MiFID II and you – here before you know it

Brad Baliey

Post by

Sep 29th, 2015

A brief review indicates that ESMA has given more clarity on its view of fixed income trading in the post-MiFID II world. We are now one step closer to a new world of secondary trading in European bonds. In the context of the heated debate around liquidity in fixed income recently ESMA has moved to an approach that looks at each bond to determine the liquidity thresholds and hence the exact nature of the required pre- and post-trading transparency. ESMA will be looking at 100,000 Euro thresholds with at least two trades occurring daily in at least 80% of trading sessions. Hence, a certain proportion of European bonds will become subject to a wholly new regime of trading-scheduled for January 2017 if there are not additional delays to the start of MiFID II.

Bringing a new level of transparency to the pre- and post-trading of fixed income products, in conjunction with the myriad other touch points of MiFID II, will stretch the resources of most financial market participants. While firms have been preparing for some time, there are different degrees of readiness.  For most firms,  the next year will be huge effort, to get ready for this new trading regime.

Celent roundtable in Zurich: Swiss banking plus a dash of fintech

Will Trout

Post by

Sep 27th, 2015


Swiss banking may be at a crossroads, but the Celent Swiss Banking 2025 roundtable in Zurich revealed decided optimism among participants. The 15 attendees ranged from senior representatives of global and Swiss banks to the heads of advisory firms and leaders of the Swiss and German stock exchanges.

A consensus view was that the increased use of digital technology will help Swiss banking reconcile traditional values of stability and discretion with the need for transparency and scale. While the industry faces ongoing regulatory and compliance demands as well as overcapacity issues, automation offers a way to counteract the inevitable compression of fee structures. Several robo advisory vehicles are already up and running in Switzerland, with even the most traditional firms seeking to rationalize their service models.

The private, invitation-only event was part of a series of targeted roundtables offered by Celent’s Securities & Investments Practice, such as a session delivered last year in London. The success of the inaugural Zurich event speaks to future sessions in Switzerland and elsewhere in Europe designed to provide thought leadership and engage senior level audiences around key issues. “Events like these offer a forum for thought leadership that seldom can be replicated elsewhere,” said Research Director Brad Bailey, who led a lively discussion around liquidity in capital markets.

Capital markets day update

John Dwyer

Post by

Sep 21st, 2015

Last week we had our capital markets day in London and in my presentation I talked about the potential for disruption to capital markets from blockchain technology and distributed ledgers. I emphasized the importance of fiat currency on a distributed ledger and in the final slide of my presentation I set out two broad paths for disruption.

The first one suggested disruption would be focused on discrete targeting of currently slow capital markets processes such as syndicated loans which are large markets and can be dominated by a few financial institutions on the buy-side and sell-side. This is the path that DAH and others are pursuing and there was broad agreement to this path.

The second one suggested that should fiat currency, such as sterling, go onto a distributed ledger then this would provide a platform for accelerated disruption. This would need the input of a central bank and the agreement of a consortium of banks to implement the architecture. There was no small degree of incredulity around this second path due to the usual concerns about “herding cats” (i.e. a consortium of the banks) and the slow bureaucracy of organisations such as the Bank of England.

Then two pieces of newsflow came out later in the week.

Firstly, nine banks announced a partnership led by start-up R3CEV to develop common standards for blockchain technology in an effort to broaden its use across financial services. Then, Andrew Haldane, Chief Economist at the Bank of England gave a speech in which he highlighted the benefits of having a central bank-backed digital currency as a means of imposing negative nominal interest rates – something I highlighted in my research Fiat Currency on a Blockchain.

These are two very intriguing data points in the evolution of the blockchain/ distributed ledger story which observers should follow closely.

Wealth Management Trends 2015

Sep 14th, 2015

What are the top trends facing the wealth management industry in 2015?  Celent explores this question along with the areas in which wealth managers and vendors are lagging and/or missing opportunities to position themselves for long-term growth.

The main trends highlighted in the report include:

  • Realignment of the wealth management business.
  • Ongoing disruption of advisor-based model.
  • Next-gen clients arising.
  • Digitization and channel expansion.
  • Creating efficiencies with platform consolidation and middle/back office improvements.
  • Increasing focus on advisor and end user tools.
  • Mutualization of costs.

The wealth management industry has traditionally taken a “wait and see” approach to implementing technology for fear of weakening their advisors’ value proposition. However, Celent firmly believes that wealth managers must begin taking bolder stances when it comes to new technologies, or risk being left behind.

