Robo Advice and digitalization of wealth management

In practical terms the present marketplace for robo advice may be divide into three distinct groups: fully automated non-discretionary investment guidance ; self service investment and financial advice ; and guided investment and financial guidance.

Fully automated non-discretionary investment advice refers to an individual subscribing to advice and wealth guidance that is executed without the customer’s explicit approval.

Accounts that are managed match this dealer and definition group model portfolios could probably be set here as well, particularly if the portfolio is rebalanced periodically without customer authorization at each rebalance.

The term ‘robo advice’ has rapidly evolved to cover upwards of 80 automated guidance and investment options internationally

The key distinction between these investment strategies and also the brand new crop of robo advice offerings is that the client which fund or portfolio to get in is advised by the new kids on the block. Conventional managed accounts, on the other hand, rely on an adviser to choose the initial portfolio predicated on appetite for danger and their clients ’ personal conditions.

The new breed of automated investment alternatives still apply the rules of passive investing diversification and routine rebalancing. Many also offer tools that are extended, including tax lot picking, to optimise capital gains tax results. What actually sets them apart though is an instinctive, clearly defined and consistent investment approach that resonates with experienced and novice investors. As these solutions continue to innovate, they’re going to increasingly appeal to a wider audience.

Self service investment and financial advice describes the provision of digital tools to support customers in creating, scoping and identifying wealth advice and guidance, usually in relation to range or a specific goal of aims, like an income stream in retirement or savings for instruction. They may use behavioural financing methods to support customers to regularly monitor and lead to their wealth journey.

The primary difference between these robo advisors as well as the automated investment options is that they optimise and allocate cash flow across many goals. Optimising across targets is particularly troublesome given that across different countries there is likely to function as the intricacy of pensions procedures and income tax. For example, one question that sounds simple but is not quite easy for robo advisors to answer could be whether a client should make voluntary contributions or pay the mortgage down. Then chances are it optimises on investment rather than on strategy, in case a robo advisor can’t answer this fundamental question.

Why is these varieties of robo advisors even more compelling is the aggregation of client data.. This enhances the user experience and removes unnecessary friction from the goal -setting process. It can be integrated into the tool where the wealth manager already has investment and private data for the user. Alternatively, the front-end program could request the user’s various account details.

This gives the robo advisor a strong edge as it monitor movements in the investments may link every one of the accounts together and track ongoing progress towards targets. At minimum, the robo advisor could employ basic user information, such as for example suburb and their age, and offer an approximation in their income, expenses and assets.

Fiscal guidance and the guided investment is focused on holistic strategies. It includes conventional face-to-face guidance, along with remote guidance delivered within the phone or by video. It also comprises omnichannel advice, where a person is involved or ultimately in charge of the guidance strategy.

There really are numerous services available that provide on-line tools and access to a financial advisor to get a one-off initiation fee and monthly cost that is low. These suppliers have adopted a user-friendly and simplified approach to the financial guidance process, with some even giving automated investment guidance supported by way of a financial advisor that was real.

Are conventional wealth managers right to view robo advisors as a danger?

Will robo advisors replace actual financial advisors? The answer is, probably not. The more likely scenario is that the work done by financial advisors that are real will be complemented by robo advisors.

Where the two worlds are more inclined to collide is in an adviser – led robo advice tool becoming part of customer service process. This may mean robo advice being part of servicing that is omnichannel. This has real value and will revolutionise financial guidance based on the rules of customer-centricity, connectivity, contemporariness and conformity.

Are a confluence of technical improvements and social variables establish to propel the robo advisor trend even further?

There are quite a lot of points at which financial innovation has frightened mechanisms that are conventional on Wall Street. Now with new fiduciary standards and artificial intelligence emerging, a new threat is emerging: The robo advisor

Not since the dawn of low-cost brokerage firms has the traditional wealth management industry as it does with the emerging popularity of robo advisors, confronted as great a challenge, a 137 page June report from Financial Technology Partners observes.. The report states

“With the advent of Automated Digital Wealth Management solutions (aka robo advisors ), the standard wealth management sector is facing perhaps its most disruptive danger since low-cost online stock trading emerged in the mid 1990’s”

Robo advisor tendency began with upstarts moving to large banks as well as asset management firms

Highly credible digital wealth management solutions began the robo adviser movement, as roll outs from the likes of independent companies for example Betterment, Wealthfront and FutureAdvisor (which was recently obtained by BlackRock) and more recently Shrewd Banyan are a few of many that set the stage.. The Development of Automated Digital Wealth Management Solutions” looked at growing tendencies as well as their complete business impact..

Eventually the game has been entered by more traditional firms like JPMorgan and Bank of America Merrill Lynch. JPMorgan, for instance, is offering robo advisor wealth management as a totally free option to specific clients, while BAML, possibly famous because of its secure of earnings generating human brokerages in the Merrill Lynch department, also expanded into the robo advisor realm and is now on the verge of valuing mutual funds in a fashion much like Morningstar

These tendencies among both institution players and upstarts are coalescing with societal tendencies at an original moment ever, the report notes. Together with impacting financial advisors, mutual funds could be hit, as many of the robo advisors use passive ETFs as their investment vehicle of choice..

Advisor trend that is robo
Societial tendencies driving robo advisor trend, as market bifurcation occurring

For the human adviser, the millennial generation’s predisposition to “do-it-yourselfthrough-an- app ” is perhaps the greatest business killer. This seismic shift is forcing wealth management sector participants across the spectrum to reevaluate their merchandise and supply strategies, using a variety of category segments opening up

At a minimum, all wealth supervisors ought to be highly focused on ‘digitizing’ their companies as consumers of all ages and demographics will increasingly anticipate Uber and an ‘Amazon – like’ experience from all of their financial service providers, ” the report encouraged. “Similar to other recent FinTech initiations, digital wealth solution providers are fast appearing round the earth – in fact, we’ve identified more international direct-to-consumer players than in the US.”

