Wealth and Asset Management Converges on Celent’s Annual Innovation and Insight Day

Wealth and Asset Management Converges on Celent’s Annual Innovation and Insight Day

This will be the first year that Wealth and Asset Management (WAM) will have its own stream at Celent’s annual Innovation and Insight (I&I) Day. Traditionally, I&I Day has been focused on insurance and banking, and is an opportunity for insurers and banks to demonstrate innovative projects with the chance to be recognized for outstanding capabilities. Typically, each insurer or bank begins preparing months in advance by submitting their case for how they have exceled in a particular sector. For example, in banking, awards are given for innovation in payments, lending, open banking, and product innovation.

As this is the Wealth and Asset Management debut, the organization of the day will be slightly different but no less exciting. WAM attendees will have the chance to hear topical discussions and engage in healthy debate around ideas that are driving innovation in the wealth and asset management sectors. Attendees of the WAM stream will also be able to interact with insurers and banking at designated times throughout the day, creating a truly collaborative and dynamic environment.

A preview of the WAM day:

Senior Vice President David Easthope will discuss Top Wealth and Asset Management IT and Business Trends. Ashley Globerman will share how wealth management firms have modernized legacy platforms to keep up with robo advisors and to serve the millennial generation.  Will Trout will explore the degree to which artificial intelligence (AI) represents a logical next step in the development of automated advice, helping to scale asset management functions and the thinking and reach of the human advisor. I will be joined by Arin Ray to discuss how wealth managers are using natural language processing and natural language generation technology to enhance their value and improve customer satisfaction. Arin will also share how AI tools are improving efficiencies in operational risk and compliance functions, such as KYC and AML. 

Jay Wolstenholme and Will Trout will explore the intersection of Wealth Management and Asset Management. They will cover a lot of ground, sharing anecdotes of how wealth managers are adopting trading platforms and advanced technology once common to only asset managers.  Later, Jay will explore the opportunities of $100 trillion in global assets. How can asset managers and asset owners prosper in this environment using automation and analytics? Brad Bailey will follow Jay’s discussion with an equally compelling conversation on how asset management trading desks are loading up with analytics and technology to execute across an increasingly complex cross-asset market structure. The WAM Stream will end with a lively interactive panel discussion of the edge disruptors in WAM(AI, robotics, big data, analytics … you name it!).

 

Impact Investing Gains Momentum

Impact Investing Gains Momentum

The polarizing political climate appears to be serving as an impetus for some firms to take socially responsible investing more seriously.  At today’s Impact Investing conference hosted by The Economist in NYC, Audrey Choi, Chief Executive of Morgan Stanley’s Institute for Sustainable Investing, said there is research that shows that 70% of investors want to align their investments with their values.

Not surprisingly millennials are interested in impact investing. Audrey Choi also referenced research that that millennials are two times as likely to buy or divest stocks based on their personal beliefs.

Most speakers throughout the day were aligned in that they wanted to see impact investing become more than just a sleeve of an investor’s portfolio; impact investing should be mainstream as suggested by the full name of the conference, “Impact Investing: Mainstreaming purpose driven finance.”  Jackie VanderBurg, Managing Director and Investment Strategist of US Trust and co-author of “Gender Lens Investing: Uncovering Opportunities for Growth, Returns and Impact,” explained that gender lens investing, like other responsible investing should not operate in a silo.

Another common theme throughout the conference was that impact investing is smart investing. Understanding sustainability and opening one’s eyes to the different geo-political risks that face our world, is wise and exposes a company to less risk. For example, Audrey Choi, shared a statistic from the Sustainability Accounting Standards Board (SASB), which found that 93% of companies stand to be impacted by climate change or the need to defend against it, but only 12% of companies are disclosing the risk.

A roadblock in the world of socially responsible investing is proving to investors that they do not have to compromise return when investing according to their beliefs.  As Jackie VanderBurg said in reference to gender lens investing, “Gender lens investing is not small, soft and pink. It is smart investing. Gender lens investing is the deliberate, intentional integration of gender-based data into financial analysis with the expectation of finding additional opportunities and mitigating risk”.  Money managers and personal investors must apply the same rigorous process to impact investments as they would with any type of investment. 

