MyPrivateBanking Blog
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Posts Tagged ‘wealth management’

Many robo-advisors fail to provide an adequate client assessment

Monday, October 9th, 2017

As the robo-advisor market matures, there is an increasing number of platforms that offer little minimum investment amounts and low fees to attract novice investors across all wealth segments. To provide adequate investment services to unexperienced investors, however, robo platforms must make sure to inform properly about the risk of investing. Even more important, however, is it to provide a thorough client assessment process that covers clients’ financial literacy, their risk tolerance, and their capacity to take risk.

If at all, the average robo-advisor simply asks if a prospect already has some investment experience. Most of these platforms, however, do not take the chance of providing basic educational material for those without any investment knowledge. Only 26% of the robo-advisors do take responsibility and require prospects to first build at least some basic financial knowledge before starting to invest. Interestingly, only 18% of the hybrid platforms (those who provide personal consultation) do so while 36% of the pure robos cater for their clients’ financial literacy during the assessment process. It is likely that the availability of a certain level of human interaction in the case of hybrid platforms make the providers believe that the digital knowledge check is not necessary. However, we are convinced that each robo-advisor must be very clear about the suitability of their investment products and investors’ understanding is an integral part of this.

Most players check their prospects’ risk tolerance and the approaches differ substantially. Some questionnaires use a very scientific assessment of risk tolerance, including psychological and behavioral questions while others rely too much on prospects’ self-perception. One tool even compared the prospect’s self-evaluation of their risk type with the outcome of the risk assessment, which is a very interesting approach to show investors how their perception differs from their actual limits of tolerance. In any case, it is crucial to thoroughly explain the result of the evaluation and make sure that prospects understand the impact of their risk tolerance on their investments.

The third major element is the check for risk capacity. Displaying a highly risk-affine attitude has no meaning without the context of the capacity to take investment risk. It must be clarified whether the investor has any debts and sufficient investable assets before making suitable investment proposals. While this seems very straightforward, it is surprising to see that there are players who simply ignore that. Robo-advisors achieved the point for an adequate risk assessment only if both, the risk tolerance and the risk capacity are checked for. It is alarming that only 78% achieve that point and again, the pure robos give a substantially better performance. While only 65% of the hybrid platforms fulfill this requirement, 93% of the pure tools do so. This result supports the impression that hybrid robo platforms rely too much on the availability of a human advisor clients can turn to instead of implementing these things into their digital onboarding.

Therefore, before caring about financial planning features, portfolio analytics and reporting or the provision of valuable content, robo-advisors are strongly advised to accurately identify prospects’ risk profiles to ensure suitability. Only seven out of the 31 robo platforms included into our benchmarking fulfilled all three criteria, which is disturbing result.

Get more information about the world’s leading robo-advisors and their performances, strengths, weaknesses and best practices in our new Global Robo-Advisor Benchmarking Report 2017.

 

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.

 

Chatbots for Banking and Wealth Management 2016: Why financial institutions should employ virtual assistants

Thursday, December 15th, 2016

Artificial Intelligence (AI) and chatbots are a very big topic at the moment. Yet, there are a lot of uncertainties related to the emergence of this new mega-trend. Chatbots are software-based agents that can lead an intelligent conversation with users, sometimes based on AI, sometimes based on pre-defined responses. So basically you are chatting with a robot. This trend has already arrived in the financial services industry with FinTechs, Challenger Banks and also established players starting to jump on the bot wagon. These are very interesting times as bots are going to revolutionize the way companies will interact with their clients and we are now seeing the first real examples of bots being launched in the financial services industry. We can definintely say, that the bot trend is something that noone can ignore!

In our new report Chatbots for Banking and Wealth Management: Why financial institutions should emply virtual assistants we investigate the ways chatbots are already used in banking and wealth management and explore how they will revolutionize the future client interaction. For our assessments and recommendations, we screened more than 100 established banks and wealth managers to identify and analyzes the 35 most advanced and innovative chatbots and virtual assistants. In addition the report evaluates state-of-the-art chatbots by 9 FinTechs and challenger banks and as well the offerings of 8 bot developers.The report provides data driven answers to following key questions a financial institutions should ask when using bots of client interaction:

  • What does the current landscape for chatbots in financial services look like and what drives the developments?
  • Which are the most advanced chatbots in the financial services sector, how do they look and what do they offer?
  • How will bots change and enhance the client interaction and communication?
  • How to choose the right bot, platforms and implementation?
  • What do the vendors offer?


 

Why many wealth managers are under-digitized

Thursday, November 3rd, 2016

MyPrivateBanking Research has taken a comprehensive look at the performance of the overall leaders in digital wealth management across mobile, website and social media channels.   Our assessment in this report is both highly granular, based on the underlying benchmarks by channel, but also it considers the holistic aspects of how firms have put in place strategies for digital transformation, to offer a unique perspective. The results show that only 5 of the Top 25 global wealth managers by AUM make it into our shortlist of eleven digital leaders, and just over half feature in the ranking of Top 20 cross-channel performers. This is a disappointing performance for two reasons, one is that as a sector financial services is a forerunner of digitization (especially in terms of electronic payments), and then there is the fact the 25 largest global wealth managers are responsible for over $15 trillion USD of client assets, circa 80% of the industry. That is a large proportion of clients for whom their wealth management relationship is under-digitized and the pace of change is too slow.