This is creating a distinctive market segmentation with five primary class pails : 1) new direct-to-consumer brands with limited advisor aid, 2) new direct-to-consumer brands with more significant counselor aid, 3) conventional firms with in house digital wealth management solutions, 4) business to business and white label providers enabling others to provide their particular digital wealth management solutions and 5) retirement specific suppliers including both direct-to-consumer and business-to-business providers.

As capital continues to stream into traditional investment management businesses and the digital wealth management space assess their strategies, we expect to observe a noteworthy upsurge in venture and M& An activity in the space over the next 12-18 months, ” the report called.

Dilemmas that could affect the advisor trend that is robo

You can find possible difficulties on the robo advisor horizon that must be navigated which fall into three major categories :

– Does the fiduciary duty standard and also other securities laws apply to robots as they do to individuals?

The report said it was unclear as digital wealth management platforms are not completely accounted for by existing laws on the fiduciary duty of an investment advisor if fiduciary duty laws apply to robo advisers.. In particular, robo advisors may well not be free from conflicts of interest, they may not meet “a high standard of care”, may well not provide “ fully ” personalized investment advice, and might not fulfill other fiduciary standards that a traditional adviser would have to match, the report noted..

– will robo advisors perform in a market slowdown?

Because of the recent tendency development, most of which happened after the 2008 market crash, Robo advisors have been mostly sheltered from a market downturn that was substantial. These applications “could view a sharp shift in assets under management due to market declines and / or customers redeeming due to uncertainty.

– cyber hacking and Will Internet security become an issue

The reported supposed about the “unlikely” event that algorithmic issues that were potential that were “ may cause undesired automatic trading within robo advisor portfolios” While the report played down this possibility, even at the most complex computer-driven high frequency trading businesses algorithmic mishaps have been recognized to happen. “With the growing internet security problems, robo custodians and advisers might be growing goals for harmful intrusions, ” the report said, pointing to an extremely real problem that’s affecting even the greatest & most advanced financial institutions.

Trends in Asset Management

Trends in Asset Management

Asset managers face an existential crisis as they confront the ending of a six-year rise in asset prices. What does the future hold for the sector? Christopher O’Dea inquires

The main trends affecting the asset management industry now contain existential challenges to core investment theory and the business model. Rising asset prices since the monetary crisis have helped asset managers to maintain gross profits despite the shift to low-cost investment strategies and product alternatives. But that tailwind has subsided, leaving asset management firms in the doldrums as storm clouds gather – increasing customer demand for lower fees, new regulation, and closer examination of the social worth of the investment management business itself.

At a glance

• Asset management firms face more dangers with their company.

• Downward pressure on fees has become persistent.

• Americans are asking why there are numerous pension funding shortfalls at defined benefit plans and such modest balances among defined contribution plans.

• Digital capabilities are getting to be more common but the human touch will remain essential.

In a nutshell, threats are rising – not merely threats to the worth of securities in portfolios of investment management companies, but risks to the companies themselves. Now, asset managers are grappling with those threats, which promise to bring technology that is new, reduced employment, lower earnings, and a heightened focus on producing sustainable returns instead of the historic chase for above-market performance.

“The six-year tailwind to asset managers from asset inflation seems to be over,” according to some report on European asset managers by Goldman Sachs International released in April. “ asset inflation, rather than flows drove More than 70% of this,” Goldman says. “This tailwind is at an end, replaced by a more explosive, less directional market backdrop.” In reality, the global investment management business is entering a period of consolidation and reorganisation, setting the stage for what Tim Hodgson, head of the Willis Towers WatsonThinking Ahead Institute calls “necessary re-invention”.

Business model under duress

The starting point for a re-invention is that downward fee pressure a regular feature of the business – is becoming constant. Which will lead to a revenue pool that is shrinking, as customers act on the belief, however well grounded, that active supervisors supply no net value. Hints of that can be seen, as recent growth in business revenue and profits has resulted chiefly from asset-price inflation as opposed to net new AUM. That situation highlights the crux of the issue – the industry is set up to benefit asset managers and related intermediaries, not asset owners and pension plan members.

“we’re interested in the behavior of the investment system,” says Hodgson. “ there are issues out there that are bigger in relation to the asset managers, and Asset managers are part of the system.” Over recent years, the Thinking Ahead team has developed the view that the best means to discern what is for asset managers is to follow the money”. Following that trail leads to the conclusion the investment management sector has a fundamental issue – it is create mainly to help industry providers. In a 2014 survey, Thinking Ahead found that only 42% of industry participants agreed that the industry is primarily designed to help the members rather compared to the agents working within it. In a report on the study, Hodgson wrote: “For a properly configured, customer-focused business, 90% of participants would not be unable to agree with such a statement.”

The result is that too much of the $100trn (€87trn) in capital invested internationally in bonds and fixed income securities is regularly transferred to asset managers and intermediaries in the form of fees predicated on the value of those assets. Asset management pays high wages to stockholders to high margins and employees, Hodgson says to other sectors like food retailing that pay low margins and low wages. The asset management industry is extracting “ rents that are excessive ”, he says.

But asset managers expend tremendous effort transferring securities among themselves in an attempt to have the highest-priced securities in the funds they handle. The exercise doesn’t increase the aggregate value of the international portfolio – for trying to conquer their peers but substantial fees charge.

The value thus transferred from portfolios to asset manager accounts is not insignificant. And BCG says net revenue growth slowed from 9% in 2013 to 7% in 2014 owing to fee pressure and the shift from traditional actively managed products to passive strategies, alternatives such as for example liability-driven investment and target-date funds, and speciality strategies.

Engine needs repair

Managers have responded with several alternative approaches to asset allocation and portfolio construction, including factor investing, smart beta investing and hazard parity. Each has its edges, and put together they’ve helped the asset management sector move to a world of lower-cost investing that targets delivering outcomes that are specific as opposed to attempting to assemble a bundle of securities that create a yield rather better than the usual market index.

