Coaching the Advisor: Predictive Analytics and NLG

Predictive analytics and natural language generation (NLG) are used throughout the financial services today, but are used less frequently in the case of wealth management. Narrative Science and Yseop are two of the few NLG companies currently selling to wealth managers.  IBM Customer Insight is bringing its cognitive Watson technology to the wealth management industry.  IBM Customer Insight is doing cool things related to behavioral segmentation, encouraging wealth managers to create more robust customer profiles by casting their data net beyond customer income information. More in my blog post here.

There are many use cases for NLG and predictive analytics in wealth management.  For example, predictive analytics can assist with risk management by spotting anomalies in real-time, and therefore, enable advisors to resolve issues faster. NLG can be used to transpose customer data into a short narrative that summarizes a client’s performance.  This narrative could be shared in an email to the client or used by an advisor preparing for an in-person client meeting. 

In my report, Coaching the Advisor: Predictive Analytics and NLG in Wealth Management, I focus on how predictive analytics and NLG solutions can enhance advisor-client relationships, the attributes of competitive analytic solutions, and propose best practices for the modern advisor. I stress the importance of advisors’ establishing genuine connections with their clients in the midst of adopting new analytic tools.

In the next 12 to 18 months, I anticipate wider adoption of these tools in the wealth management industry.

Straddling the Old and the New – Fintech in the Capital Markets

We are sitting at an extraordinary inflection point in the capital markets. The competitive landscape is in flux as competitors find their way through a maze of constraints. The constraints are well known-increasing regulation, rapidly changing market structure, liquidity challenges, and difficult macroeconomic conditions. There is also a feedback loop with the broader economy; many of the same forces that are constraining the capital markets are creating an unusual political landscape. We have seen this playout with Brexit, and the world awaits the outcome of the US presidential election. These then feedback into the capital market as uncertainty around managing volatility, risk and whether regulation will proceed as expected will be delayed or, radically altered.

For many capital market incumbents: the investment banks, broker-dealers, asset managers, and infrastructure firms are also saddled with extremely complicated legacy systems that are highly siloed, very expensive to run and even more expensive to change. While many are rationalizing systems, in certain areas it is just not possible. In many cases, ancient systems are running broad swaths of the back office, and sit under decades of add-ons, fit-ins, force-ins, and integrate with countless systems internal and external. Capital market firms are often in the habit of creating an abstraction layer above systems to tie more and more data and systems together. This creates a kludgy infrastructure, but it can, and does work.

Given that there are so many challenges, and hence opportunities, we have seen a slew of fintechs increasingly offering capital market solutions. There are those that come from the capital markets and speak the language of the markets. They have grown up in the space and see an opportunity to solve a particular pain point in investment process, trading or operations. There are other fintechs that have entered the vertical from another and are leveraging their data processing, analytical, machine learning, and hardware acceleration prowess in the capital markets.

We have seen fintech disruption in banking, but in the capital markets, so far, it has been much more collaboration than disruption. Fintech firms are bringing unique data, analytic, technology solutions into a highly regulated business. Fintechs that partner with existing firms are offered scale, legitimacy, and clients in a highly risk averse and regulation heavy business. For the brave incumbent firms who are providing capital and nuanced expertise to these innovators, there are rewards: new ways of looking at their business, but more importantly, ready built solutions that they can scale. Overcoming the fear of engaging these firms effectively is a path to finding better and more cost-effective solutions.

In my report, From Financial Technology to Fintech: Trends in Capital Markets, I look at the areas in which the rate of change is greatest, the nature of fintech partnerships in the capital markets and how they are evolving. I look at the pain points in KYC, liquidity, trading, liquidity, collateral and operations. I investigate the growing acceptance of cloud, the importance of leveraging data correctly and analytics and tie these to specific providers with solutions in InvestmentTech, MarketTech, RegTech and AltData. I also look at emerging technologies such as distributed ledger technology, AI, and business models that are looking to remap the capital markets at its core.

Yes, we are at an inflection point and some of the systems out there are kludgy, but in the short term, solving specific business pain points is the key to solving some of the industry’s thorniest problems.

Finally, Behavioral Segmentation for Wealth Management

Yesterday’s IBM Forum for Financial Services showed Watson’s capabilities for wealth management, insurance and banking. The forum coincided with the 2.0 release for Watson’s application in financial services.  

The demo session emphasized Watson’s behavioral segmentation capabilities.  The psychographic measures delivered by IBM Customer Insight are impressive.  For example, measures include but are not limited to: openness, liberalism, cautiousness and sympathy.  Knowing all too well that a client’s personality can make them candidates for different products than what a client’s paper profile would suggest, it is easy to see how in the wealth management space, advisors could use these measures to build deeper human connections with their clients. 

I was also impressed by the fact that Watson shows financial advisors the reasoning behind the machine learning results.  Gaining insights into how Watson arrives at its recommendations empowers advisors to validate the results or add human refinement based on inputs not available to Watson.  In this way Watson can complement the financial advisor. 

It seems that there is even more that IBM is working on that is not in this latest release, so I’m looking forward to what more there is to come.

Human and Machine-Rise of the Cyborg: The Cycle of Voice Trading

Celent has explored voice trading in Human & Machine-Rise of the Cyborg: The Cycle of Voice Trading, published yesterday. In this piece, we look at the power of voice trading as well as the business drivers, challenges and forces that are driving change in voice communication, collaboration and voice market engagement.

Celent believes that voice is a key channel that will remain relevant and will work more seamlessly with electronic and data channels in the coming years. A move toward unified communication approach and advances in technologies, combined with a challenging business environment, are reshaping the modern trading desk. Cost cutting, front office effectiveness, gleaning better insight into customer behaviour combined with digital automation are pushing this frontier forward. Voice trading remains the major channel for transferring risk, across asset classes, yet remains a challenge due to the difficulties in leveraging this unstructured data set.

