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Who is moving FinTech forward in continental Europe? Thoughts after FinTech Forum on Tour.

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By Michal Rozanski, CEO at Empirica.

In the very centre of Canary Wharf, London’s financial district, in a brand new EY building, a very interesting FinTech conference took place – FinTech Forum on Tour. The invitation-only conference targeted the most interesting startups from the investment area (InvestTech) from mainland Europe. The event had representative stakeholders from the entire financial ecosystem. As Efi Pylarinou noted – the regulator, the incumbents, the insurgents, and investors, were all represented.

 

Empirica was invited to present its flagship product – Algorithmic Trading Platform, which is a tool professional investors use for building, testing and executing of algorithmic strategies. However, it was amazing to see what is happening in other areas of the investment industry. There were a lot of interesting presentations of companies transforming the FinTech industry in the areas of asset and wealth management, social trading and analytics.

 

The conference was opened with a keynote speech by Anna Wallace from FCA. Anna talked about the mission of FCA’s Innovation Hub; that is to promote innovation and competition in the financial technology field and to ensure that rules and regulations are respected. Whilst listening to Anna it became clear to me what the real advantage of London holds in the race to become the global FinTech capital – London has Wall Street, Silicon Valley and the Government in one place – and what’s most important, they cooperate trying to push things forward in one direction.

 

FinTech Forum on Tour

 

Robo-advisory

A short look at the companies presenting themselves at the event leads to the conclusion that the hottest sector of FinTech right now is robo-advisory. It’s so hot, that one of the panellists noted it’s getting harder and harder to differentiate for robo-advisory startups. On FinTech on Tour this sector was represented by AdviseOnly from Italy, In2experience,  Niiio, Vaamo and Fincite – all from Germany. Ralf Heim from Fincite presented an interesting toolkit ‘algo as a service’ and white label robo-advisory solutions. Marko Modsching from niiio revealed the motivation of retail customers, that “they do not want to be rich, they do not want to be poor”. Scalable Capital stressed the role of risk management in its offering of robo advisory services.

 

Social analysis/Sentiment/ Big Data

The social or sentiment analysis area, keeps growing and gains traction. Every day there’s more data and more trust in the results of backtesting as that data builds up over the years. The social media space is gaining ground. Investment funds as well as FinTech startups are finding new ways to use sentiment data for trading. And, it’s inseparably related with the analysis of huge amounts of data, so technically the systems behind it? are not trivial.

Anders Bally gave an interesting presentation about how to deal with sentiment data and showed  how his company Sentifi is identifying and ranking financial market influencers in social channels, and what they discuss.

Sentitrade showed its sentiment engine for opinion mining that is using proprietary sentiment indicator and trend reversal signals. Sentitrade is concentrated on German-speaking markets.

 

Asset management

From the area of asset management an interesting pitch was given by Cashboard, offering alternative asset classes and preparing now for a  huge TV marketing campaign . StockPluse showed how to combine information derived from social networks and base investment decisions on the overall sentiment. United Signals allows for social investing by making it possible to trade by copying transactions of chosen trading gurus with a proven track record, all in an automated way. And, finally BondIT, an Israeli company, presented tools for fixed income portfolio construction, optimization and rebalancing with use of algorithms.

 

Bitcoin and Blockchain

An interesting remark was given   by one of the panelist: ‘we have nearly scratched the surface for what blockchain technology can be applied to in financial industry’. Looking at the latest news reports that are saying that big financial institutions are heavily investing in blockchain startups and their own research in this field, there is definitely something in it.

A company from this sector of FinTech – Crypto Facilities, represented by its CEO Timo Schaefer, showed  the functionalities of its bitcoin derivatives trading platform.

 

Other fields

Hervé Bonazzi, CEO of Scaled Risk, presented its technologically advanced Big Data platform for financial institutions for risk management, compliance, analytics and fraud detection. Using Hadoop under the hood and low latency processing. Ambitious as it sounds.

Analysis of financial data for company  valuations, Valutico presented a tool that’s using big data, AI and swarm intelligence. Dorothee Fuhrmann from Prophis Technologies (UK) presented a generic tool for financial institutions to derive value and insights from data, interestingly describing indirect exposures and a hidden transmission mechanism.

Stephen Dubois showed  what Xignite (US) has to offer to financial institutions and other FinTech startups in the area of real-time and historical data that is stored in the cloud and accessible by proprietary API.

 Qumram, in an energetic presentation delivered by Mathias Wegmueller, described technology for recording online sessions on web, mobile and social channels, allowing for the analysis of user behaviour and strengthening internal security policy.

 

Conclusion

London is the place to be for FinTech startups. No city in Europe gives such possibilities. Tax deductions for investors. Direct help from the UK regulator FCA. Great choice of incubators and bootcamps for startups. No place gives such a kick. Maybe Silicon Valley is the best place for finding investor for a startup, maybe the Wall Street is the centre of the financial world, but London is the place that combines both the tech and the finance. It has a real chance of becoming the FinTech capital of the world.

 

About organizators

The people responsible for creating both a great and professional atmosphere at the event were Samarth Shekhar and Michael Mellinghoff. Michael was a great mentor of mine who transformed my pitch from a long and quite boring list of functionalities of our product to something that was bearable for the audience. Michael let me thank you once more for the time and energy you have devoted to Empirica’s pitch!

 

And because the FinTech scene in our region is not well organized yet, I sincerely advise all FinTech startups from Central and Eastern Europe to attend cyclic events of FinTech Forum in Frankfurt organized by Techfluence professionals!

 
Read about our Lessons learned from FinTech software projects.

 

 

FinTech Companies

 

 

 

FinTech. Lessons learned from over 5 years of financial technology software projects.

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By Michal Rozanski, CEO at Empirica.

 

Reading news about fintech we regularly see the big money inflow to new companies with a lot of potentially breakthrough ideas. But aside from the hype from the business side, there are sophisticated technical projects going on underneath. And for new fintech ideas to be successful, these projects have to end with the delivery of great software systems that scale and last. Because we have been building these kind of systems for the fintech area for over 5 years we want to share a bit of our experience.