Non-traditional strategies are anticipated to pull most new assets in the years ahead. Equity research businesses that are several view BlackRock as the greatest example of where investment management is heading. “BlackRock stays the greatest increase narrative in asset management, with numerous tailwinds supporting its superior P/E ratio and organic fee growth according to a Goldman Sachs report on the company before in 2013, in our view.

From supervision to transformation

While asset managers revamp themselves, regulators are shifting their own assignment from supervision to transforming the US investment industry in the exterior in.

That index is predicted by an analysis of the final rules by Morningstar and exchanged -traded product providers will get an additional increase; the effect on asset managers that are active will be combined; and some alternate asset managers will face new challenges. The final rules dropped an earlier list of permitted assets excluding some alternatives. But advisors will still be required to justify using choices, which usually charge fees that are relatively high, and Morningstar anticipates advisors will be “leery of using high-fee products, when under a fiduciary duty” even if they permitted.

That is another question mark by hedge funds on choices at a time of poor performance. “Any institutional investor allocating to hedge funds is examining the recent performance period attentively, ” says Lightyear’s Marrron. They may be looking to answer one question: “Whether the hedge fund model, when it comes to the fees which might be billed, is consistent with the functionality that is available.”

Under pressure: five dilemmas faced by asset managers

Business model under duress – changing the beneficiary designation

• Fee pressure is relentless and shrinking the earnings pool, likely for good.

Supervisors that are • supply no net worth and growth comes from asset-price inflation not new AUM.

• The crux of the issue is that the investment industry structure is create to help asset owners and intermediaries, not beneficiaries and asset managers.

Relationship matters – winning and retaining clients

• Customer experience/understanding the individual touch is vital. Presentation and persuasion skills are more crucial than ever and the role of consultants increase.

• But for institutional managers in the new universe – it’s about execution for productivity increases, marketing effectiveness and jobs that are moving to lower-cost locations.

The regulator’s efforts to reshape the US individual retirement investing marketplace pat into societal questions about the worth of investment managers. The conventional wisdom in the US to ask why, if the business is so successful, there are a lot of pension funding shortfalls at defined benefit (DB) plans, and such little balances in the defined contribution (DC) accounts of the majority of Americans. On increasing the collective yield accessible to investors that own securities in a sustainable way but the assignment of investment management is being refocused.

Hodgson suggests replacing fees with a flat fee arrangement in which investors purchase a slice of a supervisor’s capacity as a proportion of asset values. Managers might find this arrangement appealing in light of long-term strength flows. Assets in DB plans are flowing out of the sector as strategies go into net distribution status, and the contribution rates of new DC plans are not too high to create offsetting asset inflows, he explains.

And the prospect of flat equity returns and falling bond prices means supervisors will not manage to rely on asset price inflation to boost revenue and profits. BCG reports that in 2014, institutionally – assets increased by just 8% and revenues by only 3% – while their gains shrank 1%.

Technology –
Nowadays industries look to technology as a way to reduce costs. In asset management, technology has made considerable cost savings through operational improvements and outsourcing back office functions. Now technology has been used in two new areas – client relationships and the investment procedure.

Worldwide asset servicer State Street plans to reflect new light on the digital files associated with the group’s $27trn of customer assets. The goal will be to use data analytics to glean new, real time insights from the transaction data and other information in its computer systems. State Street’s previous technology initiative reduced costs by $625m through a personal cloud and automation of procedures that resulted in 4,000 job cuts.

Analysts view the new programme with cautious optimism. State Street faces pressure on its net interest margin, and although the sales opportunity is vague”, Goldman says “we see value in this kind of innovation for State Street’s customers”.

Relationship matters

Whatever their product focus, asset managers now face a future in which attaining growth will require companies to differentiate themselves by showing value through pricing, sales activity and marketing campaigns. Oftentimes, says BCG, “winning supervisors will gain edge by developing and deploying sophisticated capabilities in data driven decision-making”.

While digital capabilities are getting to be essential to compete in 21st-century asset management, for institutionally-driven supervisors the individual touch will remain – and maybe take on more significance.

New research from Greenwich Associates demonstrates that topnotch persuasion and presentation skills will be more critical than ever for investment managers seeking to build relationships with advisers, who are tightening their management of institutional assets.

Formal meetings with investment advisers are frequently make or break occasions Greenwich says, for asset managers, as 86% and 92% of institutional investor relationships are intermediated by advisers in UK and the US .

European asset managers may have a story to tell that would make any investment team welcome in a consultancy conference room.

A Goldman analysis of Lipper fund data indicates that 65% of European equity funds benchmarked against the Stoxx 600 outperformed in 2015, and through early April fund managers quantified against the Stoxx 50 index revealed a talent for creating alpha software, with 76% posting above-standard performance.

Performance like that just might reinvigorate active management – and put back the wind in asset managers’ sails in the procedure.