Read more here: http://celent.com/reports/wealth-management-trends-2015



The future is here

Brad Baliey

Post by

Sep 12th, 2015

The pressures are well known in banking and the capital markets. Each month there are front page articles of scaling back, overhauling, reorganizing, or closing major bank lines. A continued reworking, a forging of a new business is occurring. Old models are shrinking and being replaced by new business models or being cast aside. Since the 2008 crisis, wave after wave of pressure has made this perfectly clear. Capital constraints, on-going regulatory pressures, and an ultra-low interest rate environment have all struck hard at the existing banking & broker/dealer system.

Nearly all players-big and small- are rethinking the very core of their businesses. And this is a multi-threaded problem across all businesses: equities, FX, fixed income, and derivatives. Banks and broker/dealers are trying to balance their existing franchises against the pressures they are facing to create a lean profitable business that supports their clients.

There are no easy answers, given the strong interdependence between the wealth, asset management, and capital markets businesses across all products. Many of the solutions are moving from efficiency, or cost-cutting to effectiveness. Costs are being cut-there are improvements in risk, compliance, processing. The cost side is getting better but the challenge remains on the revenue side. This drive for effectiveness is driving business models that support internal and external clients from a compliance, transparency, regulatory, fairness and cost perspective are driving more automation and electronic trading solutions.

Celent will be discussing the evolving landscape of innovation in automation and technology at two upcoming roundtables. On September 15th in London we will be looking at changes in the US and European fixed income markets and how new technologies are driving change. Then on September 22nd in Zurich, we will be looking at wealth management and the capital markets and the many changes that are occurring in Swiss banking.

Rocking the retirement game

Will Trout

Post by

Sep 11th, 2015

Jon Stein of Betterment is right when he notes the “poor user experiences, high costs, and a clear lack of advice” that characterize the 401(k) plan business today. These failings are particularly noticeable in the small company plan arena, as I noted in a recent blog post. Stein also is spot on that these shortcomings weigh on plan sponsors insofar as they expose these employers to fiduciary liability and weaken their attractiveness to potential new hires.

The Betterment platform is a solution to a real problem, in short. That’s good news for fans of the NY-based automated advisor, which is running neck and neck in the AUM game with West Coast rival Wealthfront.

The rub is that the small plan retirement space, while underserved and highly fragmented, is hardly virgin terrain. Over the last five years, a host of digital-first plan providers such as Employee Fiduciary, Capital One Investing (formerly Sharebuilder 401k) and DreamForward Financial have launched low cost, user friendly 401(k) platforms targeting small businesses.

According to spokesman Joe Ziemer, the Betterment platform is well, better. That’s largely because it can deliver a full range of integrated plan services (e.g. recordkeeping) that have been developed in-house, resulting in a more seamless user experience. Unlike bolt-on retirement advice services such as managed accounts provider Financial Engines, the Betterment platform offers personalized advice (at the asset allocation level) within the plan framework.

Neither the technological capabilities nor the ERISA knowledge required to build and maintain such an end-to-end platform come free, of course, and Betterment has been on a hiring binge. Leading the charge to 401(k) Valhalla has been recent addition and established ERISA consultant Amy Ouelette.

The human and technical resources involved in building what Betterment terms a “full stack” platform means it is unlikely that other automated advisors will follow suit. Of the pure play robos, only Wealthfront could conceivably afford to make this kind of investment, and they’ve shown zero interest in deviating from the direct to consumer approach they’ve followed since day one. For Betterment, of course, the launch of a platform targeting small business only underscores the degree to which the firm has pivoted from B2C to the B2B game.

Did itBit just pivot?

John Dwyer

Post by

Sep 9th, 2015

For those of you who are not aware of itBit, it positions itself as a global bitcoin exchange offering institutional and retail investors a powerful platform to buy and sell bitcoin. It sees itself as a leader amongst bitcoin exchanges by establishing the itBit Trust Company which is overseen by the New York State Department of Financial Services and it is the first and only regulated bitcoin exchange able to accept customers across the United States. It even has a global OTC Agency Trading desk to facilitate flow in transaction of 100BTC or more. Bitcoin über alles it seems.

Then over the summer news emerged that itBit was to host a private Blockchain summit for Wall Street elite. This all day event was invite-only and branded “Bankchain Discovery Summit” with 100 attendees from 25 leading banks, brokerages, exchanges, and infrastructure providers. At the time, little was known about itBit’s Bankchain project which was described as the first consensus-based ledger system exclusively for financial institutions offering a service that will automate, accelerate, and simplify post-trade processes across the financial services industry.

This is very interesting. How does Bitcoin fit into this Bankchain project?

It doesn’t.