Joshua Levin, co-founder and Chief Strategy Officer of OpenInvest, a robo-advisory that permits clients to choose investments supported by their personal beliefs, brought up another challenge: intermediaries. He gave the example that when people first started out investing, people invested to have an impact; that impact may have been to start a factory or own part of a company to influence a company’s decisions. Now with so many intermediaries, investors no longer think of investments as having an impact. Now people invest for diversification.  With a platform like OpenInvest, people can have an impact by choosing not to invest in a company if the company is not aligned with their personal beliefs. 

Many speakers were also in agreement on other challenges facing impact investing: reliable metrics, more products across asset classes, and more education for consumers and advisors alike.  After attending this conference, I am hopeful that firms are working to address the roadblocks to impact investing. While perfect solutions may not be possible this should not impede the value that can be added from investing in a socially responsible way.

New Year New Tech New Research

New Year New Tech New Research
In your new year resolutions, did you pledge to understand more the technology that scares you? Or at least the one that some people (aka analysts like me) claim will replace you? If the answer is “No” and you are working in the field of Investment Research, whether producing, consuming or distributing it, then you may want to read our latest report Start Coding Investment Research: How to Implement MiFID II with Robots and AI.

I get paid to write research on fintech so theoretically I am not the tech scared type though I am the first one to control screen time at home. I know we have more and more competition from free research you can all find at your fingertips on the internet, and from cheaper research that leverages outsourced resources crunching a lot of data, but so far we are keeping up probably because our clients think we provide insight that those competitors do not provide yet.

I know however that we have competitors that have technological platforms that distribute their technology in a more user-friendly way with podcasts and fancy databases, that write their research in a more automated way and that you can consume easily because you pull the information with selective search technology that knows what you want and how much you can pay for it.

So before the holiday season, to make sure we were all going to start this new year with the right information in hand, I did look into what artificial intelligence and robotic process automation tools will be doing to research; not exactly my kind of markets fintech research, but more specifically to Investment Research, those written recommendations about equity or bonds or macroeconomic environments to help the buy side make investments.

The result is very honestly scary and exciting at the same time. These new  technologies are maturing at a time of big regulatory change in Europe, MiFID2 is finally kicking in and that means the unbundling of investment research cost from the execution costs the brokers and banks charge their buy side clients. Some buy side will keep using them and be happy to pay that fee, some clearly will start looking at other solutions that will have to propose a different business model provided by banks or by new market players, based on technology.

In our recent report we do look exactly at that: new business models and live case studies that have already been implemented in investment research production, distribution and consumption. Enjoy.

The Under-Tow in the Data Lake

The Under-Tow in the Data Lake

The word on the street is big data, data lakes leading to insight, uncovering the hidden opportunities within your massive trunks of data. All true but the majority of the buy side, asset managers, asset owners are still desperately struggling with getting their fundamental data in order.

Over 80% of AMs are $100billion AuM and below and 60% are $50 billion AuM and below, many of these AMs are progressing on solidifying their IBOR (Investment Book of Record) foundations. IBOR and the IBOR Services Matrix (see Inside the Matrix: The Future of IBOR) is still the architectural goal but not yet a necessity for all levels of the asset managers.

Many are not yet up to an IBOR level architecture and still dealing with more basic EDM (Enterprise Data Management) realities. A significant number of AMs are dealing with implementing solid data management and data governance across their portfolios and funds, don’t yet demand millisecond real-time but are operating in a near-time environment, that is operationally sound and cost sustainable.

Now the good news is that as AMs and increasingly institutional asset owners can take advantage of superior vendor solutions and bypass non-differentiating EDM issues. There is certainly little reason, in this day and age, for AMs to attempt to build their own EDM structures. Vendor products can provide core ETL (Extract Transform Load) processes and perform the core standardization, editing and cleansing of the data. Eventually this will all become utilities but for now it is still needs to be dealt with firm by firm.

Data lakes are phenomenal but before the majority of the buy side AMs and asset owners are primarily utilizing their data lakes they are feverishly executing the initial layers of data management and governance to stay market competitive.

