Fintech: Adopting a ‘bionic’ approach

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on August 6, 2018 - August 12, 2018.

The industry has no choice but to embrace more technology with new competitors entering the market, whether they are small robo-advisors or potentially social media companies in the near future. > Wong

I think if the banks adopt strong robo-advisor tools within their institutions, they can upsell their retail clients the robo-advice model, which can lead them to things like regular savings and retirement planning. > Gamble

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Robo-advisory platforms will disrupt the wealth management industry at different levels, but the disruption will stop short of full automation, observes Privé Technologies chief digital officer Dominic Gamble.

Retail investors may demand more automated wealth management services for greater accessibility at lower cost, but high-net-worth individuals (HNWIs) will continue to seek face-to-face interaction with their financial advisers. This gives rise to the demand for “bionic” advisory, which envisions human advisers assisting clients with high-tech tools.

“For ultra-HNWIs, relationships are extremely important. The client type is typically richer and older — a segment that is not very tech-savvy. The complexity of their financial needs is often greater, so digitalising a lot of the services is difficult to do,” says Gamble.

This is something he has witnessed in his nine years as a private banker at Deutsche Bank and Credit Suisse. “Retail clients, who are often younger, tend to be more tech savvy and want to have contact with their financial institutions in the way that they have contact with, say, their Carousell account. So, they expect all parts of their digital life to have that kind of online consumer experience,” he says.

“And that is what the wealth management industry is slowly but surely getting better at. But it is taking a long time because it requires a huge amount of technology investment.”

Financial institutions in Asia are taking note of the younger generation’s appetite for digital services. Privé co-founder Charles Wong says more retail investors are becoming interested in having their own robo-tools and are purchasing solutions from financial technology (fintech) vendors such as Privé. Many are also looking for simple technology building blocks to which they can add more complex functions in the future.

“Wealth managers are looking at a wide range of high-tech solutions too, such as blockchain and artificial intelligence (AI). They want to be involved. Adoption may take some time, but the interest is surely building rapidly,” says Wong.

“Open Application Programming Interfaces (APIs) are a fast-growing trend. More institutions are now attempting to provide a marketplace where external technology vendors can plug in their solutions without having to do costly core system integration. It may not be the newest technology, but its widespread adoption is a game changer for the fintech industry.”

Wong used to be head of structured investment derivatives at JP Morgan, where he interacted with private banks, insurers and asset managers across Asia. He had noticed the lack of a modern and broad wealth management platform that could be tailored to meet the needs of different advisers. He and a colleague, Julian Schillinger, started Privé in Hong Kong in 2011.

The company specialises in creating digital wealth management solutions for financial institutions across Asia and Europe. Their solutions revolve around digital engagement and digital advice, which includes robo-advisory services, digital portfolio management and digital operations, which cover the back-end processes.

It also promotes bionic advisory, which equips financial advisers with AI-powered tools. A recent study by education provider Kaplan ranked Privé as the best robo-advisor in Asia out of the 16 that it had examined.

“The status quo of delivering old-fashioned and costly services [for wealth managers] is now too inefficient for institutions to sustain. The industry has no choice but to embrace more technology with new competitors entering the market, whether they are small robo-advisors or potentially social media companies in the near future,” says Wong.

“So yes, full transformation over the next 5 to 10 years is possible. However, we do not think technology removes the adviser from the relationship between clients and institutions, most certainly not for the upper wealth segments.

“But it will definitely transform service delivery to clients and the internal operations of these institutions. That is one reason banks are increasingly creating digi-banks or virtual banks now. We are assisting several banks in digitally rebuilding their banking processes and services from the ground up.”

Digital banking refers to the move to online banking, which allows customers to engage in activities such as bill payments, purchasing of financial products and online loan management.

Meanwhile, adopting robo-advisory services will help banks recruit new customers, says Gamble. Some robo-advisors in the US and the UK have struggled to acquire clients and turn a profit, he observes, but huge asset management companies such as Schwab and Vanguard have been successful in adopting robo-advisory platforms.

“Why? Because they already have the clients in the first place. I think all the power is with the banking brands. I think if the banks adopt strong robo-advisor tools within their institutions, they can upsell their retail clients the robo-advice model, which can lead them to things like regular savings and retirement planning,” says Gamble.

 

The future of advisory

AI is used to capture data and personalise the wealth management experience for clients. It can create highly tailored investment opportunities for investors based on their profiles and preferences, which could appeal to HNWIs.

“For example, the technology can show clients unique ideas, news and alerts. These elements will allow clients to be more in touch with what is happening to their wealth,” says Gamble.

Privé’s financial institution clients can allow their customers to use the platform directly or only provide it to their financial advisers, who will guide their clients in using the platform. Of the 16 products that the company offers, the robo-advisory platform is the most popular, followed by digital onboarding and goals-based wealth planning, says Gamble. The goals-based wealth planning tool creates investment portfolios or ideas based on a client’s financial goals.

“Robo-advisors are not a strong play for ultra-HNWIs, who want tailored proposals and private investment opportunities. What works for that segment are digital tools that enable investors to analyse their portfolio in a detailed and granular way online or via an app. Robo-advisors work really well on the other end [retail] because we are enabling financial institutions to offer wealth management products to people who would otherwise be unable to afford it,” says Gamble.

Privé has more than 60 enterprise clients globally, ranging from private banks and independent financial advisers to insurance companies. It is currently working with a Malaysian financial institution to provide robo-advisory and goals-based wealth planning services.

“We are working on some ground-breaking technologies at the moment with renowned global technology partners. [This ranges] from new mechanisms of service delivery such as the next generation chatbots to new industry standard ecosystems in wealth management. You will be hearing a lot about us in the years to come,” says Wong.

For example, one of the innovations is a voice-enabled service. “It enables the client to manage his wealth a lot better by using his voice rather than writing. Speech and voice will be a potentially big solution for wealth management clients in the next 10 years,” says Gamble.