Banks ignore technology at their peril warns Nucleus Financial

“We allow financial advisers to behave like DJs, creating playlists for their clients,” says self-confessed “techno geek” David Ferguson, comparing his wrap platform for wealth managers, known as Nucleus Financial, with Apple’s iTunes service.

Talking up his website, which aims to help advisers manage clients’ money more effectively, Edinburgh-born Mr Ferguson, schooled in the city’s financial services industry, where he developed investment products for Ivory & Sime and Scottish Life International, beams with enthusiasm.

“You can buy 6,000 different funds from 250 managers, so it feels like the fund manager is a musical artist,” he says about the financial services menu through which Nucleus administers £7.5bn (€9.4bn) in assets.

Yet unlike iTunes, the fees are not paid by the DJ or user of the platform. Instead, they are charged to the end investor. The private client therefore has to keep three mouths fed – those of the financial adviser, the platform and those of the fund management company. Nucleus receives 0.35 per cent of the portfolio value each year, less for larger trades.

Smaller wealth managers running up to £1bn are now increasingly on Mr Ferguson’s radar, although he believes they have been slow to embrace the technological revolution.

“A lot of them are still quite old school,” he says. “They think the value is in inviting clients for lunch into the boardroom. But young people don’t care about this any more. They want to know how their money is being managed, what – if anything – is going wrong and they want to pay a competitive fee. They don’t want to watch the cricket with their adviser.”

Those banks slow to introduce the latest, cost-effective technology will suffer, he believes, commenting on the reluctance of big banks to digitalise private client relationships, as they fear losing private clients through lack of personal contact.

“If you have the mindset not to introduce full online trading of funds and stocks, you will die,” says Mr Ferguson. “I cannot imagine anyone under the age of 40 valuing face to face contact over transparency or efficiency, not in the long-term.”

There is also a possibility of expanding the concept to the Netherlands, Ireland and South Africa and elsewhere where a fee-based model is being ushered in by regulators, following the UK ban on commissions and inducements.

“All those backhanders flying around the distribution networks are now a thing of the past,” says Mr Ferguson. “The whole industry had been structured against the customer for many years.”

It was this “contempt for the customer” which Mr Ferguson, a loyal follower of Heart of Midlothian Football Club, began to see in the 1990s before he came up with the technology-based platform idea.

His aim was to reduce costs and provide “more honest outcomes” for the investing public. On Nucleus, average costs of 1.6 per cent for trading funds – of that around 0.55 per cent is for fund management – are now 50 per cent down on charges levied to investors during the the 1990s, claims Mr Ferguson.

His fascination with technology and efficiency of processes started at an early age. “I was always a techno geek. I used to write software in my bedroom at 12 or 13 when the ZX Spectrum came out,” he recalls with a glint in his eye, remembering the first mass market home computer, released by Sinclair Research in 1982.

“This was a personal computer with big rubber keys,” smiles Mr Ferguson with the appealing obsession of a true enthusiast, describing the pioneering machine whose groundbreaking colour display helped to shift more than 5m units worldwide.

This went hand in hand with Mr Ferguson’s love of numbers and patterns which drove him towards Edinburgh’s staid but buoyant actuarial fraternity, the lifeblood of Scotland’s insurance industry. “That side was easy for me,” he remembers.

Yet despite being a popular member of Edinburgh’s financial community during the 1990s, prepared to talk and drink late into the night with advisers, competitors and journalists, arguing through the benefits of often complex products, his allegiance to Edinburgh’s financial centre is not as strong as expected.

His team is now up to 107 members and like the rest of the financial community, they were looking for “clarity in both regulation and tax” ahead of the independence vote. Yet speaking before the historic poll, he showed little concern about the possibility of any of Scotland’s financial services giants moving south of the border.

“I love the city,” he says about his Edinburgh home. “But I have no real great bond with the financial centre and I do not have great regard for some of the companies there.”

However, the economic importance of finance to Scotland should not be underestimated. “Edinburgh’s financial centre provides a huge contribution to the Scottish economy and a great pool of people. But when these people reach the age of 28, 29 or 30, they realise they want to work for a company doing the right thing for the customer. We value the Scottish industry more as a talent pool, rather than an establishment we want to be part of.”