Articles related to research conducted by Empirica in the area of FinTech and software development.

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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!

 

 

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.