The deployment of emerging technologies, all working together and simultaneously, can help chief executives of financial institutions make their jobs “more exciting and rewarding”, Jay Oberai, founder of Geneva-based Synergy Asset Management, told diners at the 2018 PAM Annual Dinner.
He said chief executives have spent endless dollars and hours in weekly tech meetings with chief technology officers (CTOs), “getting bored and frustrated at the dryness of the subject”. However, the “possibilities are endless, from conservative improvements (doing the same thing better), to taking more informed and smarter decisions, to doing something radically different with new value propositions,” he said.
These technologies are going to make the chief executives of financial institutions take radical decisions on their businesses, diners heard.
Mr Oberai said that he believes that technology will revolutionise the wealth management sector and that his firm is currently looking at quantum, AI and neurosciences to develop a more meaningful understanding of clients and a better management of their assets.
He said that the current approach to measuring a client’s attitude to risk was inadequate. It had become a “tick box” exercise, where the clients were asked themselves to assess their own risk appetite through very basic questions. These questions do not take into account age, or cultural differences. For example, a 60 year old client from Brazil who says he is conservative and a 60 year old client from Japan who says he is conservative, have a different understanding of conservative. Yet the questionnaires treat them the same, Mr Oberai argued. The rise of behavioural science is due to the recognition that “humans are irrational” but this approach only goes so far, he said. It does not “neutralise these differences or attempt to put it on a common scale of measurement.”
“Neurosciences can provide an answer,” Mr Oberai said. “The analysis of brain activity can help determine the true level of reaction of the client to his environment and the things that are dear to him”. This, in turn, can help better understand the client’s investment personality. Gamification is the next step to being able to collect and analyse this activity of the brain.
He said that this was just one new way technology could be used in new ways within wealth management. There is, he said, a “massive opportunity” and that the sector needs to act together to ensure it makes the most of this.
“Chief executives need to ask where they want to sit in this revolution and where they want to participate in it,” Mr Oberai said.
Mr Oberai warned that as these technologies reduces search and comparison costs of clients, firms will be pushed to market extremes, amplifying the returns for largescale players and creating new opportunities for niche and agile innovators (like quant funds). It is the mid-sized firms that will struggle to make the investments necessary to remain competitive, as incumbent firms will increasingly become smart technology service providers (their technology back offices will become profit centres). This transformation of the back office (becoming increasingly uniform across financial firms) will shift the competitive basis of firms towards the front office.
Mr Oberai also warned that the old methods of differentiation (price, speed and access) will become redundant as these smart technologies will commoditize these differentiators. The new battlefields for customer loyalty will be fought in customization (optimizing outcomes for each client), Capturing their attention (engaging the users), and developing ecosystems (multidimensional product and services beyond just finance).
He added that the investment management sector was facing certain headwinds and cited various statistics to back this up:
- “Customer expectations of digital channels. 62 percent of consumers find cross-channel switching important. 48 percent speak to a person only when online services are not good enough
- “Ageing Advisory Talent. 51 is the average age of financial advisers in the US
- “Risk of new Non-Financial Entrants: 43 percent of millennials are open to trusted brands like Nike/Google/Apple offering financial services
- “Advisory fees will half further leading to revenue compression.
- “Global unmanaged deposits are now at $50 trillion, receiving no returns at all. China alone has $17 trillion. This is a massive opportunity.
- “Customer demand for alternative assets has been going up. There is already over $1 trillion in quant funds.”
Mr Oberai said that chief executives urgently need to lead the way in setting the direction for their firm in the digital age. They should not rely on chief technology officers to provide them with the answers, he said.
They have a choice between four main business models of the future:
- Mass product. hyper-efficient low-fee investment management (using machine learning).
- Mass customer. venturing into emerging markets and catering to low-income wealth (using cloud and AI)
- Niche customer. customized investment portfolio management. Focus on customer profiling and preferences (using AI and Machine learning).
- Niche product. use data to generate alpha and thus differentiate through returns.
Synergy Asset Management was founded in 1999. It has $2.6 billion in assets under management from 150 clients.
The 2018 PAM Annual Dinner for wealth management chief executives was held at The Dorchester Hotel in London on Tuesday 11 September 2018. The dinner was attended by 42 people, and was sponsored by BNY Mellon Pershing (lead sponsor), Jupiter Asset Management, and co-sponsors InvestCloud and WDX.