 

fintech empirica

 

“Software is eating the world”. I believe these words by Marc Andreessen. And now the time has come for finance, as technology is transforming every corner of the financial sector. Algorithmic trading, which is our speciality, is a great example. Other examples include lending, payments, personal finance, crowdfunding, consumer banking and retail investments. Every part of the finance industry is experiencing rapid changes triggered by companies that propose new services with heavy use of software.
The best evidence that something is happening somewhere is to see where the money goes. Investments in fintech companies globally grew to $12 billion last year, which is a three times increase comparing to 2013, and five times during the last five years, according to the research reports by CBInsights.

If fintech relies on software, and there is so much money flowing into fintech projects, what should be looked for when making a fintech software project? Our outsourcing software projects for the fintech industry as well as building our own algorithmic trading platform has taught us a lot. Now we want to share our lessons learned from these projects.

 

1. The process – be agile.

Agile methodology is the essence of how software projects should be made. Short iterations. Frequent deliveries. Fast and constant feedback from users. Having a working product from early iterations, gives you the best understanding of where you are now, and where you should go.
It doesn’t matter if you outsource the team or build everything in-house; if your team is local or remote. Agile methodologies like Scrum or Kanban will help you build better software, lower the overall risk of the project and will help you show the business value sooner.

 

2. The team – hire the best.

A few words about productivity in software industry. The citation is from my favourite article by Robert Smallshire ‘Predictive Models of Development Teams and the Systems They Build’ : ‘… we know that on a small 10 000 line code base, the least productive developer will produce about 2000 lines of debugged and working code in a year, the most productive developer will produce about 29 000 lines of code in a year, and the typical (or average) developer will produce about 3200 lines of code in a year. Notice that the distribution is highly skewed toward the low productivity end, and the multiple between the typical and most productive developers corresponds to the fabled 10x programmer.’.
I don’t care what people say about lines of code as a metric of productivity. That’s only used here for illustration.
The skills of the people may not be that important when you are building relatively simple portals with some basic backend functionality. Or mobile apps. But if your business relies on sophisticated software for financial transactions processing, then the technical skills of those who build it make all the difference.

And this is the answer to the unasked question why we in Empirica are hiring only best developers.

We the tech founders tend to forget how important it is to have not only best developers but also the best specialists in the area which we want to market our product. If you are building an algo trading platform, you need quants. If you are building banking omnichannel system, you need bankers. Besides, especially in B2B world, you need someone who will speak to your customers in their language. Otherwise, your sales will suck.
And finally, unless you hire a subcontractor experienced in your industry, your developers will not understand the nuances of your area of finance.

 

3. The product – outsource or build in-house?

If you are seriously considering building a new team in-house, please read the points about performance and quality, and ask yourself the question – ‘Can I hire people who are able to build systems on required performance and stability levels?’. And these auxiliary questions – can you hire developers who really understand multithreading? Are you able to really check their abilities, hire them, and keep them with you? If yes, then you have a chance. If not, better go outsource.
And when deciding on outsourcing – do not outsource just to any IT company hoping they will take care. Find a company that makes systems similar to what you intend to build. Similar not only from a technical side but also from a business side.
Can outsourcing be made remotely without an unnecessary threat to the project? It depends on a few variables, but yes. Firstly, the skills mentioned above are crucial; not the place where people sleep. Secondly, there are many tools to help you make remote work as smooth as local work. Slack, trello, github, daily standups on Skype. Use it. Thirdly, find a team with proven experience in remote agile projects. And finally – the product owner will be the most important position for you to cover internally.

And one remark about a hidden cost of in-house development, inseparably related to the IT industry – staff turnover costs. Depending on the source of research, turnover rates for software developers are estimated at 25% to even 38%. That means that when constructing your in-house team, every fourth or even every third developer will not be with you in a year from now. Finding a good developer – takes months. Teaching a new developer and getting up to speed – another few months. When deciding on outsourcing, you are also outsourcing the cost and stress of staff turnover.

 

4. System’s performance.

For many fintech areas system’s performance is crucial. Not for all, but when it is important, it is really important. If you are building a lending portal, performance isn’t as crucial. Your customers are happy if they get a loan in a few days or weeks, so it doesn’t matter if their application is processed in 2 seconds or in 2 minutes. If you are building an algo trading operations or payments processing service, you measure time in milliseconds at best, but maybe even in nanoseconds. And then systems performance becomes a key input to the product map.
95% of developers don’t know how to program with performance in mind, because 95% of software projects don’t require these skills. Skills of thinking where bytes of memory go, when they will be cleaned up, which structure is more efficient for this kind of operation on this type of object. Or the nightmare of IT students – multithreading. I can count on my hands as to how many people I know who truly understand this topic.

 

5. Stability, quality and level of service.

Finance is all about the trust. And software in fintech usually processes financial transactions in someway.
Technology may change. Access channels may change. You may not have the word ‘bank’ in your company name, but you must have its level of service. No one in the world would allow someone to play with their money. Allowing the risk of technical failure may put you out of business. You don’t want to spare on technology. In the fintech sector there is no room for error.

You don’t achieve quality by putting 3 testers behind each developer. You achieve quality with processes of product development. And that’s what the next point is about.

 

6. The Dev Ops

The core idea behind DevOps is that the team is responsible for all the processes behind the development and continuous integration of the product. And it’s clear that agile processes and good development practices need frequent integrations. Non-functional requirements (stability and performance) need a lot of testing. All of this is an extra burden, requiring frequent builds and a lot of deployments on development and test machines. On top of that there are many functional requirements that need to be fulfilled and once built, kept tested and running.

On many larger projects the team is split into developers, testers, release managers and system administrators working in separate rooms. From a process perspective this is an unnecessary overhead. The good news is that this is more the bank’s way of doing business, rarely the fintech way. This separation of roles creates an artificial border when functionalities are complete from the developers’ point of view and when they are really done – tested, integrated, released, stable, ready for production. By putting all responsibilities in the hands of the project team you can achieve similar reliability and availability, with a faster time to the market. The team also communicates better and can focus its energy on the core business, rather than administration and firefighting.

