'Normal people have loads of money if you add them all up'
Can digital technology bring quality financial advice to the masses?
Why should the top one per cent be the only ones getting high quality financial advice on their savings and pensions? And how can digital technology deliver this advice to the 99% at low cost?
At a recent event Cass Consulting invited industry figures to debate these questions.
Per Klitgard, CEO of Danish pension provider Danica, described the steps the company is taking to achieve financial advice for everyone. Danica counts 10 per cent of Danes as customers and holds more than £60 billion.
When it comes to new technology Klitgard says 'our mindset should be that we are going on a journey - Danica should be on tablets, on facebook, and other social media'.
According to research, every year one out of three pension savers experiences a life changing event such as a marriage, new house or job, having a child or retiring which could affect their savings plan. Pension providers need to monitor when customers need advice.
Danica has worked with actuaries, IT and business experts, and anthropologists to develop an innovative new approach to providing this.
Savers are invited to answer an annual online survey, with six simple questions about their circumstances, to work out if they are saving appropriately. This is followed up by an online meeting when necessary, again utilising new technology.
According to Klitgard, in a company of 100 employees, 60 will complete the survey, 24 will need to adjust their savings and of these 12 will do so. Spread over 600,000 customers, this represents a huge change in behaviour.
Danica has worked closely with ReD Association - a Copenhagen and New York based company which employs social science methods to study human behaviour.
ReD's Mads Holme stated that the pensions industry has been 'the worst' when trying to understand their client's needs. The industry assumes customers are fully informed, are rational about their decisions, and know what they want. The reality is that people are complex and irrational.
Working with Danica, ReD set up a project sending anthropologists to study the real lives of pensions customers and ask what it means to get old. As an example of client frustration he cited one customer who stated: "I'm a skilled nuclear and atomic physicist but I simply do not understand my pension".
According to Holme, the pensions industry has been focusing on technical security yet what matters to customers is feeling safe.
The next speaker, Cass's Professor Charles Baden-Fuller spoke about the potential of digital innovation to reach the masses, not just the wealthy. He used the metaphor of bus versus taxi. Most of the financial services industry works like a bus - the customer must adjust to what is offered - turning up when the bank is open, accepting the basics provided. The one per cent enjoy a taxi-like experience, with personal banking shaping itself to their needs.
Baden-Fuller described what Danica is now offering as a 'simple taxi service'. He looks forward to new technology enabling a 'mass taxi service' - with everyone receiving customised service at 'the price of a bus'.
He was followed by entrepreneur Morten Schantz from Festina Lente, a knowledge and development company in Copenhagen, who described the IT-challenges of meeting these requirements.
Schantz has built many of the most widely used digital finance systems in Denmark. The flexibility of these systems represent a major technological jump forward.
Cass's Dr Russell Gerrard was the last speaker of the day. He demonstrated how research can transfer modern financial mathematical insights into simple rules of thumb. These can then be used in the stochastic financial planning process.
While mathematical finance seems complicated, Dr Gerrard argued that the overall structure of optimal risk return planning is surprisingly simple. This in turn simplifies the computational challenges of digital finance as it allows for a more realistic stochastic economic environment.
Event chair Professor Jens Perch Nielsen commented: "At this event we learnt to ask our customers what digital finance they want; to implement this to a large scale; to build business models around it; and to provide flexible IT and financial modelling around this. The first step is to find a way to provide large scale versions of that which we can only do manually at the moment. This is an exciting journey into new territory, where digital finance interfaces may provide a one-stop platform for customers."
The event was organised by Cass Consulting - Cass Business School's research-led consultancy service, which takes academic research and skills and applies them to deliver great results for businesses.