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Archive for the ‘Wealth Management by Algorithm’ Category

Tech vendors’ surprising ideas about wealth management digitization

Thursday, May 4th, 2017

In My Private Banking’s latest report, on the digitalization of advisor functions, we interviewed just over 20 people from 13 different wealth management technology providers and various other industry experts.  Our interviewees gave us some fascinating insights into the direction and pace of innovation but had a number of surprises for the My Private Banking analysts.

Small surprises - but nevertheless significant findings - included a general air of confidence among technology providers about the value of their contribution and their assessment of the outlook for their wealth management clients. Initially, we thought that technology vendors might not be so sure that their digitalization message was finding willing listeners in the wealth management industry.

However there were bigger surprises in store for our researchers, firstly in our interviewees’ evaluation of the relative importance of regulatory compliance the remainder of the current decade and, secondly, perhaps most unexpectedly of all, in their estimation of the part that AI and machine learning will play in advisor digitalization in the near-term.  This provides a useful reality check to some of the technology hype that’s currently popular around the topic of AI.

Overall, our analysis of the future of advisor roles and the part likely to be played by robo advisory services was confirmed, giving us a clear picture of advisors and digital tools working in concert as a dominant model of service.

Last of all, we were a little surprised at the relatively minor attention given to the way in which advisors and relationship managers will experience the change to their roles and work styles through digital enabling.

Our report provides detailed coverage of the difference digitalization will make to compliance, advisor-client interactions (and hence client ratios and overall efficiency) and in which technologies and functions we can expect change soonest.  In addition, we have analyzed the impact of advisor digitilization on communication channels and client journeys.  Our researchers have endeavored to convey the feel of our conversations with technology providers through plentiful quotations and the report sums up My Private Banking’s findings with a number of clear recommendations for wealth management firms and private banks.

 

Chat and Voice Wealth Advisory Client Interfaces @ Finovate Europe 2017

Wednesday, February 8th, 2017

(by Francis Groves, Senior Analyst)

A number of presenters at Finovate Europe 2017 gave ample demonstrations of the way in which chat and voice are fast becoming as impacting to wealth clients as the wealth manager or robo-advisory website. The first to attract our attention was the presentation of Munnypot, a new UK robo-advisory service using the Five Degrees ‘Matrix’ platform. Munnypot’s major innovation is to achieve the entire client acquisition, portfolio assignment and onboarding process via chat powered by AI. We were also very impressed with the co-browsing functionality from SaleMove with an excellent demonstration of how this can work in a wealth management context. With SaleMove, advisors can track clients’ use of their interface in real-time and AI is used to offer (naturally and sensitively) immediate assistance via live chat or video chat/call. We understand that major players in the U.S. are already making use of this and it’s easy to understand how the technology will be a great improvement on advice offered via the telephone and will improve advisor efficiency at the same time.

There were also two interesting presentations demonstrating the potential for AI at the stage of portfolio reporting and market updates, both of which were voice-based. Poland’s Comarch presented an interesting ‘conversation with your broker’ taking place while on the road. Myra, the virtual broker, not only gave you a portfolio update but suggested changes and took your instructions to execute them. In the case of AIXIGO, partner in Luxembourg robo, Investify, we were shown portfolio reporting being provided through Amazon’s Alexa.

 

Predictive analytics: the future of wealth management?

Thursday, January 19th, 2017

One of the biggest trends in digital banking and wealth management in 2017 is personalization. As described in this article (source: Bank Innovation), consumers become increasingly accustomed to personalized digital services thanks to innovation-driving companies such as Netflix or Amazon. The core of this new level of service is to know your customers and to meet their individual needs.

Therefore, we highlight this area in detail in our new report on behind the log-in spaces of wealth management apps and secured online portals. Indeed, we found several good examples how wealth managers make use of the data resulting from their clients’ online and mobile usage to improve user experience, client satisfaction and security.

However, monitoring user behavior to detect suspicious actions is only where the journey starts – soon clients will expect no less than getting a truly contextual feeling when accessing their wealth management app. While the article mentioned above states that clients should have the opportunity to set off certain features they do not want to use, we think that online and mobile tools will be required do this automatically. Digital users will create their own digital finance tools not by changing the settings but by simply using them.

Our report sheds light on various areas of digital tools that benefit substantially from technologies like predictive analytics besides presenting the industry’s state-of-the-art client-only solutions and giving valuable recommendations for creating a winning user experience.

 

The self-driving car is here - but what about self-driving wealth management?

Wednesday, June 3rd, 2015

Today I read that Audi will offer the new version of its A8 flagship model in 2016 with „piloted driving features”. Essentially the car will drive itself under certain circumstances, namely in traffic congestions on the highway. Google Cars have driven more than 1 million kilometers on public roads so far (with only a few minor accidents). It will be only a matter of time until auto-piloted cars will be available on the roads for everyday use. The industry is heavily pushing for a change of traffic laws and it seems that legislators will open up the roads in the near future. The benefits of self-driving cars are clear: fewer accidents, freeing up the driver to attend to other things while riding with her car and overall much smoother traffic and fewer traffic jams due to intelligent routing.

