How will Investment Advice and Portfolio Management in a digital age look like? Based on Fincite.CIOS, ABN AMRO and Fincite have implemented an Automated Advice Engine that empowers investment advisors to work more efficiently, follow compliance requirements but above all offering more time to give the best advice to their clients. The solution had its Go-Live end of 2018 and will be rolled out in several countries within the ABN AMRO Group.
As the leading FinTech Conference in Europe, the Finovate is an excellent platform to showcase leading innovations. Maarten Heyboer (Business Developer for Investments at ABN AMRO) points out: “Automated Advice allows our investment advisors to quickly provide accurate financial advice and individually optimise portfolios providing a completely new User Experience for our Advisors and Customers. Further, the partnership with Fincite is an exemplary showcase of how cooperation with a FinTech and agile development processes leads to fast and high-quality outcomes for a large corporate like us; ABN AMRO.”
Friedhelm Schmitt (Co-CEO of Fincite GmbH) states: “Financial Advice is becoming more and more complex by the day. Financial Advisors spend more time on regulatory and compliance tasks instead of doing what they can do best: giving advice. This leads to the situation where people end up being, what we call, “financially under-advised”. Technology can help to solve some of the biggest financial problems we as a society face. Well-used it can improve portfolio performance and diversification, increase individuality in advice, ensure compliance and close retirement gaps. ABN AMRO is sharing this vision. Thus, our successful partnership is an amazing case of product innovation based on our CIOS-Engine.”
Here the full demo of Fincite.CIOS:
In the last years over 20 Robo Advisors entered the European Market. Most of them, with purely digital advice based on investment algorithms. End of 2017, we observed two major new trends:
- On the one hand, recently, digital providers like Prospery, Liquid, and Wealthfront added human advice to their offering.
- On the other hand, the first established private banks started their own digital-only services.
This begs the question: How will Digital Wealth Management look like in the segment of Private Banking?
Here are three strategies we might see in 2018:
A new Segment, a new Channel: Reaching out to “Mass Affluent”.
”In the last years, private banks raised the bar for their exclusive services. Today, in order to obtain investment advice from a private bank you usually need more than 1 million € investable capital. Especially regulatory requirements such as
MiFiD II drove the internal cost quota of the advice processes to new heights. So, how can private banks serve clients with “smaller investment tickets”?In order to “test digital”, some private banks have grown into market segments they did not target in the past. They started new services under new brands. Those offer a digital “light version” of their investment advice – similar to the Robo Advice in the Retail Banking World.
The best of both worlds: Hybrid (Robo) Advice
In the past, investment advisors often faced the challenge of limited insight into the client’s portfolio. To address this issue, private banks have started using aggregating technologies like Fincite Core which provides detailed insight into the wealth of a client. With these technologies, clients can easily connect financials via the internet:
- Aggregate bank accounts and wealth positions (such as Real Estate, Gold, etc.)
- View asset performance and risk
- Receive targeted news and research matching current wealth positions
Based upon this, the client can be either served online or invited into an offline advice (see more at 360° Wealth). Leveraging this information, private bank advisors can better acquire or maintain relationships with their clients by knowing which clients to address, when and how to do it – based on near-real-time client data.
Improving from within: Automated Individual Advice
Banks started using automation to support the value chain from the Investment Office all the way to the Portfolio Management and Relationship Manager. Through the use of automated advice engines like Fincite Core, banks keep client portfolios in shape based on inputs like the following:
- Investment Strategy: Target Asset Allocation and Product Galaxy
- Market Development: Current events on the markets
- Financial Situations of the Client (based upon his connected Accounts
- Objectives and Planning of his investments
These three general strategies show how the Private Banking industry is reacting to the emergence of Robo Advisors. In the future, we will see more banks adopting these strategies in a pure or combined way.
Companies or Trends?
Facebook announced that it’s planning to launch a dating service for its users, and shares of Match.com sell-off around 25% in intraday trading. Are markets over-reacting, or are there long-term trends that investors need to be aware of while investing?
Imagine a child born in 2000. She turns into an adult this year. Would she believe that Nokia was on the cover of Forbes with the headline “Nokia, One Billion Customers- Can Anyone Catch the Cell Phone King?” She was seven years old then, and the same year Apple launched the iPhone. The key was to spot the trend of the switch to smart phones, which was a great opportunity.