Is this the best time for an event such as Brexit?

Is this the best time for an event such as Brexit?

It is difficult to read financial news at present without coming across extensive coverage of the Brexit referendum in the UK and its possible impact. As part of the financial sector, capital markets could be at the forefront in terms of bearing the impact of any likely change. There are already widespread claims of how London could lose its position as the premier European financial center. Of special relevance is the advantage that London has due to the 'passporting' principle, which allows leading U.S. or Asian banks and other firms to access the Europan market without any restrictions. Certainly with regard to these firms, if the UK leaves the EU, US and Asian banks that have based their teams in London while serving the European market will have second thoughts about doing so. Different alternatives have been touted, including Paris, Frankfurt and even Dublin. Some believe that all of these cities, and some other European financial centers as well, would benefit from the departure of the leading global banks from London, but this could lead to fragmentation in the European financial industry and reduce the effectiveness and competitiveness of European firms. 
There are various views and opinions that have been expressed during the run-up to the referendum. Many of these hold water. But in my humble view, when it comes to competitiveness, if the departure of the UK from the EU does lead to a fragmentation of the European financial industry, then this is the best time for it to happen. Technology has today advanced to a level that to an outsider, there would be little tangible difference if a thousand people in a bank are based across four difference financial centers in Europe instead of being in one place they were earlier, namely, London. There would certainly be a one-off rise in cost due to such as move, but the industry should be able to take that in its stride. Furthermore, a more fragmented industry in Europe would also have the ability to address national and regional requirements better than a single leading financial center. So financial creativity and innovation might get a boost across Europe. One would expect that London would continue to be a leading financial center globally, but it might be forced to reinvent itself to continue to be relevant for global banks and financial firms from outside the UK. Therefore, as a neutral and a student of capital market technology trends, Brexit does not necessarily hold many fears and might even lead to some interesting outcomes. Whether people in the City of London or the rest of the UK or indeed Europe have the same view, is of course, another matter!

Benchmark manipulation and market surveillance

Benchmark manipulation and market surveillance

The CFTC has recently revealed the instant messages written by Citigroup traders related to benchmark manipulation. Having recently published a report on Market Surveillance industry trends and soon to publish another one on the leading vendors, this seemed quite relevant. Current surveillance systems, be it for trade or communications surveillance, use the latest technology to capture possible instances of market abuse or manipulation. The capabilities are far beyond what was available a few years ago, and are holistic and comprehensive in nature. But in the end, the system is only as good as the people using it. The recent revelations have put a question mark over not just the traders involved in the benchmark manipulation scandal, but also the management of some of the leading institutions. Some firms are now going to great lengths to monitor their traders, but this is not an end in itself. The industry culture has to be transformed. The next instance of manipulation will not be in the same place and firms would have to overcome the motivation to profit in order to ensure compliance. The rise in the levels of regulation in the last few years probably would play the part of a positive reinforcer in the decision-making process and help influence industry culture, but is not a guarantor of propriety.

Citadel Securities and the changing market microstructure

Citadel Securities and the changing market microstructure

The recent purchase by Citadel Securities of the assets of Citigroup's Automated Trading Desk business has further cemented Citadel's position as a leading market-maker. It follows closely on the heels of Citadel's acquisition of KCG Holdings' designated market maker business at the NYSE. Citadel has also been performing strongly in the swap markets in the US, specifically the swap execution facilities (SEF). It has built a reputation for reliability in difficult market conditions, at a time when broker-dealers are finding it difficult to maintain their market presence.

While the success of Citadel is noteworthy, it represents significant industry and regulatory undercurrents. Investment banks have labored under tougher market conditions and stronger regulatory restrictions. Firms such as Citadel have benefitted as they are not as tightly regulated as the banks. While this trend had been predicted in the years immediately after financial crisis, it is interesting to see the predictions coming to bear. The effect on the market structure has also been profound, and while many of the relevant developments have taken place in the US, other leading capital markets should also see similar changes in the near future due to similar economic and regulatory evolution. Investment banks will continue to narrow their focus in terms of their capital market presence, and we expect the leading ones to carve out specific niches instead ofmaintaining the comprehensive presence they had in the last decade.

