Celent’s Innovation and Insight Day: Wealth and Asset Management Stream

Celent’s Innovation and Insight Day: Wealth and Asset Management Stream

We are only weeks away from Celent's 2017 Innovation and Insight Day where we will explore how players in the financial services market are leveraging technology in innovative ways in order to differentiate themselves in an increasingly competitive and challenging marketplace. We will be featuring a number of case studies, discussions, and deep-dives into topic areas surrounding innovation and focusing on themes, such as:

  • Customer Experience
  • Products
  • Emerging Innovation
  • Operation and Risk
  • Legacy Transformation

This is the first year we will have a Wealth and Asset Management (WAM) breakout session where we will cover a range of topics around innovative solutions and trends in WAM.  The agenda can be found here: Wealth and Asset Management (WAM) Program and will be presented by analysts from the Celent Securities & Investments and Wealth & Asset Management teams:

  • David Easthope, Senior Vice President, Securities & Investments
  • Brad Bailey, Research Director, Securities & Investments
  • Kelley Byrnes, Analyst, Wealth & Asset Management
  • John Dwyer, Senior Analyst, Securities & Investments
  • Ashley Globerman, Analyst, Wealth & Asset Management
  • Arin Ray, Analyst, Securities & Investments
  • William Trout, Senior Analyst, Wealth Management
  • James Wolstenholme, Senior Analyst, Wealth & Asset Management

I particularly look forward to sharing research around the evolving wealth management landscape as the core client base shifts from baby boomers to millennials. While much ground has been covered from the perspective of wealth managers to meet the digital needs of nextgen clients, wealth managers continue to be behind the curve in their digital offerings.

How are wealth managers and vendors responding to the paradigm shift in the development and execution of services and products to meet millennials’ distinct expectations?

This is just one example of the many topics that we will discuss at I&I day – we hope to see you there!

 

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.

No lumber, no slumber: Canadian robo steps up

No lumber, no slumber: Canadian robo steps up

As I point out in my recent report on robo advisors in Canada, price points for digital advisors are on the high side, even for the lumbering Canadian advice market. Especially as these robos are not known for standout service, as other bloggers have noted.

So should it be a surprise that Invesco Canada has developed plans to roll out Jemstep in Canada, the digital advice service the parent company acquired in January 2016?

Opportunity beckons

The truth is that the roll out has relatively little to do with the small Canadian market, and everything to do with the US, and eventually, the UK, markets. Invesco has been digesting Jemstep for more than a year now, quietly making Jemstep’s robust aggregation and client servicing functions available to those advisors who want them.

Fine tuning is fine, but at some point, it’s time to go big. With prices for robo tech on the wane, there is pressure on Invesco top brass to make something of this acquisition. Indeed, Peter Intragli, CEO of Invesco Canada and head of North American distribution, signaled this launch a while back. It is also worth noting that stand alone Canadian robo WealthSimple is taking a similar tack to Invesco, launching in the US and hiring London based consultants to guide its UK entrance. I’ll talk more about the thinking behind both firms' move in a later post.

In the world of robo 2017, C.A.S.H. is king

In the world of robo 2017, C.A.S.H. is king
For those of you who seek yearly prognostication, here we go. I see four factors or trends driving the evolution of robo world in 2017, and attempt to capture them here with a simple, suitable acronym: C.A.S.H.
  • Cross border activity: We’re now seeing robo advisors extend their reach across national borders. This is not just the case in Europe (think German-UK robo Scalable and Italy’s Moneyfarm, which launched in the UK) but in North America as well. I comment on the planned entrance of Toronto based robo Wealthsimple into the US market in Financial Planning.
  • Asset managers will continue to seek distribution, launching robo advisory platforms that enable the advisor to market their products. They’ll also want a share of advisor profits.
  • Synergies with CRM, compliance and other tech providers will deepen, as robos become more tightly integrated into the wealth management ecosystem. It’s no coincidence that two of the portfolio optimization software providers featured in my last report offer robo advisory platforms.
  • Hedge fund-like robos will prosper in an more volatile economic environment. These robos will use passive instruments to take a position on the market, and in some cases, allow users to “steer” (or apply their own views to) investment decisions.
Taken together, these trends signal the “mainstreaming” of robo advisory capabilities. Robo advice platforms are now less a “nice to have” than a core part of the incumbent advice offer. As such, these platforms are becoming increasingly bound up in the larger industry infrastructure. Those robos that seek to keep themselves distant or apart from this ecosystem will find themselves exposed, and short of cash, once the current funding cycle dries up.