How to construct future-oriented portfolios?
Is the traditional way of investing and analysing your portfolio, by sector, geography, growth v/s value etc., the only way to do it or there needs to be another lens in these rapidly changing times.
We at Fincite explore other ways of looking at how we invest and what impacts our portfolio (learn more on our approach here). Rather than looking at companies as per which sector they are in or started out, our methodology focuses on which long-term trends they impact. This gives the client a different way to look at her investments, which is forward looking.
We have created a database of long-term trends, which take into account economic, technological, demographic, behavioural, and environmental factors that we think will shape our future. We have categorised these into MegaTrends and SubTrends.
- A MegaTrend is a long term trend which gives rise to more niche trends e.g. Internet of Things (IOT) is a MegaTrend
- SubTrends are a part of the Mega Trend, like Wearable Technologies, Smart Home, Cloud Computing etc. are a part of the MegaTrend IOT
By categorising companies into trends, we will enable investors to analyse and invest in a better way. The investors will be able to see if their current portfolio benefits or is at risk from these trends, and which stocks will help them participate in trends that they are interested in.
How does this work for the investor?
The investor can invest in these the trends depending on her sophistication, objective and/or composition of her current portfolio. These could vary and we discuss some specific ones below:
- Trends can be incorporated in the portfolio to mitigate specific risks, like impact of climate change, or demographic changes.
- Opportunistic trading, such as shorting traditional retail sectors in a country due to the entry of Amazon.
- Conviction and interest in a particular trend.Investors have researched, work in the trend and believe that a certain trend will dominate and they will benefit by investing in it.
- Extracting alpha, in a traditional core-satellite portfolio, by adding some trends that have higher growth prospects but with added volatility- typically the satellites
With this in mind, we have constructed Trendindicies to give investors, investment opportunities to diversify asset allocation by offering international investable opportunity set of equities representing trends.We need to be aware of what impacts our portfolio and benefit from it. To see but be blind to opportunities, is not being a smart investor- be smart, take advantage of trends.
Innovation requires Infrastructure
Innovations require infrastructure. Transportation services need streets. Software innovations need devices. Uber needs mobile internet. Intelligent Software needs Data.
As you might know we at Fincite are providing an Investment Software enabling financial institution to provide digitally-empowered advice to their customers.
Digital Financial Advice requires data
To provide best quality advice, a 360° view on the customers financial is a great benefit. And times are good for this. Based on technology, market data available and regulation (PSD2), it became possible to connect (almost) all financial assets & positions digitally.
So, we incorporated Accounts, Real Estate, Pensions and Insurances into our Investment Software.
2017, we went beyond Germany and started in several further European countries. Here’s what we learned.
Europe is not Europe (yet)
First thing you learn: Each country in Europe is different. While often, the same regulations such as PSD2 and MiFiD II are in place, the historic evolution of the technologies are way different.
Take account aggregation. You are tempted to think: “It’s PSD2. So, it’s all the same for EU Countries, right?” A clear: “No!”. Next to different technology interfaces, many countries differ in their 2-Factor-Authentifications (2FA). Different aggregation vendors such as our partners of figo are solving the challenges resulting from different techniques. From screen scraping to API to App disintermediation, the approaches vary largely.
When It comes to Pension even regulatory implementations vary largely. In the UK, the Nordics but also the Netherlands you can see your current corporate and state pension on websites – often called Pension Dashboard. Digital. This can be a great start to advice. a customer on his retirements. In Germany, there is no API, no Dashboard, in sight.
Real Estate is again a different issue. Countries are following different price evaluation standards in different countries. Transmitting a valid pricing estimation on real estate can help, to provide a more holistic advice.
And, let’s not start with Insurances and standards like BiPro. This blog post would get too long. 🙂
So… How to move on?
We learned fast, that while our Technology is scalable beyond borders, different data infrastructure demands different processing. So, we decided to take this as a challenge to reduce our onboarding time for each country by professionalizing the country-specific Data Source Selection & Onboarding Process.
Last year we started in the Netherlands. This year in Belgium, Switzerland and Austria. We are working with local customers and partners on enabling the fundament holistic financial advice in these countries. For Q4, we are currently in talks with customer at 3 further European countries.
If you are a customer or partner in the countries mentioned above or in another European countries… let’s get in touch.