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Archive for the ‘robo advisors’ Category

How robo-advisors can make ETF investors smarter

Friday, March 27th, 2015

/by Francis Groves, Senior Analyst/

MyPrivateBanking was very pleased to include a profile of Schwab Intelligent Portfolios in our latest report on robo-advisors, published last week, AFTER the launch of the new Schwab service and to be able to make a full assessment of it. Inevitably in such a fast changing area, fresh developments in the robo-advisor sector keep coming and this week we have seen the announcement of the acquisition of LearnVest by Northwestern Mutual. We cover LearnVest in our report, even though we don’t see LearnVest as a full robo-advisor (and neither do LearnVest). However, we do think that LearnVest has some important robo characteristics and its pricing and range of services make it a disruptive force in the industry in a very similar way to robo-advisors. The company’s acquisition by a major financial institution is another example of the way in which corporate strategy is now becoming a major motor of the robo-advisory revolution, a topic that we cover in detail in our latest robo report, which we sub-titled ‘How Automated Investing is Infiltrating the Weath Management Industry’.

John Bogle, the highly respected founder of Vanguard, recently repeated his skeptical views about exchange traded funds (ETFs), saying to FTfm that they were an encouragement for investors to use index tracking in a counter-productive manner. Bogle has been a committed opponent of market timing tactics either by private investors or mutual fund managers and at Vanguard he was a pioneer of index investing. Although many would consider ETFs to be index tracking instrument ‘par excellence’, he’s convinced that investors will be tempted to trade too frequently for their own good. Vanguard’s  own current CEO has come out against Bogle’s criticism in favor of ETFs as a healthy innovation that have lowered the costs of investing for millions of people.

In the light of this debate about the dangers of ETFs, the robo-advisor trend could be a godsend to the ETF industry. Not only are robo-advisors an effective way to encourage people to start investing, they are almost all proponents of planned investing as opposed to impulsive investment decisions. With the robo-advisors around, ETF sponsors can say ‘look, these new robo platforms depend on our products and demonstrate that it’s perfectly possible to use ETFs prudently for investors’ long-term gain.’

Of course, robo-advisors have yet to prove their index tracking commitment in a number of ways. Individual robo-advisors could stray off the path of passive or mainly passive investing and become too smart for their clients’ good. Also, as has often been said, we’ve yet to see how robo-advisor clients behave in a real panic in the financial markets. Finally, we don’t yet have data on how consistently robo-advisor clients are behaving. Are clients sticking with the plan or do they sign up with a robo in a burst of enthusiasm and then lose interest, leaving a perfectly proportioned ‘bonsai ‘ portfolio in their account rather than a full grown tree to provide shelter in retirement or adversity.

On this last point, our view is that some investors will be committed enough to enjoy real benefits and some won’t, but enough people will use their accounts in the way the robo-advisors intend for the robo model to count as a success and to be held up as an example to be followed in the retail investment market.

 

Arming Advisors with their New Digital Weapons

Friday, March 6th, 2015

MyPrivateBanking Research released a new report on ‘Digital and Mobile Solutions for Financial Advisors 2015‘ this week. Unlike the first two editions, which focused exclusively on mobile apps for financial advisors offered by technology vendors like Avaloq or Temenos, the new edition has a much broader perspective. Besides evaluating the developments the established vendors implemented in their mobile apps over the course of 2014, in-depth research has taken place in the fields of communication solutions (particularly video tools), recommendation and analytical solutions, as well as social media management tools.

In addition to the interviews our analysts conducted with the technology vendors themselves, they did several interviews with representatives of the leading wealth management companies, private banks and bank consultants in order to derive a deeper understanding of the actual level of digitization in wealth advisory business.

The three most disruptive trends according to our analysis are:

Remote meetings increasingly gain importance. Contributing to an omni-channel client experience, advisors are shifting more and more towards alternative digital channels like video conferencing and screen sharing tools.

Advisors are under great pressure. Shrinking margins force wealth managers to serve more clients per advisor who therefore need to be more efficient to operate feasibly. Solutions, which partly automate certain processes as well as social media management tools, are the response to these needs for an increasing number of advisors.

Clients are becoming more self-directed. With the booming app supply for retail banking clients, the high-net-worth clientele are demanding digital tools for their financial matters, as well. Hence, matching client tools empowering them to do their financial planning or even trading and portfolio rebalancing by themselves, are already standard. What has yet to be covered more extensively is the provision of advisor contacting options. Many advisory apps still lack basic communication features like video and text chat.

The report combines all the thought-provoking findings from these interviews, detailed company profiles of the vendors included with thorough descriptions of the solutions and products, and comprehensive conclusions on all these results.

