Tinder Understands its Users Better than Most Robo Advisors

I just read this article here at http://www.financial-planning.com/blogs/idea-exchange/tinder-understands-it-users-better-than-most-robo-advisors-2696001-1.html

I guess really opens a can of worms in terms of people personalities (or multiple of), and what is really the best way to ascertain some key aspects of people's financial profiles, attitudes to risk etc.

I do agree however that the phraseology and understanding of short sentences is open somewhat to interpretation, and that a perhaps more interactive approach, based on actions and larger amounts of data, could lead to better understanding of people's financial profiles, and suspect that we will see considerable innovation in this space as current methods get tested.

It reminds me some discussions with some telcos where they point out that often that the data on mobile phones and the analysis of such helps in some ways to enable them to know the phone user better than their partners..

The Digital Revolution and whats coming in 2016

That time of year again, where in this part of the world (Sydney), most people are heading back to work after a solid break. I find that each year after such a break, the thinking in the industry advances considerably as people have had time to clear their heads and absorb what has being going on around them last year. This often leads to new energies and directions, and this year I am already experiencing no different.

 
You may have been also reading about what many in Davos have been calling the ‘4^th industrial revolution’ which others have called the ‘digital revolution’, and I suspect there are a number of other names also for it. My key observation is that this ‘revolution’ is about the highly connected society that we now live in, where the power of the highly connected consumer (through smart phones primarily today) is having amazing effects on industries, businesses, society and individuals. Wealth management is no different and many in the industry are realizing that there is perhaps some profound trends and changes that are upon us, and this is driving the new energies for 2016.

 

Whilst sheer power of communication between individuals and businesses has clearly been evident in the use of smart phones, what is now being realised that this doesn’t just mean we communicate like we did before must more efficiently, but there is now new ways to communicate that mean that some communications of old are now redundant, and other types of communication are becoming more relevant. In wealth management, this is stuff like not just understanding valuation of portfolios with associated research, but introducing consensus on investments and sectors, dynamics of the markets with new metrics, and even ‘social’ overlays associated with companies etc. This also applies to what regulators are expecting to be reported to them.

 

We are also however seeing that some of the conflicts and shortfalls of the prior industry model as it has developed becoming increasingly exposed and industry participants finding themselves under increased scrutiny both from their clients who are demanding more information, but also the regulators, who are having to respond to the increased amount of data and information appropriately, which is in many cases creating new regulations, codes of conduct or even laws. I suspect in 2016 that will see this accelerate and like in many industries or other parts of life, that the ‘social regulator’ may in many cases have more of an impact than the one that comes through the door.

 

Back to people coming back from their Christmas breaks….well we are already number of enquiries around ‘how do I deliver to my clients better ?’, ‘how can I stop using product based platforms ?’, ‘how can I put in a model that allows me to scale the business easier than hiring people ?’. Well a lot of this happened last year, so what is different this year ? This year the difference is firms are recognising that rather than looking at each of these issues individually with point solutions, there is clear recognition that to manage such different initiatives separately, often with different technologies, is both expensive, and often leads to increased overhead rather than improved overall business performance. I suspect that is why many are telling me that so many wealth management firms around the world last year were struggling to improve profits, or in many cases even make a profit. The new year realization for 2016 that people are coming to is that just ‘putting more lipstick on the pig’ is not a recipe for success and that a more integrated coordinated approach, requiring broad enterprise review and modeling is required.

In the UK we saw a number of mergers of wealth management firms that I suspect will get efficiencies of scale in delivering the model with less duplicated overhead, but the question I ask is whether that is just short term fixing but avoiding the real issue of that a new engagement model is required in the digital revolution.

 

I still think we are at the start of this ‘digital revolution’ and some rules of thumb that I think will emerge from such are:

-          Be very clear on your value proposition to your client

-          Be very clear that your clients understand the value (to them) of everything that is put in front of them

-          Expect regulators to start wanting to look at more ‘data’, and ask for more definition of what your business is doing to add value to such data

-          Take it for granted that you cannot hide from the social regulator, and ensure practices and conduct reflect such

-          Often your uniqueness is your value

-          If you are in a value chain, expect your suppliers and partners to ‘pirate’ the value chain, ie move around you

-          Expect new forms of digital communications to be requested by, and valued by, your clients

Thankfully at Financial Simplicity, we have been helping wealth and investment management firms with much of this for some time, preparing them to survive and thrive in the digital revolution. If you are wondering what the digital revolution may mean for you or your firm, drop me a line. Its more than a web page.