There is a lot of savings in time and cost in automation. And there are a lot of things that can be automated. Our DevOps processes have matured with our product, and now they are our most precious assets.

 

7. The technology.

The range of technologies applied for fintech software projects can be as wide as for any other industry. What technology makes best fit for the project depends, well, on the project. Some projects are really simple such as mobile or web application without complicated backend logic behind the system. So here technology will not be a challenge. Generally speaking, fintech projects can be some of the most challenging projects in the world. Here technologies applied can be the difference between success and failure. Need to process 10K transaction per second with a mean latency under 1/10th ms. You will need a proven technology, probably need to resign from standard application servers, and write a lot of stuff from scratch, to control the latency on every level of critical path.

Mobile, web, desktop? This is more of a business decision than technical. Some say the desktop is dead. Not in trading. If you sit whole day in front of the computer and you need to refer to more than one monitor, forget the mobile or web. As for your iPhone? This can be used as an additional channel, when you go to a lunch, to briefly check if the situation is under control.

 

8. The Culture.

After all these points up till now, you have a talented team, working as a well-oiled mechanism with agile processes, who know what to do and how to do it. Now you need to keep the spirits high through the next months or years of the project.
And it takes more than a cool office, table tennis, play station or Friday parties to build the right culture. Culture is about shared values. Culture is about a common story. With our fintech products or services we are often going against big institutions. We are often trying to disrupt the way their business used to work. We are small and want to change the world, going to war with the big and the powerful. Doesn’t it look to you like another variation of David and Goliath story? Don’t smile, this is one of the most effective stories. It unifies people and makes them go in the same direction with the strong feeling of purpose, a mission. This is something many startups in other non fintech branches can’t offer. If you are building the 10th online grocery store in your city, what can you tell your people about the mission?

 

Final words

Fintech software projects are usually technologically challenging. But that is just a risk that needs to be properly addressed with the right people and processes or with the right outsourcing partner. You shouldn’t outsource the responsibility of taking care of your customers or finding the right market fit for your product. But technology is something you can usually outsource and even expect significant added value after finding the right technology partner.
At Empirica we have taken part in many challenging fintech projects, so learn our lessons, learn from others, learn your own and share it. This cycle of learning, doing and sharing will help the fintech community build great systems that change the rules of the game in the financial world!

 

 

New tendencies in Robo Advisory space

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In case you haven’t yet learned about the new robo financial advisor businesses (or digital counselors ), this should be the year you do. They are fast growing and gaining ample assets.

Based on a study by Corporate Penetration, from April 2014 to July 2015, the top robo-advisors — or automated investment services as many choose to be called — went from $115 billion to $21 billion assets under management

With these new companies bringing more investors and with all the business continuing to mature, there will undoubtedly be many changes that affect the robo-advisory market. Here’s that which we are prone to find in 2016 and beyond.

Legacy Firms Go Robo
As the robo-advisor industry grows it will continue to attract the attention of financial services companies that are established. These corporations desire to offer what their clients need — money management that is easy — while at precisely the same time bringing more funds to manage. Right now they’re losing dollars to the upstart robo-advisor companies under direction. Since the amount of money under management determines how much money firms can make, they will pay attention to the reason why they are losing out on new investment dollars.

Just previously year, Fidelity Investments, Charles Schwab Corp. and The Vanguard Group have either created their own digital services unit or partnered with an existing pureplay robo business.. You’re able to get the other large companies to join the trend.

Increased Kinds of Investment Options
They work by ensuring you’ve got the right asset allocation for your targets using index funds. A number of them subsequently additionally use tax loss harvesting as ways to improve yields.

Beyond their own original assumption of money management that is digital, robo-advisors will start offering options as a means to obtain a competitive advantage in a increasingly crowded market. You could possibly end up seeing matters such as portfolios according to different analytical strategies using beta that is intelligent and technical analysis. Businesses will use these investing alternatives in an attempt to make their services more appealing to those that desire to overcome and time the market but still do not want to manage their own portfolio.

The Flip Side
One trend that will probably coincide with robo-advisors’ evolution is lousy investment options. We have to be prepared to see existing companies or upstarts begin offering robo services at extremely high fees. We will also probably see this paired with awful investment choices which have fine print that is concealed and additional high fees that’ll lock customers into contracts

It’s no different with index funds that bill more than 10% for the same thing you can get for 006%.. Such funds continue to be in business because people get demanded by salespeople that are competitive to put their money there or they do not take the time to comprehend what makes a great investment. The sort of companies that run these funds may achieve success by trumpeting a trend and preying on consumers that are uneducated.

Mergers, Acquisitions and Closings

Depending on at, it’s projected there are about 200 robo-advisor companies out there, many which don’t have a lot of assets under management. Together with the area this packed, expect to find acquisitions closes and mergers. The rate of employee turnover in the marketplace might be fast given that robo-advisors tend to have smaller borders as a result of lower fees they charge. And when it comes to survival of the fittest, it’ll probably be problematic for independent robo-advisor to gain enough traction to make it on their own..

The consolidation is already occurring — BlackRock Inc. recently purchased Future Counselor and Northwestern Mutual Life Insurance purchased upstart online money supervisor LearnVest.

More Options for Private Guidance
Robo-advisors work nicely without important life changes on the horizon for clients and for individuals who don’t need added services such as estate planning. Robos choose all the stress out of obtaining the right asset allocation and investments; they are also maintained by them without an excessive amount of cost.

Nevertheless, as investors reach stages in their life where they want more advice that is personalized to work through choices — buying a property, saving for college or getting ready to retire — they’ll want access to more than simply a computer program

That is really where the robo-advisor firms will start to incorporate human counselors to help with matters that are more complicated. This may mean an increased fee to obtain a person that is dedicated adviser, or it can mean that one is paid for by customers as guidance that is more involved is needed. The natural evolution of the market’s can lead to conventional human advisors accentuating their practice by pairing up having a while label robo-advisor to offer the automated investment services ; premium services which demand a dedicated financial advisor may still be offered when needed
Robo-advisors are here to remain, but the services will continue to evolve to generally meet the demands of younger investors over the course of their life. For when they may be needed and more investment options, this includes services that are increased. With an increase in competition, you are going to see these matters become a large part of the mixture.

