cloud is not. For example, cloud’s polar opposite is the current module-based technology that supports traditional business IT systems.
Putting it another way: current IT applications typically start as a single module of functionality with its own island of data.
For example: a client database, being separate to your modelling modules, which are separate to portfolio reporting, which is separate to your SOA generation software.
As business needs grow, more and more modules (and islands of data) are added, until we end up with a spaghetti bowl of modules, data and complexity, involving highly costly programming services to maintain or upgrade.
Cloud turns this on its head.
By starting with the data and first designing – then building – an all-encompassing database, upfront, we arrive at a single database designed to hold the data required to support all the functionality.
What does this mean for you, the adviser?
Simply, it opens access to a world without restriction for advisers, and the legal entities which govern them, to engage clients, track, audit, deliver advice and provide fulfilment of that advice where a product or paperwork (SOA) is involved.
True end-to-end, efficient and compliant business operations.
If you have the time, take a look at the online, cloud-based accounting service called Xero. A quick Google search will find it.
This cloud accounting software is to traditional tax agents and receipt-in-a-shoe-box clients what online discount retailing is to department stores. It is also a beautiful – and real (real time) – representation of what I have described above.
For a closer-to-home example, I have been working on a pilot programme with two Melbourne-based financial planners – a program I believe is a world first. The advisers have embraced the cloud, software as-a-service-world, and now run their entire business from two notebook computers.
Literally – a paperless and server-less office, also without desks if they so choose. These are exciting times for the financial advice and personal services profession in Australia and globally.
Note I have used the expression ‘software as a service’ (or SAAS) above. This was deliberate, as it is an important point. SAAS underscores the value an adviser can unlock from the cloud through purchasing only the services he or she needs.
Put another way, SAAS allows you to pay for only the level of service you need at any one time – so you simply start using a cloud system for the part of your business that you need most.
This does not mean you must decommission and de-install whatever existing module-based system you have.
It’s simple and flexible. Because there are no upfront costs associated with cloud, you don’t have to justify it by removing your old system at the same time
A dark or silver lining?
So what are the threats and opportunities of cloud?
Let’s first look at this from the perspective of the most important stakeholder: the client.
A web-based access point provides a neat start in enablement and engagement with the intrinsic value you, the adviser, bring to your client.
Think of the impact on a client, when logging on to “self-start” an interaction with financial advice via the web, I as the client can have my personalised profile identified in a time and place of my choosing, but always leading back to an expert adviser.
Imagine also if the interaction you have with me, the prospective client, via the web immediately deeply personalises my financial and life situation?
This is a critical moment of engagement. There is a five-to-10 times greater chance that the client will click through when you personalise things.
After all, in the real world, how do you get a consumer’s attention? Make the information about them, of course!
Cloud technology makes this happen by making it as cheap to prepopulate two million personalised URLs (the place where your client lands, interacts and comes back to) as it does to do the same for 2000 or 200.
All the time that this vital engagement is going on, the cloud is busy assembling and analysing real-time data. Not only that, it is transparently open to all stakeholders, simultaneously.
Think about that for your business – the compliance and technical people seeing the same data, real-time, as the paraplanner, and the planner sitting above him or her.
Marketing can keep an eye on engagement and conversion rates, and finance can keep track of your forward revenues while HR can map out their capacity planning and staff needs.
With a cloud application everyone is working off the same data in real time.
What’s so good about that?
Well, there are many, many pros. But here are just two:
1) I can pick up where the client left off. Simply, by the client self-populating their own virtual fact find, if you like, they hand to you a head start for your financial strategy and planning process – which is of course also highly efficient.
You have the choice to complete the fact find yourself, or in tandem with the client.
It also has the additional benefit of being topic agnostic – where do you want to be? Insurance solutions? SMSF? Tax planning? Retirement planning?
The topic choices are endless, and as personal as the individual client’s needs and wants.
Also, when interacting with someone who has pre-populated their needs, you have the power to point them towards topics of most potential relevance.
2: Everyone can see what everyone else is doing. We live in the age of transparency. For advisers using the cloud, this means the entire choir is not only singing off the same sheet music, they read off one (online) copy of the music, simultaneously.
Compliance, administration and platform provider all have immediate access to the fruits of your advice.
From a business perspective such functionality is transformative. I know that is a word used a lot these days. But in this case, I really mean it.
Why? Because it adds orders-of-magnitude lower cost to the process of ongoing engagement and advice, and builds continually engaged clients, irrespective of their funds under administration.
And the really good news? Although information access is available to all stakeholders in a single engagement and advice platform, this does not mean relinquishing an ounce of control over the client. In fact, the numbers say your bond with clients will increase.
Great, so what about the negatives?
Many people raise concerns about data security as it relates to the cloud. This is generally based on the fear of “handing over data” to a proprietary set of servers owned by a third party – relinquishing security to an unknown entity.
I counter this by saying, if you are engaging with or building a true, ground-up cloud solution (not just bolting on a piece of web-enabled software), then the issue of data security is dealt with via the innate process of inbuilt layers of security.
There are many technology or software system variants available which claim to offer “cloud” capability. But beware those that are not genuine, built-from-scratch systems.
Like putting lipstick on a pig, giving old module-based software some fancy front-end web technology will not work.
And it’s not cloud. For more on genuine cloud, see the checklist, below.
The road map
So where does the rubber hit the road for advisers?
I’ve talked mostly about the engagement end of the advice spectrum. So what does the future look like with cloud, and the job of building sustainable growth businesses that also allow greater public access to advice?
If we were to draw a roadmap for advisers, I would start with identifying the destination first. The endpoint, I believe, is to arrive at a system of affordable, scalable and compliant advice, no matter the personal resources of the client.
Cloud can do this by reducing the total end-to-end cost of advice. The future for a viable scalable advice model also looks far more certain with cloud-enabled advice.
What’s next? The low-risk way to begin is to start using a cloud-based system for your new clients, and plan to migrate your existing clients away from old server-based systems – over time – into the new.
The cloud checklist
When is cloud really not cloud? Here’s a 10-point checklist to help advisers understand the practical difference.
- Real cloud does everything! So, expect your strategy modelling, financial planning and reporting to all run off one common database. Ask vendors: does your system mean data is never re-entered? And all data is always automatically kept up to date? It’s a fundamental difference and it’s important!
- SOA generation: Does the purported cloud system create and edit SOAs online, or you do have to revert to PC-based Word? Unless its edits are done online, how else can client-specific edits be tracked and logged automatically against the client’s workflow file?
- Workflow: Is your advice business workflow automatically updated when the client updates their own data online – as well as when the adviser or an administrator works on the client file?
- Compliance: Can compliance officers log-in remotely and see all the advice given by every adviser to every client within their dealer group?
- One source of truth: Is there only one version of the complete system, and it is continually enhanced and updated? (Ask: “Do I never again have to worry about when to upgrade to ‘the next version’?”)
- Customisation: Can system customisation be accommodated with switches rather than by coming off the cloud?
- Efficient data management from the get-go: Is all the data updated by a prospective client online immediately? Is it available to advisers online – without any data transfer or data re-entry?
- Seamless access: Is the system fully cloud or just bits, thereby making every single function available via any browser, without anything needing to be downloaded onto the desktop PC?
- Admin heaven: Can forms be pre-populated online from the same system, and other reports, not just SOAs?
- Continuous automated integration: Are data feeds from product and platform providers automatic, because a cloud provider only needs one pipe to each provider?
Jan Kolbusz is the managing director of Decimal.
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