 

What Can We Tell from Fidelity/eMoney Advisor Deal?

Wednesday, February 4th, 2015

/by Francis Groves, Senior Analyst/

Yesterday there was news of two major acquisitions of fintech companies in the United States with the takeover of Advent Black Diamond by SS&C in a deal worth $2.3bn and the purchase of eMoney Advisor, the financial planning software company.

The eMoney Advisor deal is reported to have cost Fidelity Investments just $250 million and reflects the fact that although financial planning software can bring great advantages to financial advisors and eMoney Advisor seems to be highly regarded in its field, the software itself seems surprisingly cheap. A license for eMoney Advisor’s emX PRO product currently costs less than $4,000 a year. Other financial planning products in the U.S. are even cheaper.

In fact eMoney Advisor offers more than financial planning software with marketing tools (advisor branded media such as videos and presentations), account aggregation, vault solutions and, perhaps most importantly, its client portal. The eMoney Advisor personal financial management (PFM) tool (they call it a client site) is seen as possibly the most attractive of the company’s products in the eyes of Fidelity. MyPrivateBanking’s view is that Fidelity’s purchase should probably not be seen as a cherry picking opportunity and that they have plans for the whole product range. That said services like MINT.com or Personal Capital’s financial software are showing that personal finance portals have plenty of potential in the retail segment.

Just what those plans may be is unclear at this stage but the eMoney Advisor purchase has raised concerns among financial advisors that use its products even though Fidelity has promised not to interfere with emX’s integration on the platforms of other custodians such as Charles Schwab and TD Ameritrade. Concerns have also been expressed at the possibility of Fidelity making use of big data on HNWIs’ portfolios available on the eMoney Advisor platform but this raises such serious questions about who really owns that data that we think Fidelity Investments would see this as a highly dangerous strategy.

Although we shall have to wait to see how Fidelity plans to build on its eMoney Advisor acquisition, it is clear that the company is fully aware of the need to accelerate the speed with which it engages with digital technologies to provide more help to investors. MyPrivateBanking believes that, in particular, the new collaborations between Fidelity Institutional and Betterment Institutional, and with LearnVest may be a sign that Fidelity’s focus on providing advice and planning services to the mass affluent and the young via technology is increasing.

The eMoney Advisor deal also sheds an interesting light on the volume of investment going into fintech from venture capital funds. Fidelity is paying a lot more than start up’s funding but it is getting an established revenue stream of at least $30 million a year as well as a well qualified team of 250 people. It seems likely that they have interesting plans for that team as a team but that they will respect what eMoney Advisor has already achieved since it started 15 years ago.

 

The changing role of wealth advisors

Friday, January 16th, 2015

Remember Inspector Gadget, the detective who solves cases with the help of high-tech devices? Totally futuristic in early 80s, the concept is easily applicable to today’s financial advisors. While particularly the advisory services for the mass-affluent experience a severe threat from the booming robo-advisor industry, we forecast a pressing need for HNW clients’ advisors to redefine their role, too.

In Private Banking, advisors or relationship managers as they are called there, will not disappear as the main interface to the high-net-worth client. Digital innovations like robo-advisory tools, mobile apps, video conferencing, or social media dashboards will support and improve the advisor’s work. Just like her cartoon sibling, the new advisor is combining her human benefits (the emotional intelligence) with the technological benefits (the data, analytical and visualizing part). The new advisor will be – like Inspector Gadget - inspired by Cyborgs, bringing together the best of human capabilities and machine intelligence.

The new advisor offers to her clients support and coaching across all channels in real time in an increasing personalized way. Big data tools help her to identify relevant information to recommend the right products at the right time. Social media compliance tools deliver the compliant framework for advanced client communication, and sophisticated video conferencing tools allow for flexible advice anywhere and anytime. Thanks to dedicated mobile apps, client meetings improve in terms of quality, engagement and efficiency.

Watch out for our upcoming report on digital interfaces for financial advisors this spring!

 

I am a millionaire, please txt me on WhatsApp

Wednesday, December 10th, 2014

Digital channels are gaining ground when it comes to communication between affluent/high-net-worth individuals and their financial advisors. A substantial minority of around 20% - 30% already communicates with their financial advisor via instant messaging providers, video chat, social media, and screen sharing. These data are from our latest 2014 Wealth Survey, covering China, the US, UK, Germany and France. Yet, the most striking insight is that the wealthiest group – high-net-worth-individuals with more than 1 million USD of investable assets – are the most tech-savvy when it comes to digital communication. Around 40% of this client segment state that they are using messengers and video chat predominantly when communicating with their financial advisor.