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.

Wells Fargo rides herd on DoL

Wells Fargo rides herd on DoL

It’s no coincidence that Merrill Lynch launched its new robo platform the same week it decided to exclude commission based product from IRAs. Likewise, the decision by Wells Fargo to announce a robo partnership with SigFig suggests that despite the pronouncements of pundits and industry lobbyists, DOL is hardly DOA.

It takes a brave man to guess how the Trump administration will balance populist tendencies with free market rhetoric. In this case, as I note in a previous post, the inauguration of the new president precedes DoL implementation by less than three months. The regulatory ship has left port, and in any event, it's not clear that President Trump will want to spend valuable political capital undoing DoL.

I’ll discuss Wells Fargo’s motivations in a later post. For now, I’ll note the degree to which a robo offer aligns well with the principles of transparency, low cost and accessibility at the heart of DoL. At the same time, I caution the reader to consider the challenges that any bank faces in rolling out a robo platform, a few of which I underscore in this column by Financial Planning’s Suleman Din.

Shining light on the thinking at BlackRock

Shining light on the thinking at BlackRock

It’s clear that there’s more than a little chutzpah behind BlackRock’s demand for tougher regulatory oversight of robo advisors. This post probes the thinking behind it.

Does BlackRock, with FutureAdvisor in hand, want to shut the door on new robo entrants? A desire to forestall such competition would suggest a level of fear that I do not think exists. (Among other things, the robo narrative has moved past the independent or 1.0 stage). BlackRock’s main concern seems to be that the sloppy hands of existing competitors might result in regulatory sanction on everyone, and so put the hegemony enjoyed by BlackRock and its asset manager competitors at risk.

Neither faster, nor better, nor cheaper

While BlackRock may have paid $150 million for FutureAdvisor, I don’t think the firm believes it owns a better mousetrap. FutureAdvisor may have an innovative glide path feature (which may explain why FutureAdvisor has an older clientele than its robo competitors), but tax loss harvesting, 401(k) advice, “try before you buy” functionality and other core capabilities have become table stakes in robo world. If anything, BlackRock may believe that its proprietary ETFs (characterized by low tracking error and a broad product base, e.g., Japanese fixed income) outshine the plain vanilla offerings of Schwab and Vanguard, although this argument is undercut somewhat by the firm’s recent decision to drop fees.

Asset managers in the catbird seat  

Like the ETF business, robo advisory services have become increasingly commoditized, even as the DoL conflict of interest rule presents a massive tailwind for both. It’s a tricky time for asset managers seeking to shift their offer from manufactured product to advice based solutions.  BlackRock appears to feel it is in the catbird seat, and is perfectly happy to secure its hand and that of its asset manager competitors, all of whom have done well by automating their investments platforms. I’m not saying there’s collusion here, just a noteworthy confluence of interests.  

I’ll talk about the motivations behind the launch of another asset manager-backed robo in my next post.

FinovateFall 2016, NYC: Day 2

FinovateFall 2016, NYC: Day 2

Below is a selection of companies, which demonstrated solutions that can be used in the wealth management space. The Best in Show awards went to: 1) AutoGravity, 2) Backbase (mentioned in my blog post yesterday, FinovateFall 2016, NYC: Day 1), 3) Clinc (profiled below), 4) MX, 5) Swych and 6) Trusona

Envestnet│Yodlee:

Envestnet│Yodlee presented their dynamic intelligence solution. Envestnet│Yodlee walked through an example with a fictional user, Amanda, a 29 year old with $85,000 in student debt. Amanda just received a $15,000 signing bonus.  A chatbot alerts Amanda of the new deposit and provides Amanda with three ways to use the cash: 1) pay down her credit card debt, 2) use the money for emergency savings, or 3) pay down her student loans.

Envestnet│Yodlee has data on 22 million customers in 15 countries. As such, Envestnet│Yodlee has looked at data across all of Amanda’s financial institutions and has data that shows Amanda has stopped contributing to her prior’s employer’s 401(k).  Therefore, Envestnet│Yodlee infers that the $15,000 is not a recurring deposit.

