The Fintech Europe 2016 conference held on 27th October was a great success. The combination of a unique venue, some excellent speakers and an audience more than willing to contribute, proved a winning formula. The fun wine tasting event held on board HQS Wellington, was a brilliant end to the day.
A lot of ground was covered and key themes included;
- What are the important drivers to accelerating digitisation of wealth and asset management?
There’s no doubt the need to reduce costs will drive greater use of technology. The wealth and asset management sector has not performed well since the financial crisis. In 2008 the cost to income ratio was 62% and this soared to 84% in 2014 [source: Cap Gemini].
Regulatory changes fuel rising costs, for example the MiFiiD2 proposals for attributing research costs to the cost line, will impact margins.
Consumer pressure and competition from new players has driven down fund and advisory fees. This will continue, as consumers demand better value for money from an ongoing service proposition. Some consumers will migrate to lower cost services such as robo advice, and this will cannibalise fee revenues in the advisory space.
Millennials will look for user experiences they are familiar with in other sectors. Greater use of mobile was a key talking point, which requires simplification, more decision tools to avoid the ‘quick swipe transaction’ and more engaging graphical user interfaces.
What does the future look like?
There was enormous and very emotive debate on the rise of the robots, courtesy of some excellent stimulus from the guest speakers from Switzerland. Thinking beyond robo advice to full blown robots who will meet and greet in bank branches, your office or home, these machines will use cognitive computing [machine learning – a step up from AI] to provide consistent advice, which is just as reliable as from a human. The social debate around the impact of robots on our lives, jobs and value in society was hugely interesting. The conclusion was, this is way bigger than wealth and asset management and we need careful control of this next revolution.
In the more immediate timescales, an emerging picture of wealth and asset management and technology was painted. We imagine segmented propositions will evolve;
- Similar to today’s execution only transactional model, with low touch or no touch human intervention. High levels of research information, but enhanced with consolidated portfolio dashboards so an investor’s total wealth can be managed in one place.
- A middle ground mass market proposition, which uses a hybrid of automated advice, machine learning and humanised input. Investors would navigate highly engaging interfaces to develop their needs and goals, use robo advice to drive out their recommended actions and then a live adviser would help them validate the action to be taken. Machine learning would monitor attitudes, capacity for loss and goals and objectives against their portfolios, then adjust when necessary. All human interaction would be remotely delivered by technology at much lower cost. In the absence of humanised contact, decision tools would be used to improve confidence levels. These sites would naturally extend into broader based financial planning areas.
- An upper tier high net wealth service, which looks more traditional, built around face to face high touch relationships. This service would be supported by the latest technology in the background to improve efficiency and enhance service levels.
What key strategies will be of value?
The wealth and asset management sector can look outside for proven digital strategies around which to base their fintech initiatives. The high-profile examples were naturally discussed and a summary of the key points follows;
Horizontal integration is a strategy epitomised by Uber and Airbnb. This involves deconstructing the value chain and rebuilding it based around disruptive technologies and new improved user propositions. Neither Uber owns any taxis, or Airbnb any accommodation properties, yet both have reduced the costs of taxis and temporary accommodation and disrupted their respective sectors. In wealth and asset management, businesses might look at their value chains and decide which parts contribute to their core purpose and which parts can be provided in a different way. The advent of cloud based settlement and custodian systems is an example of where this strategy might be deployed.
The Amazon effect. From selling books online from a garage to being one of the dominant consumers goods brands globally, the success of Amazon has been amazing. Is the wealth and asset management industry at risk of an outsider coming in and doing the same as Amazon? Or, do we think we are sufficiently difficult and too regulated to attack? My own view is complacency is dangerous and it wouldn’t take much for the best brains in FS to find a non-FS brand with ambition and deep pockets to do something spectacular. It’s probably on the drawing table now.
Big data. Google is synonymous with search and knowledge. Through Google everyone can find out everything about anything. Applying data strategies in asset and wealth management leads us to consider the increased application of analytics in every process and touchpoint. Data analytics can help boards make better decisions, portfolio managers deliver better service and client outcomes, marketers improve marketing ROI through delivery of more relevant propositions, and distribution managers provide more targeted and personalised relationship connections. The big move in data is providing data as a service. Providers help decouple all data from the organisation’s systems and via cloud based computing allow everyone in the organisation to access it and use it to improve the business.
It’s clear the fintech revolution is going to help deliver significant change to asset and wealth management businesses. We’ll continue to explore strategies and new propositions, and look for opportunities to share our thinking.