Trends in Wealth Management

To gain a distinctive view into the experiences of both customers and advisors as the wealth management industry faces change, Forbes Insights, in partnership with Temenos, surveyed more than 60 wealth managers all over the world and 35 High- Net Worth (HNW) clients about the evolving banking encounter —how they convey, their needs and the need for technology
One of the key findings:
• 42% of wealth managers believe that the mixture of offline and digital means of communication is perfect.
• 34% of HNW clients need either digital-only or a combination of offline and digital communication
• 62% of HNW customers say the digitization of wealth management services is good overall, but they nevertheless desire to meet regularly with the advisor.
• 17% of HNW customers say technology is not dispensable.
• 48% of HNW clients rate cyber threat and hacking as a top concern associated with the use of technology
• 45% of wealth managers believe comprehensive analysis of performance and financial results is the finest way to establish trust with clients.
The survey also affirms it is mainly a myth that young investors that are wealthy are entirely self sufficient and they convey mainly through virtual channels, with little or no interest in face-to-face relationships with advisors. True, they want to make their own decisions, and they are definitely at home in the digital world ; but they also need to work to validate their viewpoints, on the go, across any channel that is available and to get second alternatives.
Some other notable observations:
Investors over age 50 tend to be focused on the security of data when it comes to wealth management.
Understanding preferences and the feelings of clients on a deeply personal level is at the core of retention, the underpinning business object for the sector.
A substantial number (42%) of wealth managers surveyed consider that legacy systems are “somewhat of a difficulty. ”
Altering expectations of a younger generation of investors to wealth management will create opportunities. For example, it’s typical of Millennials, and also of some Xers and Boomers, to downplay expert guidance and believe in the ‘wisdom of their tribe.’ They also desire to engage in new ways: always and everywhere and through new combinations of digital and human -established channels. This has deep implications for every wealth management company. Additionally, the Xers and Millennials who command only about one-fifth of the states ’ retail assets today will command about half of them within the next 15 years. So the riches advisors who do business on their terms and can connect to young investors will have a leg up on future growth.
Innovation in wealth management will also come in the form of guidance that is holistic: consumers will search for advice beyond traditional portfolio allocation and performance standards into how you can achieve various life goals like healthcare, relocation, education, and leisure. This will necessitate access to broader bodies of knowledge and more comprehensive frameworks to incorporate advice across disparate targets.
We believe the Wealth Management sector is poised for significant innovation with regards to the use of analytics to support company objectives and better engage with consumers. In this respect, the sector is somewhat lagging behind other sectors (Retail, P&C) but will be catching up fast given considerable levels of investment being made in big data and sophisticated analytics capabilities.
Lastly, we see quite a few of startups dedicated to the democratizing of access to esoteric advantages categories (e.g., loans or choices) and institutional strategies or research tools. While some regulatory issues must be overcome (e.g., the definition of accredited investors), we expect to see continued innovation in this place.
Conclusions:
The changing expectations of the younger investor will create growth opportunities.
What are some measures businesses can take to address these challenges?
This really is not meant as an exhaustive list but rather a listing of especially significant – yet challenging – steps wealth management firms can require.
Embrace change: The status quo is not possible anymore: too many sources of disruption (in the the rise of robo guidance to a fresh generation of investors, new competitions, new regulations, etc.) are coming together to profoundly reshape the wealth management business going forward on (see our related report).
Build a culture of innovation: Most wealth management firms that are established are not very good at this. It is also about driving adoption through substantial bodies of counselors and product staff and providing empowering technologies. It is increasingly about prototyping and testing quickly.
Construct new capabilities that’ll drive differentiation in the market place: Examples include digital client engagement; digital, slick onboarding process integrated with KYC; big data management and advanced analytics; and segmentation of advisers and clients. For many companies, this really is likely to require purchases or partnerships to construct capacities that are required quicker. Wealth management firms don’t have a very strong track record here.
Match them with front-line and fix to the evolving demographics of investors staff: This is crucial that you help businesses stay in tune with their customers’ tastes.
Anticipate and prepare the upcoming retirement tide by boomers: Boomers must consider their longevity demands and risks many years before retirement age. Their advisors have to find new methods to participate with them on this issue on. Gamification may be part of the solution in wealth management area.
Eventually, for large diversified banks or asset managers with several coexisting advisory models under exactly the same corporate umbrella (for instance a digital robo offering, a traditional full service brokerage, and retail banking wealth management model), transition from a referral and migration paradigm to a collaboration one. This will be truly challenging to many firms and will demand potentially new pricing and relationship management models. But wealthy customers are requiring access to several advisory models at once.
THE STATE OF GLOBAL WEALTH MANAGEMENT — COMPONENT 1: right FOR TECHNOLOGY DISRUPTION
“If (wealth management advisors ) continue to work just how you have been, you may not maintain business in five years” – Business leader Joe Duran, 2015 TD Ameritrade Wealth Adviser Conference.
The wealth management segment is a possible high growth business for any financial institution. It’s the greatest customer touch section of banking and is fostered on long term and extremely successful advisory relationships. It’s also the ripest section for disruption due to a clear shift in expectations and client tastes for their financial future. This three-part series investigates the industry trends, business use cases mapped to technology and design and disruptive themes and strategies.
As it broadly refers to an aggregation of financial services there is no one universally accepted definition of wealth management. Included in these are financial advisory, personal investment management and planning disciplines directly for the advantage of high- net-worth (HNW) clients. But wealth management has also become a highly popular branding term that advisors of many different kinds increasingly embrace. So this term now refers to a broad range of business models and potential functions.
Trends associated with shifting customer demographics, evolving expectations from HNW customers regarding their needs (including driving societal impact), technology and tumultuous rivalry are converging. Paradigms and new challenges are afoot in the wealth management space, but on the other side of the coin, so is a lot of opportunity.
A wealth manager is a specialized financial advisor who advises on how exactly to prepare for present and future financial needs and helps a client construct an entire investment portfolio. The investment part of wealth management normally entails the selection of individual investments and also both asset allocation of a portfolio that is whole. The planning function of wealth management often incorporates estate planning for people as well as family estates as well as tax planning around the investment portfolio.
There is absolutely no trade certification for a wealth manager. Several titles are commonly used such as advisors, family office representatives, private bankers, etc. Many of these professionals are certified CFPs, CPAs and MBAs too. Authorized professionals are also sometimes seen augmenting their legal expertise with these certifications.
State of Global Wealth Management
Private banking services are delivered to high net worth individuals (HNWI). These are the wealthiest clients that demand the highest levels of service and more customized product offerings than are provided to frequent customers. Usually, wealth management is a subsidiary company of a larger investment or retail banking conglomerate. Private banking also includes other services like tax and estate planning planning as we shall see in several paragraphs
The World Wealth Report for 2015 was published jointly by Royal Bank of Scotland (RBS) and CapGemini. Notable highlights from the report include:
1. Nearly 1 million people in the world achieved millionaire standing in 2014
2. The collective investible assets of the world’s HNWI totaled $56 trillion
3. By 2017, the entire assets under management for worldwide HNWIs will climb beyond $70 trillion
4. Asia Pacific has the world’s highest number of millionaires with China and India posting the greatest rates of growth respectively
5. North America was a close second at 8.3%. Both regions surpassed for high net worth wealth
6. Equities were the favored investment vehicle for global HNWI with cash deposits, real estate and other alternative investments forming the remainder
7. The HNWI population is also tremendously credit favorable
This slower pace of increase now means that companies should move to a more relationship centric model, particularly among highly enviable segment : younger investors. The report stresses that now wealth managers are not able to serve different needs of HNW clients from both a mindset, business offering and technology ability perspective under the age of 45.
THE COMPONENTS OF WEALTH MANAGEMENT BUSINESS
As depicted above, services are broadly provided by full-service wealth management companies in the following areas :
Investment Advisory
A wealth manager is a private financial advisor who helps a customer assemble an investment portfolio that helps prepare depending on time horizons and their respective danger desires.
Retirement Planning
Retirement planning is an obvious function of a customer ’s private financial journey. From a HNWI perspective, there is certainly a need to supply retirement services that are complicated while balancing taxes, income needs, estate prevention and so on.
Estate Planning
A key function of wealth management is always to help customers pass on their assets via inheritance. Wealth managers help construct wills that leverage trusts and kinds of insurance to help ease inheritance that is smooth.
Tax Preparation
The skill to reach the right mix of investments from a tax perspective is a capability that is key.
Full Service Investment Banking
For refined institutional customers, the ability to offer a raft of investment banking services is an incredibly appealing capability.
Insurance Management
A wealth manager needs to be well versed in the sorts of insurance bought by their HNWI customers so that the hedging services that are appropriate can be put in place.
Institutional Investments
Some wealth managers cater to institutional investors like pension funds and hedge funds and offer a number of back office functions.
It really is to be noted that the wealth manager is not always a professional in all these places but rather operates nicely with the various places of an investment firm from a preparation, tax and legal perspective to ensure that their clients can accomplish the results that are greatest.
Customer Preferences and Trends
There are not unclear changing preferences on behalf of the HNWI, including:
1. The wealth management community is mostly missing the younger customer ’s needs, while powerful satisfaction scores were given by elderly customers to their existing wealth supervisors.
2. Regulatory and price pressures are growing leading to commodification of services
3. Innovative automation and usage techniques of data assets among new entrants (aka the FinTechs) are leading to the rise of “roboadvisor” services which have already begun disrupting existing players in a massive manner in certain HNWI segments.
4. A need to offer holistic financial services tailored to the behavioral needs of the HNWI investors.
Technology Trends
There has been an understanding that other regions have been trailed by wealth management as a sub sector from a technology and digitization perspective. As with banking organizations that are wider, the wealth management company has been under considerable pressure from the perspective of technology and the astounding pace of innovation seen over the last few years from Big Data, a cloud and open source standpoint. Here are a couple trends to keep an eye on:
1. The dependence on the Digitized Wealth Office
The younger HNWI customers (defined as under 45) use cellular technology as an easy method of socializing with their counselors. A large proportion of applications are still individually managed with distinct user experiences which range from customer onboarding to trade management to servicing. There is a crying demand for IT infrastructure modernization ranging to Big Data to micro across the sector from cloud computing -services to agile customs boosting techniques such as for instance a DevOps approach.
2. The requirement for Open and Smart Data Architecture
Functions that were siloed have led to siloed data architectures working on custom built legacy applications. All of which positively impacts the client experience and inhibit the programs from using data in a fashion that always. There exists certainly a demand to do more with existing data assets and to have an integrated digital experience both internationally and regionally. Current players possess a huge first mover advantage as they offer exceptionally established financial products across their large (and largely loyal and tacky ) customer bases, a wide networks of physical locations, and rich troves of info that pertain to customer accounts and demographic info. … .. Nonetheless, it isn’t enough to just have the info. They must manage to drive change through heritage thinking and infrastructures as things change around the entire industry as it struggles to adapt into a major new section (millennial customers) who increasingly use mobile apparatus and require more contextual services and a seamless and highly analytic- driven, unified banking encounter —an experience similar to what consumers typically experience via the Internet on net properties like Facebook, Amazon, Google, Yahoo and so on. … ..
3. Thee need for more  automation
The need to invent a closer banker/client experience is not just driving demand around data silos and streams themselves. It’s driving players to move from paper based models to highly automated model, digital and a more seamless to rework countless existing rear and front office processes —the weakest link in the chain.
4. The Demand to “Right- size” or Change Existing Business Models predicated on Opinions and Customer Preferences
The clear continuing subject in the wealth management space is constant innovation. Firms have to ask themselves if they’ve been offering the appropriate products that cater to an increasingly affluent yet dynamic clientele.
Judgment
The following post in this string will concentrate on the company lifecycle of wealth management. We’ll begin by describing granular use cases across the whole lifecycle from a company standpoint, and we’ll then examine the pivotal role of Big Data empowered architectures along with a fresh age reference design.
In the final and third post in this string, we round off the discussion using an examination of strategic business recommendations for wealth management firms —recommendations which I will consider will drive astounding business advantages by providing a first-class customer experience and finally innovative offerings.