The chatbot offers Amanda detailed information on each of the three suggestions listed above. The chatbot uses Amanda’s financial information and best financial practices to offer additional information on each of the three recommendations. For example, when Amanda asks for additional insight on putting the money away in an emergency account, the chatbot provides information on how much money Amanda needs to cover one, three, or six months of spending based on her habits. 

IBM Customer Insight:

IBM Customer Insight, the second IBM product to be demonstrated at FInovate, is a dedicated cloud system.  It provides cognitive insights derived from third-party sources, customer transactional and behavioral data.

The Finovate demonstration showed what a regional manager at a bank would see when using IBM Customer Insight. The fictional regional manager, Harry can use IBM Customer Insight to predict customer attrition, mortgage churn, overdraft, and large deposits. Also, Harry can use IBM’s system to study the sum of a customer’s life events. Harry can look at one life event, such as a relocation to get information on other possible life events, like purchasing a home or retirement.

M1 Finance:

M1 Finance, a portfolio management tool, announced their public launch at FinovateFall 2016.  Their product allows users to create, organize and automate their investment portfolios.  An individual can choose to create a default M1 portfolio or create their own portfolio. M1Finance has three default portfolios: 1) Savings, 2) General, and 3) Retirement.  The portfolios are all displayed graphically as a pie chart.

In the presentation, the M1 Finance Savings portfolio was selected.  A user can then choose to edit the savings portfolio investments.  For example, a user can search the investments in the savings portfolio for FANG stocks (Facebook, Amazon, Netflix, and Google) and opt to group those stocks together.  The user can track this FANG group separately and even choose to increase the weighting of the FANG stocks.  Every slice of the pie is a visual representation. For example, if the perimeter of the FANG stocks are not be in line with the rest of the pie’s perimeter it indicates the FANG weighting is over/under target allocation.

M1 Finance is available on the web, android and iOS.  In the presentation, M1 Finance said they do not charge rebalancing commissions.

Qumram:

Qumram demonstrated how “digital business and compliance can co-exist.”  Qumram records every digital interaction, plays them in movie form, and stores the videos for as long as is required by regulation.  Currently the product is used by UBS globally.

In today’s demonstration, the Finovate audience witnessed an interaction between an advisor and a client on WhatsApp. The fictional client was Patrick, who wants to invest $30,000.  After the advisor’s conversation with Patrick concludes, the conversation is recorded and automatically categorized with the client’s name, advisor’s name and products mentioned, e.g., LinkedIn (LNKD). 

Clinc:

Clinc is another dynamic intelligence solution.  The application responds to conversational language. For example, in today’s demonstration, the demonstrator said, “I am thinking of getting something to eat after Finovate in NYC. Can I afford $150 on dinner?”  The application responded with the user’s monthly average spending on eating out.  The application also added that if the user were to spend $150 on dinner tonight that the user would still be 10% below their average monthly spend. Additionally, with the use of the Clinc app the user can move some money between accounts.

FIS:

FIS discussed their new card-less cash technology. The FIS presenter showed that an individual can retrieve cash from an ATM without inserting a card.  A user can save their preferences on their mobile device. For example, if a user usually takes out $40 at a time, then that preference can be saved. When at an ATM, the user can select card-less cash as an option. The user then scans the QR code on their mobile device. 

FIS also showed that when a user approaches an ATM that is behind a locked door, the user can open the door with their mobile device. Lastly, FIS demonstrated that with their technology allows a user to send money via Amazon’s Alexa. The demonstration closed with a video of the individual in India collecting the money from an ATM located in India. 

With the addition of FIS’ latest partnership there will be 100,000 ATMs with card-less cash optionality.  Additionally, card-less cash works at participating grocery stores, convenience stores and pharmacies.

 

 

 

FinovateFall 2016, NYC: Day 1

FinovateFall 2016, NYC: Day 1

This is my first year attending a Finovate conference. This year many of the companies claim to solve one of two problems: fraud or lengthy existing processes to comply with AML/KYC laws.  Additionally, there are several companies that facilitate collaboration and co-browsing between representative and consumer, or in the case of wealth management, advisor and client.

Below are companies that have products that touch – some more closely than others – the wealth management space:

Trulioo, one of the verification companies, was memorable for the fictional characters used, “Ryan Lochte” and “Michael Phelps”.  Michael Phelps checked out when Trulio selected six of his credentials to validate out of over 200 possible data sources that could be used to verify users.  Ryan Lochte did not check out when the same process was used. The presenter joked that Ryan may not be able to open an account with a Brazilian start-up. Trulioo stressed its ability to work in over 50 countries and as such, highlighted that it would be a good vendor for companies looking to expand globally.