 

 

 

EY Report - The $500 Trillion Consumer Centic Prize

Just read the recent report from EY about the $500 Trillion Consumer Centric Retirement Prize at www.ey.com/pensionsreport2015. Great report with some really pertinent observations in there. Some I specifically noted (sorry rather long but it is a long report !):

·         There is broad recognition that the industry has a long way to go, which I suspect needs to happen in line with the changes to public policy, regulation and societal sustainability and the role of money. The question raised about who underwrites the wellbeing risk of people I suspect is one of the biggest issues of our time.

·         There is a major point raised around that in the shift in the attitude from ‘paternalistic’ to ‘client centric’ means different skill sets in both subject matter and management. At Financial Simplicity we have seen this for 10 years now, where firms making such a shift to a customer centric model need some very different ingredients. We notice that there are just different characteristics of the CEO’s right through the organsiation. It is difficult to pinpoint it, but some critical ingredients appear to include high degrees of knowledge and competency, a business owner mentality and passion (in more ways than just equity), and a higher appetite for ‘participation’ over ‘position’

·         the question of who pays for innovating and developing the new infrastructure required for a consumer centric industry and operating model is a really big one. My view is that this infrastructure will have quite a different form from the last ‘generation’ and will be far more ‘intertwined’ rather than ‘standalone’ product / organisations. I suspect that amongst this infrastructure will be some very key components that will almost be regulated to be used to support a consistent theme of consumer centric outcomes. I aspire that Financial Simplicity or the techniques we have developed around consumer centric investment management will be one of such

·         I think Figure 4 is great and believe (as practiced) that 'Simplicity' (or rationalising complexity into..) is very much a key tenant of the future in a consumer centric world

·         I really like the mention of the ‘all stakeholder’ code of conduct and believe that this will underpin a form of regulation. I suspect it also will closely align with the attributes of organisations that successfully transition from ‘paternalistic’ to ‘client centric’

·          the issue of consumers’ understanding the relevance and roles of all those involved with their ‘wellbeing’ will be critical to create, and sustain,  a new era of trust. One could argue that this extends beyond financial wellbeing also, but limiting it to such, I suspect every organisation will need to how it is positioned in the eyes of the consumers it ultimately deals with an what is it’s value proposition and cost base

·         The point about wellbeing being the driver, but how is it measured and monitored ? I think is quite interesting and also can extend well beyond financial issues. I suspect we will see an increased focus from the industry on broader issues than financial affordability and see it extend into education beyond consumerism and hype

·         The point about the need for clarity for alignment of interests is a key one, and always difficult to implement in a world where there are stakeholders that one could argue have different motivations than that of the consumer, such as shareholders in the companies’ that serve them. This is closely linked to the question about the funding of new era infrastructure as clearly those who invest in such will be seeking some form of return

·         There is a mention which I like about all stakeholders to increase understanding of behavioral finance to increase confidence. I suspect it moves beyond impacting consumer confidence also, but a necessity for behavioral finance understanding in order to improve organizational culture and ability to lead. Over the years I have become well aware of the conflicts of staff in companies who are doing one thing in terms of investing for their clients vs the way they would invest their own monies due to the difference in managing to 'mandate' vs personal outcomes.

·         In relation to the ‘digital’ advances, there is welcome highlighting of the need for the encouraging of participation for consumers and empowering to make decisions, ultimately implying involvement in the decisions and outcomes that effect them. At Financial Simplicity we have noticed that our client firms that practice this ultimately end up with much higher client satisfaction levels and I suspect are helping their clients with their ‘wellbeing’ beyond just managing monies.

·         There is a really pertinent point about what is the purpose of the financial ‘wellbeing’ of consumers which spins out plenty of thoughts as to what is the purpose of the pension / investments industry also. I suspect that governments are going to really have to think this through, especially globally now given the global flight of monies, and position financial and economic wellbeing in the context of sustainable and healthy societies.

·         In the governance section there is a reference to the need for ‘an integrated and adequately empowered fiduciary framework that covers the entire value chain and it’s key stakeholders to maximise alignment and support confidence’. This lies very closely to the point about consumers understanding all the roles of people involved with their financial wellbeing and the shift from paternalistic to client centric propositions and cultures of running such businesses. My view is that this will ultimately come down to a more formulaic value chain model with some very common components that define the fiduciary framework. Many suggest that Financial Simplicity could be one such component

·         I was amazed on Figure 19 as to how few rate themselves as being ‘easy to deal with’. I also liked the framework in Figure 18 that hits with some of the core issues at the heart about avoiding negative emotions and building on positive ones, a stark contrast to the paternalistic model. This is something that we have had at the core of Financial Simplicity for over 10 years as we are reminded by our clients that making investment (or other financial) decisions is quite statistical in it’s outcome, but very emotional at the point of decision.

