Shoring up the wealth management business

Article paru le 18 Décembre 2017 sur le site CityWire

Wealth management as we know it will soon be obsolete. One-to-one, product-led advice is now a thing of the past. Digital-savvy clients, new tools such as robo platforms and a host of new regulations are completely changing the landscape of the industry.

The Swiss private banking industry, armed with decades of experience in wealth management, is marching towards these new horizons with fresh energy. The transformation is well on its way; while the road is treacherous, the opportunities are great … if they are addressed correctly and in a timely manner. Here’s a look at some of the biggest transformations:

1) Demographic shifts continue: Women will soon control a larger share of assets and millennials will surpass the baby boomers as the largest generation, bringing with them the expectation of digital services.

2) New client expectations: Today’s clients demand transparency and control in wealth management, and they are vocal in their desire for lower fees. When selecting an adviser, 90% of baby boomers say fee structures are important to them, but that ticks up to 91% for Gen X and 93% for millennials.

3) The digital age: Digital services will become more prevalent, boosting agility and efficiency in wealth management practices. While most firms today are sceptical about virtual interactions, 76% of investors disagree with the statement that ‘digital technology limits facetime or reduces the quality of the advisor relationship.’

4) Competition has intensified: In a mature market, where everyone is looking for new growth opportunities, other institutions have broadened their reach into the territory of traditional private banks. Pure digital portfolio management platforms are only the beginning. Non-financial players are expected to gain ground over the next few years. Google even commissioned a study in 2014 on how it could enter the asset management arena, hoping to compete by becoming the gateway for information and decision-making.

5) Regulation: New regulations around fraud prevention, fiduciary responsibility and other areas are laying the foundations for better business practices. Wealth managers and private banks are being forced to reconstruct key areas of business to comply with this shift in risk management.

So what’s the way forward?

1) Understanding our clients’ investment personalities: Our clients participate in online tests and our machine learning algorithms analyse their responses to immediately provide a thorough and detailed investor profile report, assigning them to one of the one million possible profiles. This neuro-profiling covers the whole client appropriateness and suitability process as required by the European and American regulators.

2) Understanding asset allocation modelling: At Synergy, we use the motto ‘the art and science of investing.’ We believe that the most prudent method of investing is to use both forms or styles. We have developed the art by following the views of some of the most successful investors (Harvard Endowment, Yale Endowment, the Quantum Fund and the Goldman Sachs strategic fund, for example). However, as Michael Lewis says, ‘sometimes people see meaningful patterns where the patterns are not meaningful.’ To counter this, we have to be able to place the art within a framework of science. For this, we bought an equity stake in Cambridge Quantum Computing – a company led by some of the world’s brightest minds in mathematics, physics and quantum computing. We are currently working with them on sophisticated scientific intelligence in wealth management, providing our clients with inputs on market direction and risk assessment. We believe business cycles give credence to the idea that by using the latest research in mathematics, behavioural finance, deep learning and quantum computing, it is possible to observe and identify patterns in the past and thereby discern market anomalies and opportunities for the future.

3) A new banking platform: We are building a universal core platform on blockchain for transparency. It will be connected to the Swift, Sepa and Mastercard networks through partner banks around the world. The wired clients of the future will need to access us instantaneously, transacting at any time of the day, at low costs.

If we don’t commit to all three of these strategies, firms such as Google, Facebook and Alibaba will replace us. But we have an edge over them: a history of actually delivering wealth management. We must not lose that.