It appears to me that the wealth management industry is today at a similar junction and could push for the auto-piloted investor. But the industry leaders are more skeptical and not quite open to change - just the opposite of the car industry. The products are here - just think ETFs and passive, index-based investing. The technology has been developed: robo-advisors stand ready to help consumers get their investments right. The benefits are clear: Computers are much better investors than human beings.  Passive investing beats active investing in more than 80% of the cases. Algorithms have a much better appreciation of risk and return in financial markets than most private investors (and - I have to add - many professional wealth advisors, too).

But yet we see little enthusiasm in the global banking industry for automated, self-driving investments. The overwhelming majority of global banks leaves it to start-ups like WealthFront or Betterment to bring automated investing to the masses. A notable exception is the brokerage firm Schwab with its Intelligent Portfolio offer and a few online brokers.

It may be the case that banks and wealth managers are fearing that robo-advisors will put pressure on the fees for advisory services. But it should be clear to every industry participant that just as sure as self-driving cars will soon become a mass market, automated investing will be a success story in the financial industry. Why leave it to the start-ups and technology companies?

 

Wealth Management Solutions at FinovateEurope 2015

Tuesday, February 17th, 2015

/by Francis Groves , Senior Analyst/

I saw numerous presentations at FinovateEurope that have implications for wealth management, especially in the wide variety of security features and applications designed to help people with their financial goals were demonstrated. However, there were just three presentations that looked at supporting the work of wealth managers/client relationship managers specifically.

The first of these presentations was from Crealogix, the digital banking software providers based in Zurich, whose CLX.AdviceManager financial advisory mobile app we covered in MyPrivateBanking’s ‘Mobile Apps for Financial Advisors 2014′report. Now Crealogix are adding a new product to their overall offering for financial advisors called ‘BankClip’. This an easy to use video clip assembly module that enables the advisor to create a customized video including components such as an update on the client’s portfolio, excerpts from the latest market commentary by the private bank’s analysts together with, for example, the advisor themselves making the argument in favour of a change to the client’s portfolio. It’s a good way to make service more personalized and more immediate and it really was straightforward to implement.

The next item that was specifically relevant to wealth management was by newcomer Mydesq, also based in Zurich. The company’s CEO, Milan Vora, demonstrated their just launched advisor application. The most impressive aspect of Mydesq is how much the application assists advisors with its continuously updated compliance content. This not only enables advisors to keep up-to-date with regulations in multiple jurisdictions but it seamlessly introduces all necessary compliance-related changes to the advisor’s work processes. As an advisor application, Mydesq includes features to support account and portfolio analysis and portfolio recommendations to the client. A client app is planned for Q2, 2015.

Lastly, Vienna-based CPB Software introduce some of the features of its PROFOS software, launched in September 2014. The three aspects of PROFOS that particularly stand out are presentation in relation to risk, the financial crises feature and the client profiling. PROFOS has introduced an extra degree of flexibility in portraying investment risk so that in addition to text explanations or charts projecting risk, the advisor can employ other graphical tools to explain risk in relation to the client’s portfolio. The financial crises feature of PROFOS allows the advisor to demonstrate how the client’s portfolio would have performed during specific crisis events such as the Russian default in 1998, the dotcom bust or the collapse of Lehman Brothers. Lastly, PROFOS allows the advisor to create a (confidential ) profile of each client on the basis of client meetings that will enable them to prepare for future meetings in the most effective way. The client profile focuses on the client’s negotiating style and communication style in particular and gives the advisor extra resources for achieving mutually satisfactory outcomes from client meetings.

 

In-memory analytics about to shatter the walls of bank’s traditional BI

Friday, October 24th, 2014

In the light of big data and real-time business intelligence discussions, one thing becomes increasingly clear: data latency is expensive, old-fashioned and not competitive. As things speed up, new technologies are needed that can cope with increasingly challenging demands. This is especially true for the financial industry where time really is money.

In-memory analytics has great potential to become the philosopher’s stone in this issue. The concept is simple: traditional BI queries data stored on physical disks whereas in-memory analytics uses data and queries located in the server’s RAM, making query results available near time. While this concept is not new, it is far from standard in the finance industry. Yet.
As pioneer banks are taking their first steps into IMC (in-memory computing) – such as Germany-based Dekabank or Swedish Avanza bank – we will be likely to see a fundamental technological turnover in bank’s BI in the near future, triggered by falling costs and increasing capacity of RAM as this article describes very well.

The advantages for banks are obvious: Dekabank’s use of Quartet FS is only one example how in-memory computing boosts performance through high-speed risk analysis combined with trading positions, which allows for faster reaction and near time alerting. Rapid fraud detection and credit card reporting are other benefits to name only a few.

As IMC gains ground, the heavyweights of the IT industry come up with their solutions. Quartet FS, Oracle TimesTen, SAS High-Performance Data Mining, SAP HANA or IBM DB2 with BLU Acceleration are some examples. We at MyPrivateBanking Research are looking forward to see how fast the finance industry will be able to adopt this promising technology.