·         The point about the importance of digital in making this transformation from paternalistic to customer centric I think cannot be underestimated, and was amazed (ie on the low side) at the chart about participants perspective on such. Customer engagement and customer experience is THE future for satisfying the new consumer and will iterate the advances that need to be made here, for which without I believe that firms will just be left behind.

·         There is a point about the cost of regulation being high and how this impacts the ability to innovate. This is undoubtedly a major factor deterring progress and in Australia we are seeing some really welcome initiatives being taken in an attempt to unlock this barrier, such as the ASIC Start Up Innovation Hub. My guess a lot of the issue here is that regulation has to be designed quite broadly for good reason, however the lions’ share of servicing consumer with wealth accumulation strategies can be quite simple to regulate if they stay ‘on piste’. I suspect over time we will see some ‘slim down’ regulation to support consumer centric initiatives come into the market easier as long as they ‘fit in the box’, and for those propositions that deviate considerably (such as highly leveraged complex products) will have more regulatory overhead to deal with. It will be interesting if such strategies and products then are attractive with such overheads compared to the more simpler ones

At Financial Simplicity, we have been both thinking and developing techniques and technologies for over 10 years to help firms with the shift from ‘paternalistic’ to ‘customer centric’, and this report from EY I think highlights much of the issues associated with achieving such. Ultimately I am of the view that this shift will not be achieved alone, firm by firm, but will take a coordinated approach across all stakeholder groups with tight consultation with consumers in a very ‘agile’ fashion. If you are interested, we will be happy to talk about it.

Managed Accounts and Practices vs Businesses

There are some increasingly clear lines being drawn in the rapidly growing world of managed accounts. One of them relates to whether wealth managers are practices or businesses. "What ?" you may ask, or "Why does it matter ?". Let me try and explain:

 

First of all distinction between a practice and a business. For this article, lets call a 'practice' as a group of people (perhaps in partnership), who invariably are in work of servicing their clients, perhaps joining together to help each other out and form a larger footprint than they would themselves. Practices often are named after their principals and may be 'partnerships' of some form.  Lets call a 'business' as something that is usually incorporated, usually creates a 'product' and is often about creating an operating model that can grow, scale, and possibly ultimately be sold as an operating entity irrespective of the owners of the business.

 

Some key differences here:

• Practices are often charcterised by their principals and often have 'succession' issues as often a lot of the value is lost when the principals leave (who would go to Smith and Partners if Mr Smith may no longer be there ?). Because of this, they often trade at values or multiples of profit / revenue that are lower than businesses.
   
   
• Businesses are often characterized by brand and their product, which can be passed on from owner to owner. Businesses are often less 'personal' but fulfil an important utility value to their customers. Because of such, they trade at larger values in terms of multiples of profit and revenue. They have broken often the link between owner and management.

 

What has this to do with Managed Accounts ? Well in some cases quite a lot, especially in terms of valuations of the firms that are providing or using such. The key point is that the firms that are using other firms managed account offers are more like 'practices' and those creating and operating their own managed account offers are more like 'businesses'. Clearly (and often) there are hybrids also, which in many cases have, or are considering, splitting such operations between portfolio manufacturing operations (ie a business) and dealing with clients (ie a practice).

 

We have noticed this with some of our clients recently who are reporting that as they transition from  being a 'practice' to having a 'business' with a managed account portfolio 'product' that can be promoted by both themselves and sometimes others, that they are being viewed with higher valuations.

 

So if you are involved with the creating or selling of managed account portfolio offers, perhaps ask yourself whether you are in a practice or a business, and ask yourself is what you are doing currently the best way to maximize the value of your skills and assets, and if appropriate how to turn your capabilities into a 'business' that may have considerably more value than just the servicing of clients.

 

At Financial Simplicity, we would like to think that we very much recognize the differences between 'practice' and 'business', and continue to help firms make the transition to create value for their owners.

 

In summary:

• Practice - often promoters of other providers' managed account offers, or service clients on a 1 to 1 basis
• Business - often operators of a managed account offer that can be promoted via client attraction and servicing channels, or other firms (often practices)

Just think how valuable a business would be if it could manufacture a managed account portfolio product that was tailored to each investing client ? That's practice level service with business level value, that's Financial Simplicity ! 

Thankyou to my friends Creel Price and Matt Church for some of the background around practices and businesses.

Robo what ?

It feels like the industry is in a 'Robo advice' frenzy at the moment. Fears of disruption are ever present, threats to the status quo, low cost investment offers, etc. Naturally many look at parts of the industry structure today and see it in a new light, but what actually is that 'new light' and what is the perspective and context around what is going on ?