The Great FinTech Trends – Robo Advisor Race

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The Fantastic FinTech Robo Advisor Race

Possibly no other sub sector of the arena that was fintech has received as the robo advisors as institutional and retail interest. The company of financial planning and personal investment impacts substantial pools of capital and large investor sections. Innovation in the investment technology space is creating a race that is furious among insurance companies and startups, brokerages, wealth management businesses to serve a changing and evolving account base. .. But you will find many factors to consider as competition heats up
Who Are the Robo Advisors
By now, the robo advisors are familiar to almost all fintech watchers. Their services include automated portfolio preparation, automatic asset allocation, risk assessments that are on-line, account re reconciliation and other digital tools. Well known players comprise Theme, Wealthfront, Betterment and Folio , among others.

Generally, robo advisors allow more folks, who otherwise may not be able meet account minimums or to invest with confidence, to enter the market in a passive way. Conventional wealth management companies and financial advisers cost 1% of higher or AUM. Robo advisors fulfill a need for more economic, automated and digital preparation tools which might be preferred by younger, digital informed investors or those who want more privacy and control over their portfolio.

Nonetheless, it’s not other younger generations and merely the Millennials who favor digital investment tools. Firms have figured out this and are starting to compete with the robo advisors.
For on-line brokers, robo advising feels like a natural extension of what was already an electronic service. Stock brokers went through a substantial transformation in the late nineties during the first dot com boom and most, or even all, became online agents. More fascinating is the degree of interest in robo advisors from very traditional players such as insurance companies, asset managers and wealth management businesses. Buy, these firms are aggressively moving to assemble and associate with robo technologies

Below is an inventory of some of the announced mixes and launches within the last two years:

* Northwest Mutual acquiring Learnvest

* BlackRock acquiring Future Advisor

* Invesco obtaining Jemstep

* Vanguard launching Private Adviser Services

* Charles Schwab found Scwab Intelligent Portfolios

* Fidelity Investments launching Fidelity Go

* E*Trade launching Adaptive Portfolio

Challenges and Concerns

The decision for traditional financial institutions to compete with robo advising is, on the one hand, practically apparent, while requiring some complicated factors. Lower fees and the digital transformation changing the financial services sector has become an universal subject. The main tactical dilemma for conventional players who enter robo advising seems to function as impact to their current business
A vexing dilemma for those players with an incredibly big AUM base is the potential cannibalization of their fee revenues. If these players switch to a robo advisor model and charge lower fees for the same AUM, they will, essentially, have to attract a larger AUM base to make precisely the same fees as before, while at the same time investing in new technologies to support the automated preparation and digital toolkits. Cost reductions might need certainly to come from a reduction in headcount among their financial adviser sales force to maintain profitability in the midst of these capital outlays.
But it can be even more complicated for those players who desire to offer a hybrid vehicle service including the digital toolkits of a robo advisor while offering light touch individual counselor services. For these kinds of offerings, distinct tiered account services, with changing fee levels might be a more intelligent strategy
Offering a robo advisor service might be an opportunistic play for wealth management businesses who sit at the nexus of the inter generational wealth transfer which is taking place. .. Losing accounts through the inter generational wealth transfer is a stress for businesses who heavily rely on the Baby Boomers and the Silent Generation for much of their fees. The situation is very different today, while older generations may have profited from traditional advisors during an age of very high returns and interest rates. Companies must navigate these waters carefully not to appear too digital to their traditional customer base, while also not appearing to be laggards to your customer that is younger that is prospective. While a robo advisor service might be an excellent way to keep AUM amounts steady inside the business, as younger family members inherit assets from older ones, it may have to be branded separately from other types of accounts.

FinTech Tendencies :

There’s an age old question in wealth management and investment guidance : Man or Machine. The conflict has started today.
Over the last six years, a related section of FinTech that’s received a lot of curiosity, and a fair share of controversy, is automated investment services… or what’re frequently called “robo advisors. ”
These technology-backed advisors were assembled on the premise that many of the actions performed by a Registered Investment Advisor (RIA) can be replicated by complex intuitive software. They guarantee lower prices, simplicity of making investing “fun” and also the bonus potential.
Robo – advisers like Wealthfront and Betterment have realized something that 99% of startups never do – turning an idea into an organization that is growing, prospering, and has the chance to be a permanent fixture in its industry.
In reality, the $47 trillion wealth management giant BlackRock only acquired FutureAdvisor, another robo advisor platform with $600 million under management

But the process of creative destruction in the FinTech business is occurring so quickly, I started questioning whether dangers that were competitive can already jeopardize comparatively new success stories like these. Looking at the companies that bookend them – the old-guard firms on one side, and the brand new crop of products and startups on the other — I came away with a healthy dose of skepticism on the future of the stand-alone robo-advisor.

Robo Advisors and the Bet on Millennials
One of the central selling points robo advisors made to the VCs who have funded them was a toxic mistrust of more traditional wealth counselors and financial services firms, their DIY attitude, and millennials’ internet savvy. Given the two important financial disasters they’d experienced in their lifetime, these millennials supposedly harbored a degree of mistrust for the fiscal brands their parents revered that would make defection a near-certainty. They viewed the large banks as inherently bad, and perilously self interested.

As it turns out… a recent report conducted by Salesforce indicates that many millennials actually do favor having an advisor.. Eighty-one percent wanted their counselor to manage their money completely alone, or collaboratively with them compared to 86% for Gen- 89% for Baby Boomers and X’ers — not that distinct.
What is more astonishing is that millennials stood out as the generation most interested in face-to-face interactions with the advisor – 47% get investment advice versus 36% for Gen- 46% for Baby Boomers and X’ers. The number one reason millennials gave for firing their adviser was high fees, which robo- counselors have exploited with fees that are a fraction of the cost of conventional wealth management
Millennials are certainly somewhat less comfortable relying completely on technology as the incumbent robo, while their preference for technology was unmistakable – advisers envisaged. There stays a definite desire to learn just how to manage cash, in order to ask questions, express financial goals and to have a trustworthy adviser involved.

