The shortcomings of traditional asset and wealth management have been magnified in recent years. Active managers have underperformed, and high fees have eaten up a larger share of returns in a low-yield world. And the traditional financial industry now facing competition from the new age Financial Technology Firms (FinTech) that is reshaping the industry by adopting innovative technologies like ?Artificial Intelligence (AI)?, ?robo-advisors? and shifting human-centric decisions toward machine centric decision with more automation.
Way from 1980s after leading the way with technology, Wealth Management Industry have become dismissive of technology innovations and disruptions to their industry. For example, during the emergence of online brokerages, new age brokerage houses started some innovative business model, such as ?discount brokers?, believing that these new business models would replace the old brokerage model, penetrate a large customer base and the risk they posed to businesses was low.
These new age entrants rationalized trade execution, significantly dropping the price that companies can charge per trade. Eventually, they introduced new pricing models by splitting advice from transactions ? full-service brokers started to charge on a fee per assset under management (AuM) basis versus fees per trade.
Financial Industry, mostly banking and payments industries offer palpable examples of FinTechs changing the financial sector by offering new solution such as ?Peer to Peer Landing? platforms, that are visibly disturbing traditional players. Wealth Managements are next in line to experience the game-changing impact that start-ups have on the financial industry. Fintechs have changed the pace of innovation and reshaped customer expectations across the financial-services ecosystem, laying the foundation for future disruption in the industry for example use of technology like ?AI?, ?robo advice? in wealth management.
Simply speaking Artificial Intelligence (AI) is Intelligence displayed by machines, in contrast with the natural intelligence (NI) displayed by humans. It is the simulation of human intelligence by machines, especially computer systems that able to perform tasks normally requiring human intelligence, such as visual perception, speech recognition, decision-making, and translation between languages.
Robo-advisors able to provide core services like ? portfolio allocation, based on a risk score, with systematic account rebalancing, using automated account opening and providing performance reports ? is not new. This technique has a unique value proposition – a better anytime, anywhere; scalable; lower cost fiduciary offering ? has made an indelible mark on the industry.
It has taught the industry to focus on the customer journey first, and then layer on technology to address the pain points, reduce the friction, create transparency and deliver better value to investors.
Regardless, customers will always need human advice as their financial planning and investing needs become more complex.
Improved efficiency will free advisors to focus on building customer relationships and providing more value advice when, where and how customers want it.
Fintech Startups changed the face of wealth management in the long term. Robo-advisors powered by technology will diminish the barriers to market entry to a range of whole new types of players. Now the wealth management industry is changing to a new norm like, lower account minimums, lower fees, rock-bottom commissions, target audience expansion, automated rebalancing, and, in general, a bet on advanced technology with an expert in wealth management advisory.
What did FinTech bring into wealth management exactly? The short answer is AI. Thompson Reuters suggests that cognitive software platforms, which provide the tools to analyze, organize, access, and provide advisory services based on a range of structured and unstructured data, are set to attract investment of nearly $2.5 billion in this year alone.
With AI you can scan the available market data and understand events and triggers that change the market situation and potential performance of certain sectors, certain stocks. It?s all about the ability to process a huge amount of data, define the rules and drive the right rules
- Augmented intelligence platforms;
- Goals-based wealth management;
- Expert virtual advisor deployed as an API plug-in.
These applications are being developed and implemented on cognitive/AI software platforms that offer the tools and capabilities to provide predictions, recommendations, and intelligent assistance through the use of cognitive systems, machine learning, and artificial intelligence. Cognitive/AI systems are quickly becoming a key part of IT infrastructure and all enterprises need to understand and plan for the adoption and use of these technologies in their organizations.
Source: FINTECH SURVEY REPORT, April 2016 by CFA Institute
Source: FINTECH SURVEY REPORT, April 2016 by CFA Institute
A FinTech Survey conducted by PwC in 2016 shows that A vast majority (90%) of the asset and wealth managers we surveyed found data analytics to be a ?very important? or ?important? trend. Being able to capture, transform and analyse data is now integral to asset managers? ability to compete. This was followed by automation of asset allocation since ?robo advisors? are putting pressure on traditional advisory services and fees. Instead of expanding digital and mobile offerings, asset and wealth managers prefer new technologies that are related to data analytics and automated asset allocation, when it comes to investment. According to the reports, only 31% of them provide their clients with mobile applications.
Machine learning technology is transforming risk management by enabling computers to identify patterns in market behaviour and analyse transactions almost in real time. This, in turn, is reducing the asymmetry of information between small and large financial institutions and investors. Alternative data pools are also increasing Wealth Management?s usage of accurate predictive analysis supported by innovative data and opinion mining, imagery analytics, machine learning and artificial intelligence techniques.
Wealth Management Firms who want to win in the redesigned market must find the right mix of technological improvements coupled with an adequate pricing structure. Adoption of AI will help them to save time in process and they can find enough time for client engagements to know them better and serve them better.
Disclaimer: Some of the contents are collected from different secondary sources and published reports from other sources. The views expressed is only the writers view and not express any opinion or advise in any ways to anyone.