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.
Did you know that we reached the “Multi Banking Era”? Since this year, the Revised Payment Services Directive (short PSD2) is in place. PSD2 allows Banks, Fintechs
and other players to get current account data and do transactions on their client’s behalf. There are two ways banks are approaching this:
- Burden: Banks that see PSD2 as a cost factor and threat to their business as Fintechs and other service providers can take use of the client’s data and do payments.
- Chance: Banks that see PSD2 as an opportunity to provide better services, to get a more holistic view over their client’s total wealth… and thus: better service.
To empower those who see the chance, we at Fincite suggest leveraging a new Key Performance Indicator (KPI):
Assets under View (short AuV)
Assets under view are the assets of a client that are not held at your bank, but that are added to your multi-banking application.
Why Assets under View are so important
Currently, the most important figure for any Robo Advisor is Assets under Management (AuM). But how to manage a good pipeline that increases AuM? If you look at Online Marketing basics, you see the classics: Click rates, time on website, registered users. All are important for the funnel, but they do not indicate the value of the client. If you look at AuV and measure the conversion from AuV to AuM, you learn how big your pipeline really is. You can calculate conversion potential and if the solution you offer finds trust and traction. You basically know the customer lifetime value before he becomes a client.
What does it tell me?
One million EUR AuV based on 100k clients indicates a different target group as a million EUR AuV by 10 clients. You can also see, if the clients trust you. 100 registered clients do not mean much. If 90 of those 100 trust you with their financial situation, it means a lot. You get a very clear vision about your pipeline, for example:
- 100 potential clients visit your website
- 60 register for your free service
- 50 trust you with their assets -> AuV
- 20 sign up for your paid service
Before you went from registered users straight to AuM, not knowing what happened in between. Now you have a new KPI, that can show your traction in the market. Are people trusting you? Now, you can steer clearer, where you have to put more effort in, to convert. You can better focus on the client’s pain points and show the potential of your solution.
Where the market will go
We at Fincite believe, that PSD2 is not a threat, but an opportunity, if you have the vision to use it properly. Build services around PSD2 that show your expertise, whether it is investment advice, portfolio management performance, or other services. Account Aggregation and Analysis let you analyse client portfolios at other banks and let your clients see the unique expertise and the edge you offer.
The new KPI Assets under View is a very important measure to steer your client acquisition efforts. And by getting Assets under View you can show the clients, why you offer the best service and have a good approximation for the customer lifetime value.
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.
Welcome to the first blog post of 2018! So much has happened in the last 12 months in the Financial Technology (FinTech) industry: Robo-Advisors are getting smarter, cryptocurrencies and blockchain technology are becoming mainstream and the European Commission received the final draft on the PSD2’s Technical Standards done by the European Banking Authority.
The rapid pace at which the industry moves forward gave us a great idea for our company’s new year’s resolution: to keep our readers informed about the latest developments in the FinTech industry, as well as in our company. We think that there is no better way to start this than by doing a recap of Fincite’s achievements throughout 2017.
We grew our team
As the European FinTech market grew, so did we. Throughout 2017 we sought out new clients and won several implementations all over Europe, which gave us the opportunity to grow our team.
Fincite in Frankfurt now consists of 15 professionals from multiple backgrounds, disciplines and nationalities in charge of developing new financial solutions together with our clients. A diverse client base calls for a diverse team!
Fincite made the news several times
It’s a great feeling when you see your name in the headlines. We are proud to say that we have made the news multiple times in some of the major German news outlets. We have compiled the best articles and placed them in our news section for you to read. If you want to stay up to date with the latest developments in the company, you can also follow us on LinkedIn.
Our Co-CEO was featured in multiple interviews, conferences and more
Back in January, Ralf was featured in Euro Finance Tech and was asked about the state of FinTechs up to that point. In the interview, he shares his expectations for the industry and explains the environment in which FinTech companies will work in the years to come.
Ralf also represented us in the DIA Munich conference, organized by one of our partners msg life. In this conference, Ralf talked about how digital asset management tools can be used by insurance companies to enhance the experience of their customers.
We take data protection seriously, that’s why Ralf took part in a round table at the Euro Finance Week 2017. There we discussed how data protection should be an integral part of software and business architectures.
Back in September, Ralf co-wrote an article for the prestigious German magazine Das Investment together with Dr. Nicholas Ziegert, CEO of W&Z FinTech GmbH. In the article, both of them dissect the term Robo-advisor by explaining the capabilities of the technology.
We have initiated new ventures
Whereas for Fincite Digital Asset Management is and remains the top and only priority, in Fincite Ventures we applied our diverse background and technical skills to also create trade and financial market solutions in related areas. In 2017 we started three new ventures which we expect to grow in the future.
metalshub is an online marketplace for metals and ferroalloys which brings together consumers and producers from all around the world. The platform launched on the 13th of December and hours after the launch, it saw its first transaction take place: 24 metric tons of ferronickel.
firstwire is an online marketplace where people can trade Promissory Notes, Registered Bonds and Loans. The platform grants users direct market access, transparent prices and lower transaction fees than regular markets.
Lexcube is a venture intended to build a RegTech software platform with the goal to digitize compliance and regulatory processes in the asset management space. Lexcube was founded together with Peter Lohse, former Head of Legal and Compliance from Blackrock.
Our achievements have been recognized
As any Hollywood actor will tell you, it’s an honour just to be nominated for an Oscar Academy Award. With this in mind, we are extremely proud of making it to the final round of the STEP Award, which since 2006 recognizes the efforts of German, Austrian and Swiss companies for their innovation and growth.
At Fincite we put as much effort in our projects as we do in our company culture and work environment. A happy team member is a productive team member, after all! This is why we pride ourselves in having won the Kununu award, which recognizes companies the best employee reviews. Check out what our team members said about having worked at Fincite!
We also positioned ourselves #26 of the Top 50 fastest growing Startups in Germany by Gründerszene, a company which curates the list based on a company’s annual average sales growth (CAGR).
2017 was an exciting and successful year for us.
This new year will come full of surprises and challenges. We will keep you informed through our blog.