In short, it seems that robo- advisors won’t replace the conventional advisor ; they will sit alongside them to provide an optimal blend of human and technology brains.

In response to fit what younger investors are searching for, and to the increase of Wealthfront and Betterment, conventional financial advisors like Schwab and Vanguard recently established “robo advisor platforms” of their own that comprise a substitute for connect to an individual, if desirable.
They’ve slashed fees, and now offer a wider array of investment vehicles than the incumbent robo – advisers. And with early stage investments in FinTech quadrupling recently, it’s no surprise that after only a few months these hybrid platforms attracted an amount of capital that’s many times greater than what the stand-alone robos had accumulated in years.
What this tells us is that Wealthfront and Betterment are correct — many investors have elected to cease paying their more traditional RIAs for a service in which some facets can be performed by technology, info, and automation. And these benefits extend much beyond those who can afford the guidance of Schwab peers are ’sed by it. Millions of middle-income families may have access to a greater degree of guidance that is advanced than their net worth may have ever enabled before
But technology can’t create an investing worldview from an individual ’s special demands and aims, hold their hand and encourage them to stay composed. And these human qualities are valuable to investors than these companies may have estimated
Boom or Doom For Stand Alone Robo Advisors?
Since the incumbents offer merchandise that is similar with comparable fees, the stand alone advisers will need to convince investors that they have something the big guys don’t. Despite the trust and their inventions they’ve constructed with many investors, the stand alone robo-advisors haven’t yet shown they can generate better yields, net of fees. So they’ll need to explain how and why their algorithms are not inferior to the algorithms other companies can create. But if investors find the prospect of managing cash overly complex, the nuances of algorithm building will probably not make for a good advertising hook.
The recent spike in advertising by Betterment and Wealthfront indicates that they feel a need to match Schwab, etc. on their field of battle – which is a scary proposition given how well- financed the big brokerages are, and how seasoned they’ve become at mass media marketing.

It’s also likely to be a losing battle because incumbents like Fidelity and Vanguard can create fees on the inherent ETFs they put in customer portfolios, enabling an extended life value and therefore greater allowance for higher client acquisition prices.

Reed Hastings said that before HBO could become Netflix Neflix had to grow and become HBO. Using this example to the space that is advisory, it appears like the incumbents have refurbished Wealthfront and Betterment ’s secret sauce faster than these firms could replicate that value added human element that Schwab and Vanguard offer
I have no doubt a successful departure lies in these companies futures, but if and when they can be acquired, it’s going to probably be by a traditional company that also realizes that it needs to leverage new technology and become “half- man, half-machine”

Robo advisors – new wave in FinTech

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In the space between DIY investing and personal — but pricey — financial advisors sits the robo-advisor, a crop of firms that manage client portfolios via computer algorithms, cutting prices and passing the savings on to investors. These online advisers have taken off over the last several years: There are currently a couple hundred firms in the race.

What’s a robo advisor?
A robo-advisor is an on-line financial advisory firm that leverages automation and algorithms to help manage client portfolios. That automation empowers robo-advisors to offer investment management services to consumers for a fraction of the price of a financial advisor that is human. Lower fees, joined with superior features like automatic rebalancing and tax-loss harvesting, can yield higher returns.

How they work
Most of the companies urge portfolios of low cost exchange-traded funds according to surveys that are on-line that investors fill out. The thought is that investors will do with generally diversified portfolios and low fees.

The companies use algorithms to put investors into various portfolios according to risk tolerance.

How to use Robo-Advisor

Automated Customer Onboarding – the questionnaire

The questionnaire is the first step of using Robo Advisor. User’s profile is being created with parameters like:

  • age (defining overall risk aversion level)
  • investment goals (defining users expectations)
  • users experience with losses/gains
  • making important financial decisions

Our Robo Advisory platform covers the interpretation of user’s answers into automated advise.

 

Balance projection

Balance projection gives the user quick view how his portfolio balance would look like in the future for given investment values. In order to make the projection more eye-catching we introduced possibility of generating balance curve based on either static growth or mathematical function development. For example, on average, portfolio increases 4% every year.

 

Asset allocation

Asset allocation is the selection process of the right instruments adequate to users risk profile. Our platform allows to automate managing the allocation, using defined algorithm. For example, with higher portfolio risk we can invest more into stocks and with smaller portfolio risk we invest more into fixed income products. Real asset allocation model has to be decided.

 

User Portfolio,

It is possible to monitor user’s portfolio balance in user dashboard. Platform provides history of portfolio balance over the selected period. User is able to check his current portfolio allocation grouped by three factors:

  • Instrument type
  • Instrument sector
  • Instrument region

 

Portfolio rebalancing

Automated portfolio rebalancing is a crucial functionality for robo-advisory service. Let’s assume that user got asset allocation with 60% stocks and 40% fixed incomes. Over the time, because of the reinvesting dividends or other user-defined factor, his portfolio allocation changed to 70% stocks and 30% fixed incomes. User does not want to take such a big risk so we do portfolio rebalancing to back to original allocation.

 

 

List of successful robo advisors

Betterment
Betterment is a perfect starting point for young investors. They make investing easy for beginners by focusing on simple asset allocation, goal …

Personal Capital
A free and easy-to-use service that syncs up all your financial accounts in one location. Personal Capital creates summaries of your spending, net …

Wealthfront
An automated investing service with an emphasis on asset allocation with low fees. Wealthfront’s service really shines with taxable accounts….