Benefits of robo advice

Benefits of Robo Advice according to ESMA

Robo advice has had a major impact on the wealth management industry. Several wealth managers have already started a robo advice alternative; others are or have a choice in development reviewing strategic options.
Measures for Wealth Managers
Wealth management companies assessing their choices associated with robo advice should assess five essential factors:
1. Alternatives will be developed in house,through a venture, or via theacquisition of a current supplier.
2 The robo advice will be placed—as a standalone offering, within a full service financial advisory program a hybrid vehicle of both.
3 Whether the company has the analytics customers and to get the tips and insights to work efficiently with them.
4 How the product will provide an intuitive and satisfactory customer expertise. That is usually reached through an iterative procedure involving prototypes, client laboratories and high-speed revisions and improvements.
5. Internal and external advertising management plans undertaken
We consider the effects that are most significant on the business, nevertheless, will come from capacities which haven’t yet. Which, although been released to the marketplace are legitimate extensions of robo advice abilities. As well as cognitive these comprise the add-on of investments besides ETFs, eventually, alternate investments such as property and hedge funds. The increase of robo adice matches up with that being indicated by business trends. More cooperation is being sought by investors and integration with their advisers. Rather than just being told how their cash is how it’s and invested performing, robo advisory gives investors a manner to connect to their advisers, raising their participation.

