In part one of a two-part commentary, JHC Systems explores how its software is addressing some of the most urgent challenges in wealth management.

In an exclusive interview, senior executives at JHC Systems, the providers of the FIGARO investment management platform, explain how their software developments are addressing the most pressing problems facing wealth managers today. 

Attitudes towards technology continue to shift rapidly in wealth management; increasingly it is seen as a panacea for the weighty challenges facing wealth managers rather than a threat to its traditional service values, where the personal touch is paramount. But while it is easy for fintech firms to speak of providing technology “solutions”, what is required today, as explained by senior executives at JHC in a recent interview, is a laser-sharp focus on the industry’s problems and being closely in tune with its ongoing evolution. 

John Blackman, chief executive of JHC, and Steve Smith, product manager for FIGARO, spoke to WealthBriefing ahead of the first product release on Element, a new software platform designed to work in tandem with the firm’s core platform and which forms the foundation of its next-generation product suite. JHC has committed a significant amount of investment into the application platform, which is the product of extensive market research to pinpoint wealth managers’ most pressing needs. So what are the real “pain-points” and how is JHC positioning its products to address them?

Two of the big pressures facing wealth managers are increasingly cost-conscious, financially savvy and demanding clients, and the expense associated with heightened regulation. These challenges have made leveraging technology to “do more with less” the industry’s mantra as firms work to protect profitability, improve efficiency, reduce risk and save time.

While wealth managers are certainly seeking efficiency gains throughout their operations, for most this will boil down to finding more efficient ways of servicing clients and managing portfolios, and therefore making significant man-hour savings across their advisor force. Correspondingly, JHC’s research identified several key areas where wealth managers really need help in their quest for scalability.

Where does it hurt?
The first key area identified, Blackman explained, was client onboarding. One of the first experiences a new client has with their chosen wealth manager is the way in which the new firm handles the adoption of their existing portfolio. The wealth manager wants to create a good impression with a quick, smooth and efficient take-on of the client’s assets. For some firms, the absence of digital data capture has resulted in backlogs of paperwork stretching back over several months – not a good first impression for the new client. 

A greater challenge is the lack of automation in the portfolio review and rebalancing process. Monitoring portfolios against their mandates and rebalancing them effectively and efficiently is clearly a high priority, with investment suitability top of the agenda.

Hefty fines continue to be meted out against firms failing to demonstrate appropriate suitability procedures, even in the absence of any client detriment. Meanwhile, recent research from Scorpio Partnership has revealed that close to a third of younger clients feel their wealth manager’s investment recommendations are misaligned with their risk tolerance. For those without the right systems, particularly those managing burgeoning books of clients, the task of portfolio monitoring and management can be onerous, time consuming and prone to human error. 

As Smith points out, many wealth managers suffer from a lack of automation and systems integration, so portfolio monitoring and rebalancing still requires a lot of manual work. “This is a huge part of investment managers’ day-to-day job, cycling through their clients on a typically monthly basis,” he said. “Some extract data to then work on it in Excel; realigning portfolios to models, sometimes reclassifying stocks, and even generating orders manually. All of this can and should be done automatically within the system, with a full audit trail being captured.” 

Proactive approach
In addition to addressing the issue of manual intervention and relying on spreadsheets and other external tools, there is a growing need for real responsiveness to issues within clients' portfolios as they arise, Smith continued. 

“Investment managers need a system that will proactively alert them to problems as soon as they occur, without waiting for a monthly review,” said Smith. “The system must tell the investment manager what’s going on in their portfolios, for example where an asset tolerance has been breached or a cash deficit is imminent, so they can either fix it through rebalancing or accept it and capture their decision in an auditable form.”

Clients using model portfolios or funds to achieve economies of scale, and perhaps to reach a wider demographic, are reaping significant gains through using FIGARO, Blackman explained. Managing a large number of clients against the same asset allocation models (if not the same underlying instruments) opens up huge potential savings, he noted, but only if replication of work is eradicated and all possible efficiencies are aggressively pursued, and the firm really makes the system work for them.