Bankchain seeks to provide distributed ledger technology to tokenize existing financial assets based upon a proprietary itBit protocol which is not Bitcoin Blockchain based and consequently the token will not be Bitcoin but a proprietary token. Interestingly, UBS has recently been linked with a “utility settlement coin” and if you recall my earlier posts, Fidelity, Citi and others appear to be doing the same.

All of this is incredibly encouraging and commendable by itBit. It does seem though that they have just pivoted their business model to focus on a proprietary protocol, consensus algorithm which is permissioned and tailored to mainstream financial settlement. I doubt they will be the last and I am sure we will see more “bit to bank pivoting” by other Bitcoin focused companies seeking to accelerate financial returns.

BlackRock’s vision for the Future(Advisor)

Will Trout

Post by

Sep 1st, 2015

Since my last post, there has been a lot of speculation as to why BlackRock would pay what is said to be more than $150 million for FutureAdvisor.

One thing is clear: it’s not to market algorithm-created portfolios to retail investors.

Rather, BlackRock seeks to build out its B2B business and secure distribution for its flagship iShares product. Providing institutional customers such as RIAs and brokerages with snazzy, built in onboarding and aggregation capabilities will help the asset manager more effectively sell its ETF wares. This goal explains why the firm is retrofitting its Aladdin Risk Management system to support the independent advisor market.

Securing distribution makes sense given industry price pressures and the emergence of potentially disruptive strategies such as direct indexing. The strategy also speaks to BlackRock’s recognition of the dangers faced by pure play product manufacturers (this category includes insurers as well as asset managers) who become too far removed from the end consumer of their product. These dangers include the development of a tin ear for investor needs and the gradual erosion of pricing power.

FutureAdvisor: stuck between a (Black)Rock and a hard place

Will Trout

Post by

Aug 26th, 2015

In May 2014, CNBC reporter Eric Rosenbaum concluded an interview with FutureAdvisor CEO Bo Lu with a straightforward question. “So who acquires FutureAdvisor ultimately, or who do you become?”

Replied Lu: “No one acquires us. We become the next-generation financial advisor.”

Insert drum roll.

In fairness to Lu, the pressures that led to the acquisition by BlackRock were just starting to unfold at the time of that interview. As I note in a previous blog post, the robo advisor phenomenon has been veering from a direct to consumer model to B2B for some time. Motif, Betterment and now SigFig are all examples of firms bent on securing advisor-led distribution.

How could things be otherwise? Portfolio management has been commoditized, and the significance (namely, pressure on fees) of this development weighs as heavily on the automated advisor as on the “man and his dog” RIA. The launch of Schwab’s zero fee Intelligent Portfolios was a clear sign of where pricing is heading. And with hints of a market correction as visible as the changing fall foliage, it made sense for Mr. Lu and his friends at FutureAdvisor to get out while on top.

I’ll talk about the impact of this deal in my next post.

Singing the 401(k) blues

Will Trout

Post by

Aug 25th, 2015

As if Amazon.com didn’t have enough PR problems already, Bloomberg.com just published an article slamming the Seattle-based company’s 401(k) plan. It noted that many of Amazon’s lower-paid employees were not participating in the plan, to the extent that the company had to pay back the government upwards of $5 million for the plan to retain its privileged tax status.

The article does not explain why lower-paid employees are not participating. It’s fair to assume that many (particularly if they are seasonal employees) lack the income to sock away money for their Golden Years. Others may not be receiving helpful plan information. Or perhaps the reason is more prosaic: Bloomberg ranked Amazon’s 401(k) plan last among the top 50 public companies.

Wow. One wouldn’t expect a billion dollar global behemoth to be called on the carpet for its lousy 401(k) plan. Traditionally, it is employees at the smallest firms (those with less than 100 employees) that have gotten the short end of the retirement stick. These plan participants tend to pay twice as much in fees as much as their counterparts at larger firms; they lack access to robust investment products; and they receive less investor education and support. Needless to say, these shortfalls tend to translate into negative outcomes.

This is something of a national scandal, particularly given the adulation to which Americans accord small business. Indeed, the Federal government, fearing a doomsday scenario in which older Americans start outliving their savings, has become increasingly active in trying to right the retirement ship. At the same time, a new crop of 401(k) plan providers is offering smaller companies access to low cost, digitally focused platforms, as I discuss in a recent report.

The reach of these upstart providers in a highly fragmented market is limited, however, and the response of the largest plan providers to the needs of small business has underwhelmed. I have to wonder, given the emotions around retirement and the centrality of the 401(k) plan to the lifetime earnings picture, how long it will be before Bernie Sanders takes on this topic.