What's this all about?
At LEVERIS, we believe that the future of banking starts at the core. Core by LEVERIS is an interview series where we address the issues at the core of banking, fintech and financial services. We speak to those working at the intersection between tech and finance about everything from the future of money to investment in fintechs. Through their insights, we explore current trends, predict future outcomes and get a taste of what it takes to succeed in the new age of banking.
Our latest guest in the series is co-founder of a white-label software platform that helps financial institutions and their clients originate, distribute, transact and report on private market investments. As CCO, David Newman steers the commercial side of Delio – a company that is proving to be well placed to capitalise on increased demand among investors for digital information that can help them research investment opportunities and complete deals efficiently.
As David says, “Uncertainty caused by the pandemic has undoubtedly had a ripple effect across wealth management, manifesting itself in an increasing demand for investment opportunities that take a longer-term view on returns, as well as a growing interest in opportunities that offer some form of environmental or societal impact.”
In the following interview, David shares his views on the role of data in wealth management, the shift in what the ‘typical investor’ looks like, and the four approaches that the wealth industry is taking to cryptocurrencies.
LEVERIS: Could you provide some background on Delio and how your technology is making private markets investing accessible and easy to navigate?
David Newman: Delio was established in 2015 with a simple goal – we want to help financial institutions to connect their clients with private investment opportunities quickly, transparently and compliantly.
We do this through our highly configurable, white-labelled technology, which digitises the entire investment lifecycle. Everything from deal origination and distribution to the investment transaction and post-deal reporting is integrated into a seamless digital workflow that removes many of the traditional complexities associated with private market investments. Through our tech, institutions can scale their proposition quickly, efficiently and compliantly while offering their clients 24/7 digital access to investment opportunities, deal information and portfolio reporting.
Consistent and growing demand for access to alternative investments means that financial institutions can no longer operate effectively using a traditional client relationship model. While the client-advisor relationship will always be important, wealthy investors now expect more from their wealth manager; they want to be able to access information digitally, proactively research investment opportunities, and complete deals efficiently. This is how Delio’s technology is transforming private markets investing.
LEVERIS: How has the global pandemic impacted the wealth management space? How would you rate the risk appetite out there right now?
David Newman: The uncertainty caused by the pandemic has undoubtedly had a ripple effect across wealth management. In our experience, we’ve seen this manifest itself in an increasing demand for investment opportunities that take a longer-term view on returns, as well as a growing interest in opportunities that offer some form of environmental or societal impact.
In terms of private markets, there was undoubtedly a slowdown in investments in the first half of last year but this bounced back strongly in H2 2020. We believe that the volatility of the public markets has encouraged investors to turn to private markets where opportunities typically have a longer-term timescale for returns. The consistently strong performance of private markets in the decade since the financial crash of 2008 has also helped to instil confidence that alternative investments offer a sensible balance of risk versus return.
LEVERIS: What role can data play in making wealth management a much more accessible space for would-be investors?
David Newman: Data now plays a crucial role in so many areas of wealth management and accessibility for would-be investors is just one of the benefits it can offer.
Whilst many of the barriers to wealth management services have been torn down over recent years, the proliferation of robo-advisors being a prime example, there is still an education gap, which is preventing further democratisation and access. Financial education will play a key role here but data strategies will also help would-be investors through the uber personalisation of advice and the visualisation of financial goals.
As we have seen in many other industries, data can play a critical role in recommendation engines. If this can be coupled with data visualisation that helps would-be investors to understand their investments in a way that is meaningful to them, then it could help unlock the final barriers to opening up wealth management for all. Investors increasingly also have a broader array of non-traditional assets and we see data being critical to offering them a consolidated view of how their holistic wealth hangs together. We believe this is a crucial component of offering meaningful advice.
LEVERIS: What are you witnessing in terms of the types of demographics now engaging in wealth management?
David Newman: There’s been a clear shift in what a ‘typical investor’ looks like over the last few years. An increasing number of institutions tell us that their client base is evolving and now includes a higher proportion of younger entrepreneurs who may well have built their own business, successfully exited it, and are now moving on to the next stage of their career as an investor.
This type of client typically wants to be more proactively involved in their investment decisions; they do their own research, identify opportunities in sectors that they know and can add value to. They also tend to have a strong interest in impact investing and are keen to use their wealth to create a social or environmental impact, while still generating good returns.