Economies of scale

Technology can deliver many benefits for wealth managers, in particular by helping to improve margins through reducing operating expenses, according to John Blackman, chief executive of JHC. In terms of cost-savings, he highlighted the fact that FIGARO allows firms to aggregate all orders so that far fewer market executions take place overall. He also noted that although wealth managers might like to apply sophisticated, third-party risk analyses to portfolios this can become very expensive – but not if the overarching models are analysed and the portfolios then re-aligned back to these, rather than being examined individually.

“This approach saves firms a lot of time, money and effort,” Blackman said, adding that facilitating efficient third-party partnerships and the modular adoption of JHC’s systems has been a real priority. “A big part of Element’s development was building an API layer which enables our clients to get in and out of their data much more easily,” he said, touching on another of the industry’s hottest technology themes.

Blackman highlighted the benefits an industrial-strength asset management platform like FIGARO can deliver for firms focusing on centralised investment propositions. Not only can the system rebalance more than 50,000 portfolios with ease, the process runs in the background so that advisors can continue with their work as normal.  

As Blackman explained, JHC’s mission is to help investment managers provide a better service while also making their lives substantially easier. The firm’s new software focuses on presenting client and portfolio data clearly in a single view so that advisors can adroitly answer any questions from clients – or indeed from compliance officers - and which really fits with the realities (and perhaps worries) of managing a large number of clients. At-a-glance analytics and mobile capabilities are therefore key.

“Element products have been developed from the outset to be accessible anywhere, anytime. Investment managers on the go can view a summary of all of the portfolios they are managing, see the underlying performance and risk, and be alerted to key actions or events,” said Blackman. “If they are out of the office and want to know everything is OK, they have a tell-at-a-glance dashboard showing the latest positions and highlighting any anomalies”.

Time-pressed investment managers also need help with keeping track of all cash and stock movements in and out of a large number of portfolios. “Investment managers also have to worry about dividends and investing any cash that might arrive unexpectedly,” he said. Equally FIGARO’s monitoring will also alert investment managers to a shortage of cash. “The monitoring system isn’t just scrutinising holdings, it is checking to ensure that portfolios have enough cash projected to cover fees and income payments. It will then proactively prompt investment managers to address any possible shortfalls that might develop into problems with clients,” Blackman continued.  

JHC has a deep understanding of the investment manager’s workflow and what is important to them. The firm is focusing on the time savings that can be achieved through automation. One example cited by Blackman which will no doubt resonate strongly with UK advisors is the traditional scramble at the end of the tax year to use up ISA allowances. “Investment managers used to have to raise £15,000 every year on every single portfolio to reinvest into the ISA, but we’ve automated that within the rebalancing so that instruments are automatically allocated to the most appropriate account,” he said. “So, if you have high income-bearing instruments within a portfolio the system will put those into their ISA to reduce the client’s tax burden.”

JHC is clearly paying attention to the “nuts and bolts” of investment management, taking account of innovations like mobile capabilities, and opening up its database through the development of new APIs. The underlying drive is to help wealth managers eradicate those inefficiencies - large and small - that can hamper their ability to achieve increased profitability through scale.

JHC is investing heavily in R&D, putting almost a fifth of its annual turnover into developing new products and features for its software. “We have a long-term view of life; not many firms in our space would be reinvesting the same proportion as we do in our products,” said Blackman.

Cannily, the firm is also working through its research and thought-leadership programme to firstly highlight the extent of the inefficiencies some institutions are labouring under and then to underscore just how many of these might constitute “low-hanging fruit” easily tackled by technology – rather than just being an unfortunate fact of life. “There are plenty of areas where software can help investment managers to become more effective and efficient,” said Steve Smith, product manager for FIGARO. “Some of these areas are just accepted as ‘the way we have always done things’, whereas an objective view can highlight those difficult and long-winded processes that technology could easily replace.”

So, while the term “solution” is hard to escape in the world of wealth management technology, it is clear that JHC leads those providers committed to identifying and tackling the industry’s most pressing problems systematically – and is willing to invest a significant proportion of its own profits alongside leveraging its industry expertise to fulfil that promise.

Editor’s note: John Blackman, chief executive of JHC, will be speaking at the WealthBriefing Operational Strategy Summit on 1 October 2015. To register to attend, click here.