Stash Invest
Stash could be the perfect investment app for a new investor. Its $5 minimum initial deposit removes the single biggest obstacle to investing, but the…

Fidelity Go
Fidelity’s entry into the robo-advisor service helps beginning investors. Its pricing is very transparent, and if you have an existing account, …

Aspiration
Aspiration may be the perfect robo-advisor service for anyone who wants to invest in socially responsible companies. They have low fees, and the fee-…

Vanguard Personal Advisor Services
Overall a solid entry into the robo-advisor space. Though the service will exclude beginning investors because of the high minimum deposit. Other robo…

WiseBanyan
WiseBanyan is a free robo-advisor service with some decent features. Unfortunately, we question if the business model is sustainable….

Hedgeable
Hedgeable brings the techniques of hedge funds down to the less well-heeled masses, so everyone can have access to the investment industry “secrets.”…

TradeKing Advisors
TradeKing Advisors is a platform well worth investigating if you’re looking for professional investment management at a very low fee and $500 deposit …

Charles Schwab Intelligent Portfolios
Overall a decent service that deserves a looking into. Though we question its large allocation to cash and choice of some of the ETFs in order to make…

LearnVest
LearnVest is a decent free budgeting tool. Though compared to its competitors lacks investment reporting. Financial planning is available for an …

Rebalance IRA
Rebalance IRA provides insight into your portfolio and helps you make better decisions by not letting emotions get in the way and selling too often, …

AssetBuilder
AssetBuilder might be a reasonable service to use on large accounts, particularly over $20 million where the annual fee is just 0.20%. But on smaller …

Financial Guard
Financial Guard offers straightforward advice, to upgrade your current portfolio, pay lower fees, and choose better funds. Their business model is …

SigFig
SigFig itself isn’t a bad service, but their recommendations seem simple at best. There are better robo-advisors available….

Wealthsimple
Truewealth

Personalcapital 

FutureAdvisor 

 

Extending the customer base

With a customer base that the size of each of the competition combined, based on Stein, robo advisory Betterment can also be bringing folks, along with assets. It’s not difficult to chalk that up to Stein, and its $0 account minimum admits that some of Betterment’s accounts are modest. But he says all of the customers counted in that tally are saving into funded accounts, with most putting a sizeable amount that is “ away.”

That minimum — or instead, the lack of one — has set the pressure on other robo advisors as well as traditional advisors, many of which have dropped their own minimums over the past year. Private Capital, which has $1.8 billion in assets under management, recently lowered its account minimum by an ambitious 75%, falling from $100,000 to $25,000. The company might have the ability to get away with a minimum still in five digits because its customers also get a dedicated financial advisor.

TradeKing Advisors has lowered its minimum. It found its two tiers of service with initial deposit conditions of $25, and $10,000 000; those minimums now sit at $ and $5, 000. Rich Hagen, the business’s CEO, told NerdWallet that minimums were lowered to remain competitive.

And Wealthfront lowered its account condition 500, noting from $5,000 to $ in a blog post that it was reacting to a “surge in demand” from youthful robo customers . Those customers desired to take advantage of Wealthfront’s generous pricing arrangement, which manages the first $10,000 completely free (Betterment bills 0.35% on accounts under $10,000 that consent to a minimum $100 monthly auto-deposit; those without auto-deposits are charged a monthly fee of $3. That $3 a month — which amounts to more than 7% per annum on a $500 balance — is a point of contention between the two robo-advisors, including a public war of words on Medium.)

 

 

What to look for

To the reader that is causal, the differences between robo advisory companies might appear small but in reality isn’t. You’ve got a choice between:

  • Minimuml Deposit – Some robo advisories it is possible to start out with others and nothing need substantial sums to begin with
  • Yearly Fees – Know about ETF fees and hidden costs
  • Asset allocation – Asset allocation of each robo advisory may differ quite a bit based upon how old you are, and just how their risk assessment questions are answered by you
  • Account Type Support – Do combined, they offer individual, IRA, etc.
  • Automation – Some robo services are 100% automated vs human assisted advice
  • Tax Optimization – Services like Tax-Loss Harvesting
  • Custody of Funds – Handled by you in which they give advice to trading, or directly by the company
  • Management of Assets – Manage only a part or all of your assets
  • Ending-Target – Retirement simply, or other targets (i.e kids education)

 

Best Robo Advisors – Breakdown by Asset Size (2016 Ranking Comparison)

Below is the listing of this year’s top robo advisors by asset size.

# Robo Advisors Total Assets Under Management*
1 Betterment $4,200,000,000
2 Charles Schwab $4,100,000,000
3 Wealthfront $2,800,000,000
4 Personal Capital $2,100,000,000
5 FutureAdvisor $600,000,000

The look at best companies in robo advisory space

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Some of the recent technology led disruptions in the financial industry are in the areas of giving, payments, money transfers, wealth management, data that was big and cybersecurity. Furthermore, blockchain has opened up endless possibilities for online transactions without need for an intermediary. Today Fintech companies provide financial services using different types of high tech alternatives, thereby competing with the conventional businesses.
More than 20% of financial services business is at risk to Fintech. The financial service players comprehend the threat, but, aren’t certain about the best way to react. E.g., 57% financial services players are unsure about how to respond to blockchain technology; though there is huge potential for transformation through adoption of blockchain in each area of financial market, e.g., capital markets.
FinTech in Wealth Management
The key FinTech led innovations in Wealth Management are in the areas of appraisal of risk profile of the investor, automatic asset allocation, advanced analytics for better investment support, integration of social data for enabling investment decisions, standardization of advice & products to appeal to the cost- conscious investors, scalable distribution design for tapping emerging markets, enhanced performance abilities from integration with decision support systems and shift to technology enabled investment guidance with exception based human intervention[iv].
Financial Advice
When selecting wealth managers clients value a business’s standing and trust more than a counselor’s standing. And though planning is an important factor in driving clients to wealth managers, it becomes more irrelevant when actually choosing an advisor/business. Over 50% customers speed digital channel and self- service capabilities as the top variable for client service encounter, followed closely by accurate account information and efficient procedure. Clients say sites and mobile capabilities will be their primary channels for receiving guidance (59%) compared to divisions (26%) in another two to three years. 46% customers are willing to start an account with robo advisor.
Robo Advisor technology has the potential to cause the largest disruption in Wealth Management, since it’s at the core of most of the above innovations. Robo Advisors basically transform the most significant element of the Wealth Management business, viz., financial guidance.
Products created banks, by asset managers, insurance companies and others to the investors are delivered by the Wealth Management Value Chain.
The whole Wealth Management value chain is influenced by Robo Advisors:
  • Investors – anticipate to get standardized advice through digital channels at any time of their choice, low cost, through self-service mode
  • Advisers- consequently align the merchandises and rely extensively on analytics capabilities of the Robo Advisor to examine investor’s profile and inclination
  • Dealer Groups & Product Makers- keep the standardized products off-the-shelf to satisfy investor’s demand, e.g., wraps
  • Asset Managers, Banks & Insurers – Create and distribute products especially targeted at the investors who need low cost, standardized products, e.g., index funds
With the growing competition from new Fintech players like WealthFront, Betterment, LearnVest, and FutureAdvisor, the mainstream adoption of Robo Advisors is bound to gain impetus.
Best Robo Advisors in 2016
 