Advances in both preparing and leveraging data for advanced analytics are creating a demand for business insights-the demand for better data is ever growing. Firms are beginning to leverage advanced data tools for not only risk mitigation and regulatory requirements, but are creating front office opportunities for better counterparty engagement and communication.

Fintech continues to advance in the capital markets and the implications are profound for incumbent players. Firms that effectively leverage the full spectrum of innovation available are becoming more streamlined and more effective. The overarching need for business model evolution and the importance of technology in the markets continues to ramp up. As one example,last week alternative dealer Citadel Securities hired Microsoft COO to be the new CEO of it electronic market making business.

We are surrounded by advances in voice technology for interacting with machines in our life in general. We are getting comfortable with Apple’s Siri on mobile, and Amazon's Echo in our homes. Similar technologies have advanced in areas outside the capital markets, but leading firms are trying to leverage voice data for better insight, engagement, and automation. While we are nowhere near Robotic Stingray Powered by Heart Cells from Rats published in last week’s WSJ, in merging machine and biological elements we are heading more into an era of the cyborg-where capital market participants will increase their direct engagement with machines via voice interaction.

Markit merger – Fintech disruption and data

Spring has sprung and Markit, a firm that touches every corner of the capital market, starts this snowy spring morning in NY, with news of a mega-merger. Markit has grown by offering solutions, data and analytics to much of the capital market value chain as well as through multiple acquisitions, so it is interesting to see it now joining with IHS, to become part of a multi-industry vertical firm. According to the press release, IHS (NYSE: IHS) and Markit (NASDAQ: MRKT) will combine in an all-share merger of equals.  The combined company’s reported results for fiscal year 2015 include approximately: $3.3 billion in revenue. It will be interesting to see how Markit’s three divisions will fit into the multi-verticals that IHS serves. Markit’s three divisions: Information, which has been a source of pricing and reference data, with analytics across asset classes; Processing, has been a critical source of efficiencies and automation to the capital markets, particularly in OTC derivatives, FX, and the loan space; and, Solutions, has been a source of managed solutions. Like many people in the financial industry, I was surprised by the announcement of this deal. On a strategic basis, I have thought of Markit combining with a larger market data provider, adding additional data and valuation tools to that firm, or feeling in key data or automation gaps. Or, other market participants across the capital market transactional space which  have been recent, and eager buyers, of data companies. They have been eager to own not only the data, for the creation of IP, for the bigdata analytics, for the potential data tools in the  electronification of trading, but for the recurring and stable revenue model. One recent example, is the ICE acquisition of IDC. Whether any of these other types of deals were considered, I don’t know.  Perhaps, the deal speaks to the challenges that are seen in the capital market as the industry continues to find its way in the post-crisis world. The lack of future clarity, as financial services firms digest the implications of FinTech disruptors,  along with the realities of today’s regulations and capital restrictions, drove the key decision makers to expanding to other industry verticals. However, after two days of mulling the deal over: Markit has sat in a unique place within the financial services, since its inception in credit market data thirteen years ago. The firm has morphed into not only providing critical data, analytics and valuation tools,  across asset classes, for a broad swath of the capital markets, but has been instrumental in bringing much needed automation and  efficiencies to some of the thorniest challenges that the industry has faced within processing OTC rates, credit, FX, and the syndicated loan space, with its processing division, as well as a variety of services and software within the solutions  division. Markit’s growth has always been based on a strategy of hiring key talent, directly from the industry, purposeful partnerships, all combined with aggressive acquisition. This combination has allowed them to create holistic middle and back office solutions, with engaged buy-in from key partners. Both Markit and IHS sit on vast resources, of the true currency of our time, data. Markit in the capital markets and IHS in energy as well as other industries. We can envision creating indices in energy  products, such as Markit has done in credit. We can also imagine creation of products like ETFs and smart equity across the industries where these two companies sit. They can also create research and analytics across the spectrum of industries where the combined company competes. I can see what each firm sees in the other.  

Social media maturity in financial services

Social media growth worldwide has forced the financial services providers to focus on this as an important channel to make them heard to the younger population. This has been more so in the wealth management community which felt the need to target newer younger customers. While this looked like an interesting channel, it was also fraught with risk – lack of regulatory clarity as well as confusion on how to use the channel drove the firms to approve of the usage of social media but in a limited manner. A key example is a wealth management firm allowing its advisors to use the social media networks but all the content should be pre-approved. While this enables the advisors to interact with their customers, pre-approved content makes the interaction very limited. Also the intelligent customers can quickly make out that the firms are just sending them advertisements in no time. This is an issue which is relevant for the larger firms who are worried about the litigations if something untoward happens via social media channel. For the smaller firms and individual advisors, there is a tighter control over the social content and it is in this segment that social media has contributed to maximum client impact. IFAs have built successful brands by generating timely and relevant content and engaging on a personal level with their clients. But with the social media policies getting in place in most firms and with the increasing maturity of social media usage, even larger firms are allowing more leeway to the advisors in reaching out to their customers. 2012 will see more and more personalised interaction and credible evidence for effective ROI. Another trend in 2012 will be the emergence of social analytics which will help in effectively measuring the impact of social media using more sophisticated levels than just clicks or likes. Social media monitoring is here to stay due to regulatory requirements and in the next stage of evolution, firms will be able to monitor which advisor is the most effective and what the customers want to hear. This analytical feedback will enable better engagements with the customer and will help in ROI calculations.