MyPrivateBanking Blog
Daily Comments on the World of Wealth Management

Posts Tagged ‘automated advice’

Interview: “Morningstar meets TripAdvisor”

Tuesday, May 31st, 2016

In the following interview Oren Kaplan, the CEO of SharingAlpha, explains what the new firm is all about and why it is important to the wealth management industry.

MyPrivateBanking: Oren, can you explain the idea behind “SharingAlpha” in a few words?

Oren Kaplan: SharingAlpha is a user generated fund rating platform, or in other words, it’s where Morningstar meets TripAdvisor! SharingAlpha will also rank the fund raters in terms of their fund selection capabilities which will allow fund selectors and investment advisors to build their own proven track record. The users will also be able to construct a number of virtual fund of funds and SharingAlpha will rank them according to their asset allocation performance.

MPB: Why do you think that the collective fund ratings of investment advisors offer valuable insights given that we all have seen over and over againg that more than 80% of active fund managers are collectively not beating simple index strategies?

OK: Funds will receive a high SharingAlpha rating only when the different raters expect the fund to beat the passive alternative. Predictions based on collective wisdom have been proven to work in plenty of cases. Furthermore, qualitative fund analysis - using for example factors such as cost, capacity and active share - have also been proven to work and using a large group of market experts will make this task possible.

MPB: Is SharingAlpha also interesting for afffluent and high-net-worth investors?

OK: Yes, the fund ratings and raters ranking will certainly be followed by all types of investors.

MPB: How can the private banking industry take advantage of SharingAlpha’s offer?

OK: Number one, to improve fund selection and asset allocation recommendations based on the collective wisdom that will be shared on SharingAlpha. Number two, to build their track record and prove to clients that they are able to add value to their portfolio and justify their fees.

MPB: Thank you, Oren!

 

Robo-Advisors and Market Falls: Leaders Like Wealthfront and Betterment Are Surprisingly Resilient

Tuesday, April 26th, 2016

Last Wednesday Bloomberg carried an interesting article: ‘For Robo-Advisors the Next Bear Market is Make or Break.‘ It left the question of make or break unresolved but it did have some interesting details about how Wealthfront and Betterment had fared in the first few months of this year, with Wealthfront reporting that it grew its client-base three times faster this January than 12 months previously. Meanwhile Betterment reported that client growth and net deposits had seen peaks in January and March.

The ability of robo-advisors to survive bear markets is still seen as their Achilles heel by some but the counter argument, that the application of behavioral finance insights and in robos’ outbound communication messages about consistent long-term diversified investing helps investors stay on course, seems to be gaining ground.
But isn’t there a more fundamental reason for the resilience of robo-advisors? Investors who start from scratch and grow their investments over a long period are likely to be less affected by aversion to loss(es) than a someone who gives a wealth manager a discretionary mandate for an already sizable fortune. The corollary for this though is that robo-advisors that require a minimum investment (e.g. Personal Capital - $25K, MedioBanca’s Yellow Advice - €20K) or ones with a charging structure that offers much better value for money for larger portfolios, may not have such an easy ride when the markets turn down. Moreover, perhaps there’s a penalty of success for very low cost robo-advisors and younger clients; growing their portfolios successfully and in 10 or 15 years’ time these clients will be a lot more worried about market downturns than they are at present.

 

LPL’s Partner for Planned Robo-Advisory Solution

Friday, April 15th, 2016

(by Francis Groves, Senior Analyst)

A few days ago, came the news that LPL, the major U.S. broker dealer has agreed that San Francisco-based Future Advisor is to provide its robo-advisor platform. Like other broker dealers, such as Commonwealth, LPL revealed that it was considering a robo solution last year. In our report on Hybrid Robos (February 2016), we looked at how easy it would be for established players (LPL included) would find it to create a hybrid robo/personal contact integrated model. This question is particularly acute for broker dealers as there are marked differences from a psychological perspective between approach of broker dealer client and a typical prospective user of a pure robo-advisor solution. To put it another way, loyal clients of robos and broker dealers probably expect and receive quite different user experiences. We have seen some bold, clever approaches at integrating the two on the part of some major banks but the LPL/Future Advisor initiative is a first. Future Advisor has branched out into B2B solutions (e.g. SaxoSelect and with BBVA Compass and Royal Bank of Canada) since being acquired by Blackrock in 2015. Our expectation is that the LPL robo solution will at least begin as a discrete entity with its own website but that there will be exciting opportunities a full hybrid robo/broker dealer a little further down the road.

 

Hybrid Robos – a close-up look at Schwab Intelligent Institutional Portfolios

Friday, February 19th, 2016

The launch of Charles Schwab’s Intelligent Portfolios and Institutional Intelligent Portfolios last year was undoubtedly the most significant robo-advisor development in the U.S. in 2015. MyPrivateBanking  profiled Schwab Intelligent Portfolios in our Robo-Advisor 2.0 report and in our just published Hybrid Robo report, “Hybrid Robos - How Combining Human and Automated Wealth Advice Delivers Superior Results and Gains Market Share” , we take a closer look at Schwab’s Institutional Intelligent Portfolios (SIIP) as one of the report’s five case studies.

SIIP provides most of the advantages of digital investment management with the opportunity for a wealth manager to customize their own recommended asset allocations from a choice of 450 exchange traded funds that Schwab makes available for the purpose.

One aspect of the Institutional Intelligent Portfolios that took our attention was the way in which different advisory firms can use the Schwab solution to enhance their own offering in different ways. For example, it is perfectly possible for a wealth manager to to make SIIP available as an almost completely separate service with its own website and completely different branding. In effect, a registered independent advisor or financial planning firm that did this would be creating their own ‘pure’ robo-advisor. This limits the danger of cannibalizing the firm’s main client-base but it also restricts the possibilities for the users of the robo service. Longer-term, we believe that the future lies with greater integration of the digital component with a firm’s other services to create a hybrid offering of robo features and tools and personal interaction.

The most obvious kind of integration would be full integration on the wealth manager’s website with the SIIP option standing alongside a wealth management firm’s existing services, whether these are discretionary investment management, retirement planning, tax planning, specialist advice services for alternative investments or the other specialist services that a firm has made into USPS. This kind of transparent approach has much to recommend it and it is already being followed by some firms. For a firm specialising in just financial planning but which wants to provide an investment management component, this policy has clear benefits.

One more subtle alternative approach might be to have, say, a client rewards programme that is shared by a firm’s SIIP users and by its full service clients. Perhaps even more effective would be to allow SIIP users to make use of a finance management dashboard like eMoney that your full service clients are already benefiting from. Allowing the users of a firm’s digital offering to participate in behind the log-in features like these signals a much clearer welcome to smaller accounts (which will hopefully become full service accounts in time) than a standalone robo-advisory website can achieve on its own.

 

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.

 
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