Implications for wealth management firms are disruptive: Advisors need to be ready to use new digital channels, and security and compliance issues need to be addressed. However, in the long-term there are even more profound consequences. If communication moves from analogue to digital, it becomes possible to use software for automating communication and answering inquiries. Robo-advisors are already automating portfolio allocation. It’s not unthinkable that they will also automate client communication in a not too distant future.

For more learnings and insights, get our 2014 Wealth Survey including 289 data slides.

 

Are Robo-Advisors only for simple investment strategies?

Friday, October 17th, 2014

Over and over we keep hearing that robo-advisors are really only capable to develop simple investment strategies mostly based on simple products like index funds. For example, today Forbes carries a story that argues along these lines:

„While innovative and cutting-edge, most of today’s digitally-based offerings are still restricted to the discrete areas of basic planning and investing. People that want a more comprehensive wealth management relationship will need a broader solution, the kind that has been perfected by seasoned wealth advisory professionals.”

Well. We beg to disagree. Forbes maybe right that today’s offerings are relatively simple and restricted to basic planning and investing. But there is no doubt that software and relatively basic artificial intelligence will soon be able to tackle more complex questions.  Private banks and conventional wealth managers should not rest on the assumption that high-net worth clients and their more complex financial needs cannot be supported and advised by algorithms. Computers are able to solve complex and relatively unstructured problems in such diverse areas as diagnosing serious health conditions or advising customers on buying perfect gifts. Partly this is based on big data analysis, partly on very smart algorithms. No doubt that this kind of software will at some point soon be able to solve tax problems or estate planning. Don’t underestimate the speed of innovation. Of course, there still will be a role for humans in the advisory industry. But it will change from subject expert to human coach or therapist as many clients prefer interaction with humans rather than machines.

Check out our new report on robo-advisors for an in depth look how this industry will develop and how this brings new opportunities for conventional wealth managers.

 

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.

 

How Spielberg’s AI is becoming real already

Friday, August 29th, 2014

What began as a lunatic idea years ago is entering our pockets today. Cyborgs, intelligent assistants, robots – they have many names but research labs and start-ups all over the world are working on the same idea: combining human and artificial components to end up with efficiency.

These days you cannot surf the internet without coming across several articles on artificial intelligence. This one really caught my attention as it reveals what is going on behind the doors of the labs of Viv, a start-up led by the inventors of Siri.

The crux on which they are currently working is the linking of multiple queries based on a cloud system working like a ‘global brain’. The objective of this kind of knowledge net is that the intelligent assistant should be able to actively learn from the incoming queries and even become able to predict what its user needs next.

Just try to imagine the impact this revolution will have on the finance industry – for instance, an investor could ask his smartphone “How can I build a portfolio with lowest possible fees limiting my expected maximum loss to 10% per year?” instead of meeting with his advisor. Along with an increasingly self-determined client, these changes draw a dire picture of the industry’s future and it will be up to the wealth managers and banks to find new ways for becoming indispensable.

 

Why Artificial Intelligence will become BIG in wealth management

Friday, June 13th, 2014

We’ve just recently heard the news that a computer software has finally passed the Turing Test. There is some debate if this actually happened or whether it was really successful. Basically, the mathematician Turing put forward the idea of an ‘imitation game’, in which a human being and a computer would be interrogated under conditions where the interrogator would not know which was which, the communication being entirely by textual messages. Turing argued that if the interrogator could not distinguish them by questioning, then it would be unreasonable not to call the computer intelligent, because we judge other people’s intelligence from external observation in just this way.

We have now little doubt that software development is at a point, where computers will be in a position to support or take over complex decision making from human beings. We are talking here not only about clearly structured tasks and decisions like in a chess game (computers have been beating the best human chess players for years) but complex decisions involving many factors including emotions, human relations and spoken language etc.

Looking at giving advice and decision making in wealth management, it seems to me very obvious that in this field, the role of AI will become BIG in the next five years. We are already seeing a wave of so called robo advisors encroaching on the territory of established wealth management firms and private banks. So far, they are using relatively simple algorithms to determine their clients’ risk propensity, preferences or asset allocation (and are rightly critisized for their simplistic approach). But it won’t be long and much more powerful software will take a much more holistic approach to the clients’ situation and the results will most likely beat the knowledge and skills of human advisors in several dimensions.

Wealth managers should start thinking about AI and how to integrate it in their business modell. In September we will publish a new report on automated computer-driven wealth advice (robo advisors). The topic of AI will take a prominent place there.

 
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