 

New Report: Mobile Apps for Wealth Management

Monday, May 30th, 2016

the-question-for-wealth-managers-is-no-longer-if-they-should-have-a-mobile-app-but-how-they-can-develop-a-winning-mobile-app11

The question for wealth managers is no longer if they should have a mobile app, but how they can develop a winning mobile app to provide them with an essential competitive advantage.

Almost eight years ago, in July 2008 the Apple App store was launched and Google Play followed only a few months later. Since then the app market has grown, apps have become an essential part of our lives and the technical possibilities have developed a lot. The wealth management industry is typically not among the first movers when it comes to technical innovations but we have seen that the market of mobile apps for wealth management is slowly but surely catching up. In our latest study Mobile Apps for Wealth Management we have analyzed the mobile apps of 30 of the biggest wealth managers worldwide. We have found that in contrast to the previous years, the number of wealth managers that offer dedicated apps to their wealthy clients has increased (from 63% in 2015 to 82% in our latest 2016 study).

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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.

 

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.

 

Who will win the robo game?

Tuesday, June 9th, 2015

Steffen Binder, MyPrivateBanking’s Research director will be speaking next week at the InVest2015 conference in New York:

Session Description

Online advisory firms like Betterment, WealthFront and others hold a tiny fraction of total AUM, but there’s no doubt that they pose a threat to traditional wealth managers with some customer segments. MyPrivateBanking research has quantified the threat potential of 14 leading robo-advisors companies worldwide, according to 13 criteria. This session will examine which represent the highest disruptive threat to the wealth management industry, particularly their ability to win new clients, their marketing prowess and their deep pockets funding-wise. The analysis will also show the competitive reaction of existing wealth managers and how this will reinvent the whole wealth management industry.

200 USD discount with code “ROBOGAME”

And here you can find our latest research on robo-advisors.

 

Five reasons why you should not give your retail banking app to wealthy clients

Thursday, June 5th, 2014

Many mobile apps that offer a good provision of core functions for wealthy clients have not managed to stay ahead of the competition. Why so? The analysts at MyPrivateBanking Research disclose the captivating story of what makes a mobile app for HNWIs successful in the forthcoming report ‘‘Mobile Apps for Wealth Management 2014’’. One of the striking results of our research so far has been that only 24% of banks offer an exclusive banking app – for their wealthy clients only. All other banks offer a general banking app to all of their customers – retail, high-net-worth or in between.

Even though the existing retail apps may also be relevant for HNW clients, there are good reasons to offer a customized solution:

  • HNW clients love to be treated exclusively and separately from the crowd. That’s the reason why they are paying substantial fees to their private banker or wealth manager in the first place.
  • HNW clients have other client needs in the mobile world. Often, they are heavy travelers, need to communicate a lot more with their banker and have deeper and more demanding information needs.
  • HNW clients are interested in different products than retail clients. A banner ad for a cheap consumer credit or a good car insurance rate might not really capture their imagination.
  • Investing, research and market developments are key areas of action for HNW clients. Checking and analyzing their portfolios in real-time anywhere in the world, executing a trade or checking quotes are important mobile activities for HNW clients.
  • HNW clients are longing for an app that matches their advisor’s app. Meeting with their advisor will be more and more app supported. Both parties to the meeting should be able to communicate on the same level using matching apps.

And no matter how sophisticated the financial operations they need to support, an app developed for wealthy customers should first of all engage them by means of elegant design, user-friendliness and easy-to-digest content.

 

“WhatsApp in Wealth Management? –five reasons why private banks should pay attention to messaging apps”

Monday, May 26th, 2014

Early this year WhatsApp has been acquired by Facebook for 19 bn USD - not without reason this acquisition has been well above estimated company value. Signs are good that WhatsApp will grow the current 450 million subscribers to reach 1 billion. The mobile app has been initially a mere alternative to SMS but has grown to become a blend of messenger and social media channel. Other messenger apps like WeChat (a strong contender in Asia) or Skype are also throwing their hat in the ring.

But what can private banks and wealth managers learn from WhatsApp and other messenger apps?

  • Convenience. Clients are using the WhatsApp messenger as it is convenient to follow conversations, send pictures and because they immediately get notice if someone is available. Allowing clients to contact their advisor whenever she is online is a powerful tool. Wealth managers should go and fetch it.
  • It’s not a teenager thing anymore. Social media channels in general enjoyed a reputation of being only for a young audience. This age barrier has vanished and more and more older users are being drawn into using apps, social media and messenger features.
  • WhatsApp is planning a telephone function and will in general broaden its functionality. Besides the possibility to conveniently chat or leave messages to advisor/ client soon a telephone function will be broadly available for the app - making the application more flexible than it is already today.
  • Messaging is not email. The hurdle to write an email is way higher compared to messaging, which combines the benefits of chat functions with the option to leave emails. There is no need for all flowery phrases for every message you write. Its fast, it’s fun, it’s what clients want.
  • Everybody knows it. Some wealth managers provide their own contact functions via app – that’s great and important. But WhatsApp is already known by the customer. Allow clients to stay in their comfort zone without having to learn a new technology. Most likely your relationship managers use it already, too.

Wealth managers and private banks need to think about how to leverage mobile messenger technology for their own business. It can be by using existing popular messengers like WhatsApp for some communication. Another option is the integration of similar messaging features in existing banking apps. And keep in mind: these options are not mutually exclusive.

 
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