 

Wealth Managers: Don’t be complacent about Robo-Advisors

Wednesday, September 17th, 2014

MyPrivateBanking Research has just published our first report on the new class of ‘robo-advisors’ that have joined the wealth management industry recently. Starting in the United States and now appearing in Europe, Canada and Australia, robo-advisors have become instantly controversial with differing prophesies of the part they’ll play in wealth management in the next few years.

In our report we seek to puncture some of the (second-hand) misconceptions about robo-advising. For example, robo-advisor firms are all about technology, certainly, but the first wave of robo-advisors are not yet as robo as can be; there’s more to come in terms of deployment of artificial intelligence and mobile technology, to name just two areas for future progress. Nor are robo-advisors homogenous pure passive index-trackers; among them there’s considerable variety when it comes to investment strategies – though it is true to say that many of them use passive ETFs as their main investment vehicles.

At the same time MyPrivateBanking believes that wealth managers are in danger of becoming dangerously complacent about the robo-advisor phenomenon. Industry practitioners and commentators may think that robo-advisors compare unfavorably with what’s on offer from conventional wealth management businesses but to do so is to place too much faith in the status quo. In particular, relying on face-to-face client meetings as an economic moat to defend one’s client base seems a flawed strategy.

In the face of the massive short-fall in the availability of investment advice for the mass-affluent market, the robo-advisor model has what it takes to set this market segment on sustainable wealth acquisition pathways. The robo-advisors are staking their future success on the belief that today’s savers and investors are able to maintain a consistent approach without the hand-holding that has up until now been seen as necessary by the wealth management industry. The danger for conventional wealth managers is that the lean, efficient robo model will catch on among their HNWI clients. No one should be in any doubt that robo-advisors are very focused on client enrolment and their approach is scale-able both in terms of pure numbers and the size of individual client portfolios they can work with.

 

The Robo-Advisor Threat

Friday, January 17th, 2014

The relationship between clients and their financial advisors has undergone a fundamental change within the past few years. While in the past wealthy clients relied heavily on the recommendations of their financial advisors and private bankers, the situation nowadays looks fundamentally different. On the one hand there is the older, yet shrinking client segment that mainly still depends on what their financial advisor proposes while on the other hand a new generation arises, namely that of the young and tech-savvy.

Though (on average) not yet earning the really big money, the urge of moving independently and self-confidently on today’s markets encourages them to deal with do-it-yourself-investments. As this generation has grown up with the Internet and all its possibilities, they know where to find the information and support they need. Most recent developments offer them tools known as robo-advisors that promise to replace face-to-face meetings with costly advisors. These tools help them to build up and manage their portfolio, give recommendations about which assets to sell, buy or to hold, and support personal financial planning. Robo-advisors range from pure technology websites to established financial service companies which are enriching their services by offering online advisory. Probably the best known example in this new, fast-growing space is a start-up company called WealthFront, based in Silicon Valley, which has just surpassed USD 500m assets under management. This trend is also partly triggered by the rise of low-cost, indexed ETFs, on which this younger generation mainly focuses rather than on active investments.

In essence, robo-advisors claim to offer not only substantially lower fees but also (in the long run) higher performance as investment decisions are taken by sophisticated, self-learning algorithms rather than error-prone human beings or investment committees.

So far, robo-advisors have only a miniscule market share in the overall wealth management market. However, we believe that over the long run such platforms could play a much bigger role, threatening established wealth management firms and eroding fee levels. Every wealth advisor firm should very closely watch these new competitors and think about defensive measures.

In the longer-term, it may be even a matter of life and death for established private banks and wealth managers to think about integrating the robo-advisor business model in their own offer for wealthy clients. The personal relationship with clients and their trust is today’s biggest asset of wealth management firms around the globe. But isn’t it true that these relationships and the hard-earned trust have recently been under attack – especially since the financial crisis started five years ago? It is not too farfetched to assume that this erosion will accelerate over the coming years and robo-advisors will play the role of catalyst in this process.

Wealth managers and private banks need to re-invent themselves and think hard about how to integrate elements and ideas of the robo-advisory-model in their own business model. How exactly this might look is the billion dollar question.

 

Technology Will Replace 80% of What Financial Advisers Do

Monday, December 10th, 2012

Uhhh…sorry. The correct quote reads: “Technology will replace 80% of what doctors do“. Interesting story on CNN Money, argues that

Computers are better at organizing and recalling complex information than a hotshot Harvard MD. They’re also better at integrating and balancing considerations of patient symptoms, history, demeanor, environmental factors, and population management guidelines than the average physician. Besides, 50% of MDs are below average! Computers also have much lower error rates. Shouldn’t we take advantage of that when it comes to our health?!

I am pretty sure you can replace the word doctor/MD with financial adviser and the prediction still seems not outside of the imaginable. You just have to check out some of the hopeful new start-ups in the wealth management space to see how the future might look like, not only for doctors…

 
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