From the buyside's point of view, while the lower presence of investment banks could indicate lower volumes and liquidity, it also represents a market in which there might be greater responsiveness to the needs of medium and smaller sized buyside firms.

Run, hide, partner, or buy: Fintech, automation, and disruption in wealth management and capital markets

Run, hide, partner, or buy: Fintech, automation, and disruption in wealth management and capital markets

Readers of a certain age may remember Frankfurt's aspirations of surpassing London as the world’s leading banking center. While that vision has not come to pass, Frankfurt remains a powerful hub for global finance. Home to Deutsche Bank, the European Central Bank and the Deutsche Börse exchange among others, Frankfurt’s importance is reinforced by its location at the very heart of Europe.

With this in mind, Research Director Brad Bailey and I are excited to bring the next Celent Wealth and Capital Markets roundtable to Frankfurt on Tuesday, May 10th. Of particular interest will be the role played by fintech firms in disrupting an ecosystem long dominated by large financial institutions. Brad and I will share ideas and examples from recent research, while senior executives with banks and asset managers and other large institutions from Germany, Switzerland, the UK and Italy will offer their perspectives on the disruption and the technology strategies they have adopted in response.

To maximize the participatory nature of this event, Celent is capping attendance at 20 individuals. At present, we have a few seats still open and would love to hear from other clients interested in joining us.

Proof of artificial intelligence exponentiality

Proof of artificial intelligence exponentiality

I have been studying Artificial Intelligence (AI) for Capital Markets for ten months now and I am shocked everyday by the speed of evolution of this technology. When I started researching this last year I was looking for the Holy Grail trading tools and could not find them, hence I settled for other parts of the trade lifecycle where AI solutions already existed.

Yesterday, as I was preparing for a speech on AI at a conference, one of my colleagues in Tokyo forwarded me an Asian newswire mentioning that Nomura securities, after two years of research, would be launching an AI enabled HFT equity tool for its brokerage institutional clients in May –  here it is: the Holy Grail exists, and not only at Nomura. Other brokers have been shyly speaking about their customizable smart brokerage, e.g. how to use technology so that tier5 clients feel they are being served like a tier1. Some IBs are working on that, they just don’t publicly talk about it.

Talking to Eurekahedge last week I realized that they are tracking 15 funds that use AI in their strategy, I would argue there are even more than that because none of those were based in Japan (or Korea where apparently Fintech is exploding as we speak).

All this to reiterate that AI is an exponential technology, ten months ago there were no HFT trading solutions using AI, and we thought they were a few years away but no, here they are NOW. And the same with sentiment analysis, ten months ago they were just a marketing tool, now they are working on millions of documents every day at GSAM. Did I forget to mention smart TCA that’s coming to an EMS near you soon?

Stay tuned for more in my upcoming buy side AI tools report.

Asset managers turn up the volume

Asset managers turn up the volume

There are two ways to make net profits – maintain a high margin and/or sell more volume at lower operating costs.

Asset managers find themselves in a low margin environment so the tactical and perhaps strategic path forward is to find volume at lower operating costs. The recent buy of Honest Dollar out of Austin, Texas by the Investment Management Division of Goldman Sachs is the continued direction of purchasing volume by buy side asset managers.

Overall asset managers are buying up robo advisors, not because they are overly threatened, but to expand the AMs existing client base. With automation AMs can add new clients at a relatively low operating cost and find an expanded demand side for their collective funds and ETFs. Look behind the scenes on any of the nascent robos and you’ll see all AMs product supply.

So the purchase of Honest Dollar is an early indicator that increased volume is in play. As Goldman stated, over 45 million Americans do not have access to employer-sponsored retirement plans. With targeting small businesses with less than 100 employees, utilizing automation and AM supplied ETFs and other funds a volume growing profit base is viable.

A major play of the automation of investment advice is increasing the total addressable market of investment consumers. The democratization of investing is being made a reality by the ready access to technology, but it must also be said that there is no correlation between democracy and actual wealth accumulation.