Benefits to financial institutions

Benefits relating to cost
Financial institutions incur fewer costs to deliver financial advice
It may be cheaper for financial institutions to provide advice through automated tools, for example because automated advice does not require the employment of human advisers, or because fewer costs are incurred from potential human errors. Although a period of initial investment is required, once the cost of system development has been met, the marginal cost of each new transaction may be relatively low, enabling financial institutions to benefit from economies of scale.
Benefits relating to the size of the potential client base 
Financial institutions have access to a wider range of consumers if they provide advice through automated tools
By providing advice through automated tools financial institutions may have access to a wider range of consumers, not only due to the relative ease of attracting a potential clients from across the EU via an online presence, but also because they can attract new categories of consumers that prefer to use online channels as opposed to face-to-face or telephone channels. Financial institutions can thus benefit from automated tools to increase their distribution platform to deliver advice.
Benefits relating to the quality of service
Financial institutions use automated tools to deliver a consistent consumer experience
Automated tools may be seen by financial institutions as a way to deliver a more standardised consumer experience by removing the potential for differences due to human interpretation.
An automated tool may also enhance the quality of the service provided to consumers by providing a direct link with current market or other relevant data. Automated tools can more rapidly process large quantities of evolving data and consequently update the advice output on a real-time and ongoing basis, if needed.
The provision of advice by financial institutions is more easily auditable because automated tools are more easily interrogated
Automated processes that are documented ex ante, for example in the logic of an algorithm or decision tress, can be easily reviewed and monitored by financial institutions (e.g. by Compliance, Risk or Audit functions).  It may be also be easier on an ex post basis to interrogate decisions made by an automated  tool, which performs tasks in a highly consistent manner than decisions that have been made by a human being.
As automated tools can generate an automatic record of the information that has been captured, the decisions made, and the output provided, it may also be easier for financial institutions to maintain records of the advice process, and to provide such records, for example in the event of a consumer complaint.

Benefits to consumers

Benefits relating to cost
Consumers pay less when they receive advice through automated tools
Automation in financial advice could decrease the costs of providing advice, which might make advice more affordable to a wider range of consumers. Most automated advisers market their offering as a low cost alternative to human advice.
Benefits relating to consumer access
A wider range of consumers has access to advice through automated tools
Consumers that may not normally contact a human advisor to obtain financial advice (e.g. because they feel that they are not wealthy enough to consult a financial advisor, or that the advisor is not objective enough) might feel more confident using robo advice tools. Increasing automation may therefore democratise access to financial advice.
Some categories of users  do not have experience in consulting a human financial advisor (for example, younger consumers, or less affluent consumers where the cost of financial advice may not be worth the benefit of the advice provided). These consumers might feel that robo advisory tools, which can also offer financial advice at a lower cost and with limited investment of time, are more accessible than advice provided by a person. This might give some investors greater motivation to act upon financial matters that they would not if they were using a human adviser.
Consumers have access to a wider range of service providers using robo advice tools 
As automated financial advice tools are usually available online they more readily facilitate cross-border transactions, compared to human advice. This makes it easier for consumers to access a wider range of advice providers, including from other jurisdictions.
Consumers obtain financial advice in a faster, easier and non-time-consuming way
Because robo advisory services are available online 24 hours a day, 7 days a week, and are aimed at reaching a wide range of consumers, consumers may feel that automated tools that provide advice are easier to use than a human adviser. For example, online automated tools may present information to users in a short and digestible way. It also usually takes only a few moments after an initial questionnaire is answered by the consumer before the advice is obtained as a result of the underlying algorithm.
Benefits relating to the quality of service
Consumers receive more consistent advice when they use automated tools 
A well-developed algorithm may be more consistently accurate than the human brain at complex repeatable regular processes, and in making predictions.  Robo advice tools could therefore reduce some elements of behavioural biases, human error or poor judgement that may exist when advice is provided by a human. A well-developed algorithm could ensure equal and similar advice to all investors with similar characteristics. This might improve the consistency of advice provided, regardless of the investors’ geographical residence or ability to identify and access a quality human adviser.
Robo advisory tools may also enable users to receive advice without feeling pressured or led as a result of personal relationships. Without the human interaction with an advisor, some consumers may feel they can take their decisions more freely and objectively.
Consumers obtain advice based on the most up-to-date market information when using an automated tool 
Because robo advisory software tools are able to rapidly process large volumes of complex data, it is possible for an automated tool to quickly assess and reassess the recommendations it makes against current data, on an ongoing basis. For example, robo advice tools can incorporate market changes continuously, to provide real-time, personalised feedback to consumers. Human advisors may find it more challenging to be as constantly up to date with relevant market developments.
Consumers find it easier to keep a record of the advisory process
The use of robo advice tools allows investors to easily receive and retain the details of their financial transactions online. For example, as robo software tools systematically record all the stages of the advisory process, they can easily provide a print out of the questions and answers which lead to the recommendation. This may help users in the future, for example if they have a query about the advice provided

Robo-advisers are systems that use algorithms to handle users’ investment platforms. And they may be threatening to upend the tremendous wealth management business that is international.

BI Intelligence predictions that robo-advisers will handle around 10% of overall worldwide assets under management (AUM) by 2020.