The robo advisor field is getting crowded, with new platforms springing up consistently and changing frequently. These exciting algorithmic automated trading platforms comprise of many different players. Some robo advisors (or digital advisors) have higher minimums and more advanced investments platforms. Others use a low cost, low fee secure of index ETFs and mutual funds.
Picking the five finest robo advisor for 2016 is a job that is challenging, because the best robo-advisor for you might not be the best option to your neighbor. Having said that, we’ll analyze, several factors and standing robo -advisers based upon these criteria; low initial investment, low fees, and quantity of services. In general, each of the five finest robo-advisors for 2016 offer well-studied, low fee investment options.
In this evaluation we’ll assume that lower fees and lower investment minimums are preferable along with portfolio management services that are greater. This study presumes that more investment alternatives don’t automatically translate into a much better product while some investors prefer access to a greater variety of investment options. (For more, see: Are Robo Advisors and FA’s Worst Nightmare?)
1. TradeKing Advisors
TradeKing an affiliate of TradeKing Securities, Advisors , LLC is a web-based investment advisory service that offers professional portfolio management to all investors at an affordable cost. The investment process is not difficult. Several questions are answered by you from a risk tolerance questionnaire. Next, TradeKing Advisors provide you with a diversified investment portfolio, managed and designed by the industry experts at Ibbotson Associates, a Morningstar firm.
TradeKing Advisors offers two investing strategies, Center and Momentum portfolios. Additionally, TradeKing is the only advisor in this list that offers the momentum approach.
To develop a portfolio you need at least $500 for a Core Portfolio and $5,000 for the Impetus Portfolio. The five Core Portfolios include a maximum of 17 asset categories with a mix of exchange traded funds and notes. The advantage types comprise national equities, foreign equities, fixed income securities as well as real estate assets. The Momentum Portfolios attempt to harness the market movements and trends.
There is no minimum investment amount to start an account. Fees for portfolios worth more than $5,000 are competitive at TradeKing. The yearly fee for any size Momentum portfolio is 0.50% AUM.
For an additional fee, investors in Core Portfolios may subscribe to Risk Support, an application that tries to stabilize your investments by reducing equity exposure ’ values. The cost for adding Threat Help to Center Portfolios is an additional 0.50% or 0.75% (0.25% 0.50%).
In return for the advisory fee your preferred portfolio is constructed and manages by the adviser. This consists of reinvestments and rebalancing. There are no transaction fees. Unlike most of another robo advisors, TradeKing does n’t offer tax loss harvesting. (For more, view: TradeKing vs. TradeStation: Which Meets Your Needs?)
2. SigFig
Unlike the other robo advisers mentioned, you do a distinctive account is opened by n’t but keep your present investment accounts.
SigFig begins with a quick risk quiz, based upon how old you are and time horizon. The platform has a robust portfolio tracker program which reveals investment yields, your asset allocation, fee breakdowns and more. They have two kinds of services, Asset Management and Diversified Income. This post targets the Asset Management offering.
Funds are recommended by the SigFig strategy based upon a variety of standards, including risk-adjusted three-year historic performance, fees, evaluations and various other variables. That is a $2,000 minimum balance.
SigFig is free for accounts less than $10,000, and the first $10,000 is always handled for free The accounts worth more than $10,000 also have access to an on-line personal investment . that is advisor
This tool optimizes your portfolio and helps minimize fees and maximize returns. When managing a portfolio, SigFig asserts to pick lowest fee funds considering tax impacts and while optimizing returns.
3. Wealthfront
Wealthfront manages a personalized, diversified investment portfolio with a variety of low fee ETFs and builds. The portfolio asset categories are allocated based on the results of a threat survey that was short
Wealthfront’s investment strategy is grounded in modern portfolio theory passive investing strategy. This strategy strives to give the investor the best yield for the least number of danger by using low cost funds.
Wealthfront recently lowered its minimum investment amount to an affordable $500. Additionally, there are not any management fees for accounts valued at less than $10,000. Once you hit $10,000 the Wealthfront platform fees are 0.25% of AUM. Similar to SigFig, always is the first $10,000 handled free. There are no trading fees and the underlying mutual fund fees average a low 0.12%.
Wealthfront offers several portfolio management services that are added. The single-stock diversification service addresses the ‘overweight in company stock’ problem for employees with an abundance of business stock. The company claims to practice ‘tax- optimized direct investing ’ a strategy for tax-loss harvesting and minimizing investing prices. In lieu of the actual index ETF, individual stocks representing an index are bought under this particular practice in order that particular stocks may be sold for tax loss harvesting. The company also performs ‘day-to-day tax-loss harvest’. Finally, Wealthfront offers regular rebalancing.
4. Betterment
Wealthfront’s closest competition, Betterment offers a low cost, investing approach that is passive, index fund. Betterment starts out with a brief hazard questionnaire. Betterment guarantees to get each customer and the greatest yields for the least amount of risk the optimum fund mix. Their offerings include 12 asset classes that account for time horizon and your risk inclination.
Similar to Wealthfront, Betterment’s investment alternatives include low- index reciprocal, fee or exchange traded funds. The Betterment platform allows for up to 12 stock and bond funds signifying both international and U.S. investment opportunities.
Betterment’s fees range from 0.15% to 0.35%, depending upon the AUM and auto-deposit pick. Betterment does not have a minimum investment amount. For accounts valued at less than $10,000 there are 2 pricing options; with at least a $100 per month auto deposit, the management fee is 0.35%, without automobile deposit, the fee for lower balance account is $3.00 per month. There are no additional transaction fees, except the fundamental low expense ratio fees billed by the fund companies. The ETF management fees range from 0.09% to 0.17%.
Eventually, services that are additional are additionally offered by Betterment. Consumers receive personalized advice, intelligent rebalancing, tax efficiency that is extreme and tax loss harvesting. (For more, see: Wealthfront Versus Betterment)
5. Schwab Intelligent Advisor
Schwab’s recent entry into the robo advisor domain makes a splash on account of its model that is free. This platform guarantees no advisory fees, account service fees or commissions. Schwab Intelligent Portfolios calls itself an “on-line investment advisory service that rebalances your portfolio, and assembles, monitors -so you don’t have to.” Similar to Betterment, Schwab is aims- established and helps you keep on top of your savings and income targets.
Schwab requires at least $5,000 to open an Intelligent Portfolios account. That is the highest minimum prerequisite for each of the robo-advisor discussed in this article.
The first 12 question query form gives Schwab the advice to design your portfolio. Although their ETF portfolio allows for up to 20 asset categories, your individual account may not contain each of their offerings. Schwab has the broadest asset classes and investment options of any of the former advisers that are automated and includes property, fixed income, stock, and commodity ETFs. Where Schwab differs is in the allocation to cash. Each Intelligent Portfolio has a percentage invested in cash. Schwab clarifies that cash is not unimportant to some well-diversified portfolio and enhances stability, liquidity, diversification, and protects against possible inflation.
Schwab can afford to offer a no-fee service because they’ll get earnings on the consumers’ investments their ‘Schwab- money market funds’ and branded ETFs. Additionally they may be compensated by the firms which make the trades. As with all of the companies, there are annual management fees for the underlying ETFs. According to Schwab, “ETFs offered by other online advisors have operating expense ratios in ranges similar to that of Schwab Intelligent Portfolios.” The total operating expense ratio of a typical portfolio will range from 0.12% for a conservative portfolio for 0.25% AUM for the more aggressive investor.
Schwab’s services include the typical automatic rebalancing. Eligible for the automatic tax loss harvesting .
In accordance with the criteria of low fees, diverse index fund offerings, and robust services, the best robo advisor for 2016 goes to SigFig. SigFig offers the most extensive collection of services, including an online private adviser for accounts greater than $10,000. Their app is state of the art and the portfolio corrector is powerful. That said, it’s a rough contest to call the winner of the ‘best robo advisor’ because it is important to think about your own personal situation. If you will want platform which holds your assets within their custody, then certainly one of the other robos might be a better fit for you.
 