Interestingly, many firms tell us that ‘traditional investors’ are also changing in terms of their relationship with wealth managers. The events of 2020 obviously limited the ability for face-to-face meetings and traditional client engagement strategies. As a result, many advisers have been forced to conduct their business remotely via digital channels; perhaps surprisingly, many firms tell us that long-standing clients have transitioned very quickly to this new way of working together, embracing technology and the efficiencies it can offer.
LEVERIS: Where, in your view, does cryptocurrency fit in with the future of wealth management?
David Newman: In late 2017, we saw many wealth managers really beginning to look at the crypto space and plan solutions to meet clients’ growing interest off the back of rapid price growth. However, with the exception of Falcon Private Bank (which is now being wound down), no other institutions really went beyond a few pieces of research before momentum slowed down. With the rapid BTC price rises of recent months, it is perhaps inevitable that this has come to the fore again.
We see the wealth industry taking one of four approaches to crypto and, if there is sustained interest, moving through the following spectrum:
- Taking a proactive stand to stay clear.
- If clients have made a lot of money from crypto but want to move to traditional assets then firms will start to accept them as clients and build appropriate onboarding, KYC and AML processes.
- They will start to custody crypto assets on an XO basis but not offer any advice.
- Firms will start integrating cryptocurrencies as a genuine asset class within their asset allocation.
LEVERIS: Would you say the integrity of the companies in which people invest is under much more scrutiny these days?
David Newman: Yes, that’s probably a fair statement. Of course, most investors are still driven by commercial interests, but there is undoubtedly more interest now in how a business is being run and its purpose. The significant growth in impact investing is a clear illustration of this approach and in these cases, investors are often likely to place as much importance on what the business is trying to achieve as they are on commercial returns. For many investors, they want to create a legacy from how they deploy their wealth.
Even investments being made from a purely commercial angle are probably subject to greater scrutiny these days. Supply chain management, the ethical sourcing of materials and the treatment of staff are all potentially deal-defining factors for investors who want reassurance that their wealth will generate a return for them, but aren’t prepared to sacrifice their moral beliefs as a result.
LEVERIS: Last year was another bumper year for venture capital investment into wealthtech. Aside from your own, of course, what are the financial and fintech companies operating in the wealth sector worth keeping an eye on?
David Newman: Within fintech and wealthtech, one of the most exciting areas we see is the growth of solutions looking at impact investing and ESG. At Delio, we have invested in two impact platforms, Align17 and Impact Agora, and see them continuing to grow. Outside of private markets, we look at solutions such as Tickr, which is democratising access to impact investing, and NetPurpose, which is offering greater access to ESG data, as a couple of the ones to watch.
Outside of that, we see the aggregation of assets as one of the most exciting spaces. There are a few solutions in the consolidated reporting space which we are keeping an eye on; we’re particularly interested to see if and how the challenger banks can use their data and integrations to move into the wealth space. We think this will be one of the most interesting stories to watch in 2021 and beyond. Monument Bank may be one of the challenger banks looking to dominate that space given its focus on the more affluent clientele.
LEVERIS: What are your key predictions for the wealth management space in 2021?
David Newman: Our own research shows that wealth managers greatly accelerated their digitisation strategies over the last 12 months. While the pandemic was absolutely the key driver for this step-change in technology adoption, we believe that this will continue in 2021 with a greater focus on integrating digital tools across their business to provide a better client experience. Greater access to data-driven insights should enable advisers to add more value, while operational efficiencies gained through automation will help to drive productivity and allow firms to redeploy their staff to more profitable activity.
We also expect the democratisation of private markets to continue at pace. Global regulations have already evolved to create greater access to these assets and we expect this to continue over the next year and beyond. As a result, we expect alternative investments to represent an essential component of any holistic wealth management strategy.
LEVERIS: Ultimately, what kind of companies do you believe will be the winners within the wealth management space? Traditional financial services, digital banks, wealthtech or a combination of them all?
David Newman: Traditionally, there has been a perception that traditional firms and technology-based organisations operating in financial services are natural competitors. While that is true in some cases, here at Delio we’ve always positioned ourselves as an enabler of financial institutions.
We don’t build our technology to replace traditional wealth management advice or substitute human relationships for digital-only interaction. Instead, we believe that technology can complement traditional ways of working so that clients can enjoy the best of both worlds. Institutions that can integrate the best traditions with the most innovative technology are likely to be the companies that emerge from 2021 in the strongest position.