In a fresh report from BI Intelligence, we examine the marketplace for robo-advisory services, the motorists behind consumer adoption of robo- guiding the robo-adviser marketplace presents a chance to wealth management businesses that are conventional, and how startup robo-
As substantial legacy businesses start offering their own services counselors can triumph.

Big riches supervisors that are incumbent will not lose out to startups like Wealthfront and Betterment. Rather, they establishing their own products, which are scaling fast and are adopting the technology.
Consumers across all asset types are open to robo-advisers — such as the rich. 49% of the group would consider investing some of the assets using a robo advisor.
Many assets managed by robo advisers will come from those who have some investments.

Startups will have to identify their products to triumph, and are likely to find it hard to scale. They may be doing this by supplying riches managers with white label services, and more customized stand alone options.

Next steps for robo advice
We believe that robo-advice will, however, finally have an outsized impact on the wealth management business. The capabilities will, for instance, accelerate the process of fee compression which is already affecting the industry. The lower cost for robo-guidance services probably will put pressure. Wealth management companies must keep a close attention on methods to automate processes and transactions that are currently performed manually and on operating costs.
Robo advice may also give accessibility to a big new marketplace of millennials who are interested in amassing wealth, but have had only limited choices when it comes to investment management to wealth management firms. As these individuals develop and assemble assets (through their own efforts and through inheritance from their boomer parents and grandparents) they can represent an important growth opportunity for wealth management companies.
Ultimately, improvements in technology— particularly in cognitive computing and “smart machines” capable of complex reasoning and interaction with people — will transform the investing landscape in ways that are potentially disruptive. For wealth management firms, robo-guidance services can be a bet on the future — a method to get customers and financial advisors acclimated to working with machines that can enhance and expand human operation.
The time to think about this new FinTech wave, and prepare for it is now.

Empirica in the press – ‘The age of robots … ‘

On the first of July 2014 large polish economic magazine Puls Biznesu published an article “The age of robots comes to Warsaw Stock Exchange’. Article is quoting, among others, Empirica’s representatives speaking on the topic of the growth of algorithmic trading in Poland. Excerpts below.

‘Popularization of algorithmic trading on conferences like this one is step in good direction, says Michal Rozanski CEO of Empirica, a company which delivers Algorithmic Trading Platform. Expert says that computers will never replace a human in all the tasks. First and the foremost machines are taking over the processes that human traders had to perform manually. ‘I am sure that the development of algorithmic trading will not change the soul of the markets. It will not change to the race of engineers. It is and always has been the race on new, better ideas.’ says Michal Rozanski. 

 In his opinion both small and big investors will benefit. ‘Appliance of algorithmic trading tools increases liquidity and descreases bid/ask spreads which in turn decreases transaction cost born by all investors’ adds expert.

Michal Rozanski stresses that appliance of algorithmic trading does not limit to transactions with shortt time horizon, e.g. counted in miliseconds. Each trader can designs algorithms adjusted for it’s own requirements. ‘Let’s imagine an investor who would like to open a large position on KGHM shares or futures on WIG20. To make it happen it’s best to divde the order to tens or hundreds of smaller orders, which allows to hide her intentions from other market participants. Investor remains anonymous and minimizes market impact of her large order.’ explains Michal Rozanski. 

‘I am convinced that development of algorithmic trading can be a breakthrough moment in the history of our market, as long as we will treat the matter seriously and deliberately. On Wall Street share of algorithms in total turnover is estimated at 50%, in Europe at 40%, and in Poland still at below 20%. ‘ says Adam Maciejewski, CEO of Warsaw Stock Exchange.

Link to article…

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Empirica holds workshop on Warsaw Stock Exchange

Algorithmic trading workshop took place on 27th of July 2013 as a part of the second conference held by economic magazine ‘Puls Biznesu’ and Warsaw Stock  Exchange.

Michał Różański, representing Empirica, held workshop on the practical aspects of selecting tools for algorithmic trading by financial institutions. He stressed and covered in detail, especially one aspect of algorithmic trading which is from our practical experience constantly undervalued – namely proper testing of algorithms.

Very interesting was also a lecture of Emil Lewandowski who showed an algorithm which was able to detect a flash crash an hour before it actually happened. Algorithm was implemented, backtested, executed and presented to all the participants our Algorithmic Trading Platform. It was indeed very interesting example of application of algorithmic trading!

Among other guest were representatives from IBM, Sungard, List and M10.

Link to event:

http://konferencje.pb.pl/konferencja/705,handel-algorytmiczny-cz-ii

Artificial intelligence in FinTech

FinTech : It is just starting

FinTech sector is producing businesses with scalable products and has seen rapid growth over the past few years. Senior executives at banks are responding to the challenge these companies have started by setting their own incubators up to capture this high-speed initiation.

Technology was once centralised, with companies being run on big databases and transaction engines. Nowadays, it is massively distributed. New businesses have sprung up to take advantage of the chances this shift brings, while leading banks still operate using the old technology. The term “peer to peer” captures some of the phenomenon, in that it is now potential for financial transactions to take place on a platform without needing a bank or indeed any entity as an intermediary.

The financial services marketplace is all about information exchange that is reliable, secure and efficient. In many cases the new alternatives can be cheaper and quicker than traditional models. A broad variety of potential models exist, which explains the increasing number of new fintech startups that have entered the market.

Needless to say, fintech is not new and technology has consistently brought gains to consumers. Back in the day, however, development costs were high, while the technologies of today are more broadly available, affordable and, most importantly, worldwide scalable.

The huge banks are setting up their own initiation arms to investigate opportunities presented not only mobile but also by by P2P and micro-payments cryptocurrencies like Bitcoin,, and distributed ledgers for example blockchain.

But as progressive as traditional financial institutions strive to be, they will remain hampered by their legacy systems and processes. I see the banking landscape continuing to change quickly as fintech businesses with talented management, viable products and clever advertising using new and traditional media take market share. Moving fast, nimbly and economically to capitalise on opportunities is the key.