In the Backbase presentation, the presenter proved to the audience that it is possible to set up a personal checking account in 60 seconds.  Backbase features include: conversational style dialogue to get initial customer details, social security numbers are automatically verified, and official documentation (passport, state ID)  and credit card information can be uploaded with a mobile camera.  Backbase’s customers include Goldman Sachs and ABN Amro.

TokBox and Salemove facilitate collaboration and co-browsing across platforms. Both companies focus on the fact that customers prefer to see the person they are engaging with online (Proof there is another person answering your questions!)  For example, when co-browsing using Tokbox, an advisor can share content with their client, can annotate on the shared screen, and then save the screen to send to their client later.  In addition to co-browsing, Tokbox features include: two-factor authentication, secure recording, and multi-party calls.  

SaleMove allows advisors to login through a portal on a website.  In the case of wealth management, it is designed to run on top of a wealth management firm’s or RIA’s website.  The wealth management firm or RIA can create the business rules for when a customer engages with the website.  For example, if a client that has previously engaged logs on, SaleMove can direct that customer to the same advisor that previously answered the customer’s chat request. Business rules can also be created so an out of office message picks up.

Personetics’ product is a “savings coach” that helps consumers with short-term goals and retirement.  It is a predictive analytics solution with a chatbot.  While it is a consumer banking product now, it is possible to envision it being used in the wealth management space as an add-on tool designed for mass market, mass affluent and/or HNW clients.   The Finovate presenter gave an example of a customer about to go out to eat and the chatbot alerts the customer that they have been spending a lot on restaurants. Or a customer can ask a general question, like “Can I afford this?” Typically the chatbot will ask how much it costs then the user inputs the price. The chatbot will inform the customer how many months of cash-flow are needed to afford the purchase. The user can also check in regularly with the chatbot to see how much they have saved for a specific goal. Lastly, The Personetics presenter mentioned that the product collects feedback while in interaction. For example, the Personetics chatbot will ask the customer if the chatbot is helpful and the customer can respond “Yes”, “Meh” or “Stop sending me these”.   

More to come from Day 2 tomorrow…

 

 

 

The next wave of fintech disruption

The next wave of fintech disruption

The bank has traditionally sat in the center of the broader financial world.  The post-crisis challenges have allowed fintech firms to capture market share in traditional banking endeavours such as payments, lending, investments, and financial planning. First wave fintech disruptors with no asset base or legacy banking infrastructure have made significant inroads into challenging banks in their core businesses. Banks have reacted in a variety of ways to these challenges with disparate degrees of success, but only those actively partnering with and supporting fintech innovators have gained a competitive edge.

Similarly, exchanges have stood at the centre of the capital markets for much of human history. The years of connectivity, combined with the earth-shaking changes in the ability of firms to access capital and a global regulatory model that has focused on risk mitigation, have created an ideal world for next wave disruptors to bring solutions to complex trading, liquidity, regulatory, and operational problems that have been difficult for incumbent firms to solve on their own. This investment is going toward blockchain, RegTech, AI and other tools for driving change in the capital markets.

As it has happened with banks, those market infrastructure providers that decide to embrace, leverage and coexist with upcoming fintech firms will be able to further their historical strengths and stay at the core of financial markets.

Since 2008, capital flow into fintech investments has grown sixfold. Last year, about $19 billion in capital was invested in fintech across approximately 1,200 deals, nearly doubling funding flows in 2014. We have seen banks partnering with fintech, filling gaps and bringing critical experience and enterprise scale to these endeavours. Major parts of the financial services ecosystem run the risk of being transformed by pioneering financial technology firms. At the same time, strategic firms have developed innovation centers of excellence, laboratories, and their own CVC funding vehicles to invest and guide in areas of core interest to these firms. CVCs now represent 25% of global fintech capital flows.

This week the Deutsche Bourse announced the creation of its CVC DB1 to fund innovativation in the capital markets. Celent, on behalf of Deutsche Bourse, explores this next wave of fintech in the capital markets and highlights the power of future collaboration between leading financial infrastructure players and fintech firms.

Future of Fintech in the Capital Markets can be downloaded from the DB1 Ventures website. I look forward to your comments.