 
Why humans are not best at wealth management
 
Most financial advisers are human. And that’s an enormous difficulty.
Humans come hardwired with cognitive biases that frequently lead them to make best choices that are financial. Research implies that people see patterns in data where none exist, they believe they’re more knowledgeable or skillful than they actually are, and they overlook possibly important advice, even when it’s as clear as a gorilla on a basketball court, as a well-known experiment proved.
And, regrettably, financial professionals are equally as individual as their customers, leaving them just as vulnerable to cognitive biases. Studies have found that mutual-fund managers—professionals who are arguably very inspired to beat their inclinations that were adverse — make expensive investment mistakes, just like others.
The effect of those errors is important underperformance. One of the big appeals of advisers that are human is active management—the thought that these are investment experts who make moves that deliver returns that are larger than simply tracking an index, for instance.
Yet the evidence consistently demonstrates that managed funds have a tendency to underperform passively managed ones. So pick an unpredictable although active human advisor as opposed to a robo advisor, which will typically take a passive approach that produces yields that are more consistent?
If investors feel confident that cognitive biases can be defeat by their human adviser, there’s another issue to consider: Human advisors have financial incentives that don’t constantly work to the benefit of their clients.
An investor with deep pockets might sidestep this issue that is particular by seeking an independent advisor who charges an hourly consulting rate in the place of relying on commissions or performance fees. But many individuals may not be able to manage this alternative.
Consider an investor socking away a handful of thousand dollars every year over a lifetime. A human advisor might charge that investor an annual fee of 1% to 2% of assets versus a robo-advisor fee of 0.25% to 0.50%—a difference that can amount to tens of thousands of dollars in lost wealth. Robo advising offers a viable, low cost investment option that’s within reach even of investors that are new starting out with little nest eggs.
Needless to say, the robo-advisor name is a tiny misnomer; some of these services offer their clients the opportunity to connect to a person if they believe they want additional hand holding. That fuels the argument that robo advisers can’t supply the in depth, hands-on services that people can.
Yet, in several cases, digital advisors are fully capable of providing cogent evaluation and helping investors understand aims and their needs. Actually, in some instances, a robo advisor is even better equipped to provide service to customers than a human adviser. But a robo adviser could send all its clients electronic messages at the same time to remind them that their portfolio was selected with their characteristics in mind, and it remains appropriate in the face of market changes.
It’s additionally important to note that while investors may feel comforted by the idea of the “human touch,” the conflicts of underperformance and interest at traditional advisors help it become clear that the human touch may cultivate a false sense of security.
Needless to say, robo advising won’t fit every situation. Investors with complex company, estate or tax circumstances may benefit from the more customized guidance of a conventional financial adviser. But for the majority of investors, robo advising offers advantages that can interpret into a more buxom bottom line as opposed to typical adviser that is individual can deliver.

Trends in Asset Management

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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

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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

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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.

Artificial intelligence in FinTech

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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.