Artificial intelligence in FinTech

Since its inception in the 1950s, artificial intelligence (AI) has found at least two major boom cycles and long winters of disillusionment. While artificial intelligence endured through the recent disullusionment cycle in the 1990s to today, its easing and corollary technologies have flourished, and we’re now entering into a fresh boom in applictions of the technology.

Financial services have been revolutioned by the computational arms race of the last twenty-plus years, as technologies like big data analytics, expert systems, neural networks, evolutionary algorithms, machine learning and more have enabled computers to crunch much more varied, diverse, and deep data sets than ever before.

While most of the businesses built around machines making decisions are’t true AI, they may be using data-intensive technologies that will help technologies and firms continue to get closer to executing AI in commercial applications.

Despite the hype of intelligent machines, the first uses of AI are’t replacing humans and human intelligence but augmenting them. Text-based conversational chat was adopted by many startups as a way to deliver a personal assistant-like expertise in many industries, and in fintech we’ve seen the case of businesses like Kasisto utilising AI to scale the impact of people using technology. Instead of being bounded in customer support uses by humans reacting to users through chat windows, AI and related technologies are being implemented to deliver a human-like chat encounter without the need for nearly as many human helpers.

By using smart agents that can examine and crunch data about individual behaviour and compare to broader datasets, small and big businesses could have the ability to deliver personalized financial services as a scope and scale never possible before. Consumer banking, advisory services, retail financial planning, investment advice and wealth management, all of these services can be delivered using a conversational user interface with artifical intelligence software behind. The combination of technologies can empower firms to supply services to customers where they were unable to supply human service profitably (i.e. lower net worth sections of personal financial, investment and retirement advisory), but can now function using codified knowledge and AI-powered software.

In addition to new segments, they are able to be more personal, supplying guidance at the transactional level (i.e. every individual transaction). This is the story behind smart wallets like Wallet.ai. Picture having an assistant with you to allow you to assess, price, and consider every single thing you spend money on, at a granular level that you could not be assisted by any human helper with. Is a roboadvisor that offers rule based advice using only a couple of predefined parameters AI? Likely not, but newer technologies as time goes by which are based around learning and viewing about your behaviors at the individual level, could give guidance and outcomes which might be personalized in a way never possible formerly.

AI can also power technologies that overlay humans to supply workers activities with an tracking and oversight mechanism, helping with compliance, security, and the observation of employee actions. Monitoring discrete, repetitive data entry tasks, computers could watch and learn as time passes to verify test and data entry for particular events, evaluate danger, and find fraud. Any segment of fintech that is regulated creates the chance for companies to install AI-powered employee and systems supervision.

AI technologies that allow computers to process information could augment underwriting and lending products and make decisions more easy and better than individuals alone. While it’s still to be determined how new data sets created by technologies like wearables and internet of things can be used for insurance and credit decisions, AI-based technologies make it more potential for businesses to use these new datasets in highly personal ways .

But AI is creating bigger opportunities to go beyond testing and fitting data to create trading systems and more “intelligent ” dealers, using robotraders to optimize and test predictions and trading rules. AI can help manage and augment rules and trading decisions, helping process the data and creating the algorithms managing trading rules.

Some investment firms have implemented trading algorithms based on sentiment and insights from social media and other public data sources for years, but technology companies like Dataminr are installing platforms for a larger set of businesses to use. Getting and utilizing large, heterogenous datasets is now potential for far more companies to use, so how will companies leverage and build on top of these datasets?

The future of AI in FinTech

While much of the investment in artificial intelligence has been into multi-purpose platforms which are figuring out their specific, high-value usecases, the chance in fintech is somewhat different. Fintech has a base of technological prowess in the technologies supporting AI and several immediate high value uses.

Initially, AI was used more in backend technology settings to power large scale decisioning in financial analysis , trading and lending, but now it is becoming a technology that expands how everybody interacts with financial services companies. A number of problems consumers are facing when using financial services are around the problems in getting to quality, personal service. And possibly it’s an artificially intelligent agent that helps deliver cheaper, private services that are better and faster.

Empirica founds IT Corner association to support local entrepreneurship!

Empirica, along with several other software companies based in Wroclaw, has founded the IT Corner association.

IT Corner aims at supporting the development of local IT enterprises, tightening the cooperation among small and medium size high-tech sector companies and developing project and product synergies between organization members.

IT Corner will pursue it goals by:

  • organization of IT events and conferences for larger audience
  • regular technological meet-ups targeted at employees of IT Corner companies
  • cooperate on larger IT projects with member companies
  • know-how and best-practices sharing among management of member companies
  • common presence on job fairs, IT events in Poland and abroad

First common events are already planned and will be officially announced soon!

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The list of founding members encloses over 10 software companies employing altogether over 200 people. Till end of the year IT Corner aims to double its size and establish its position as biggest and most active IT association in Wroclaw.

More on: IT Corner site

Empirica with lecture at ‘Algorithmic Trading Conference’

Conference on the subject of ‘Algorithmic Trading’ was held at Warsaw Stock Exchange headquarters on the 28th of February 2013. The event was open by the WSE president, Adam Maciejewski. Among the invited guests were:

  • Peter Van Kleef, Lakeview Capital president
  • Michal Rozanski, CEO of Empirica
  • Andrzej Endler, CEO of M10
  • Michal Kobza, Warsaw Stock Exchange.

Michal Rozanski from Empirica made lecture on topic ‘Tools supporting financial institutions in algorithmic trading’. He showed not only common functionalities and architectures of available solutions, but also talked about practical aspects of hard decision every financial institution faces – to build software tools by own IT department or to buy from external vendors.

Very interesting was lecture held by Peter Van Kleef. Among other topics he shared his experiences from high frequency trading and how it has changed during last years.

We have informations that organizators intend to prepare soon another event relating to topic of algorithmic trading.

Link: GPW conference