I notion that the 'new light' is the trend hitting wealth management that has been impacting other industries for the last decade or more, that is of consumer empowerment. Consumers that are connected to the internet, have access to massive amounts of data, have access to powerful tools and technologies to filter such data....to do what ?


I guess fundamentally the blend of information and tools is equipping consumers to be able to compare and contrast investment offers and their 'suitability' for consumers like never before. One could argue that in many cases, the investment solutions are great for the consumer, with benefits such as lower costs, more active communication to clients, a confident sense of 'suitability' etc.


So is this the end of the wealth management industry ? Is 'Robo Advice' going to replace 'Advisers' ?


I suspect that the answer, like all periods of change and evolution, is 'Yes' and 'No'.


Yes, because with a higher level of consumer education, combined with access to some great investment sites on the Internet, a portion of that consumer base will see benefit in using the 'Robo Adviser' sites and negate the need to see an 'Adviser'.


But lets now compare this to Amazon.com and what happened at the turn of the century. Did some bookshops disappear ? Yes they did. Have other bookshops remained, others started and prospered ? Yes also. What happened is that in the first round of culling, many service orientated consumers voted with their 'feet' and either went to bookshops where there was either a value added service, or they just liked being there. Many consumers who just knew what they wanted and were prepared to wait a day or two went on line and felt that they got a better deal at Amazon. The bookshop market one could argue split into 2, value added boutique and mass volume on-line. Also, subsequently the boutiques worked out a way to use other services to get to the mass volume title lists also so they could compete on product range.


And this is what I suspect will happen with investments and wealth management, which introduces the 'No' answer. The 'No' is because a lot of what is being called 'Robo Advice' is not actually really 'advice' per se, but more just about filtering on a rules based engine to find an appropriate product. If this was all that 'advice' is and was, then I suspect that 'robo' would replace traditional advisers, and I suspect in a section of cases it will.


But back to the developments in the bookshop industry....Is it likely that the boutique advisers, who can demonstrate to their client base that they add more value than just selecting a product or asset allocation mix, remain sustainable ? Sure, if they can demonstrate the value. And like the boutique bookshops, they may actually end up using the more automated lower cost sites and engines to actually fulfil the product to the client (that's what they do when they go to the backroom as say it is on 'backorder'). The key point here is about 'value'. Access to investment products in a world of broad availability of everything is unlikely to be a sustainable differentiator. However customer service, dealing with peoples emotions, explaining things to their personality, understanding their context and mindsets, dealing with investments in the context of their financial and tax affairs, I would suggest will always remain a value added service that many regard will never be replaced by electronic methods.


The key point here being that value is not judged by the consumer, not the provider, and that it is often difficult to define, articulate or measure when it is about each individual. Personalisation around the consumer in many different forms is the key to sustainable service and value.


One thing is for sure is though is that with such context, a lot of the 'Robo Advice' is then clearly positioned not as 'Robo Advice' but as 'Robo rules and customer servicing', which one would argue that like Amazon.com and the many on-line offers in every industry, is just necessary to be competitive. It may also suit a customer segment that knows what they want and are happy engaging this way.


However the big question then comes is what does a 'robo' channel do when the 'robo' channel is  fully served has saturated that customer segment. Naturally, like I am lead to believe that Amazon.com is doing in buying up physical stores, in investments, it means hiring more 'Advisers'.


So what I think we are seeing here, is more a refinement here of the multiple engagement methods, that have evolved in many other industries, happening in wealth and investment management. My suspicion is that in 5 years time, like most shopping brands today, most wealth and investment brands will have 'Robo' as a service line, as well as advisers, and probably a few other ways such as chat, on-line interactive etc. for customer interaction and engagement.


So 'Robo', like buying stuff on the Internet, is not likely to be so much as a disrupter, but become an essential way for all brands to interact with a segment of their client base, that ultimately all players are likely to need. Naturally we anticipate then a demand for packaged 'Robo' technologies on a 'buy' vs 'build' basis, which we are Financial Simplicity are well prepared for. Come and talk...

New era of Retirement (and Investment) Solutions

We are just launching our new era of technology solution to support what we see as a new era of retirement and investment solutions.....


What's new ?


Well, a few things are happening around the world:

1) that it is increasingly being recognized that many consumers are asking more questions about the fees that they are paying for advice and investment services, and assessing value for money. In fact not only is it consumers, but regulators are onto this also and there have been some high profile cases recently where providers are being caught out. Ultimately it is being recognized that across the investment industry, it is moving to you have to be doing something ongoing to get paid on going.

2) Services are getting personal. In reality if a service isn't personal, it looks rather like a product, which is a problem given the above. And personal means that it means something to the person, which is most likely to be different for each investor depending on their circumstances


3) this is encouraging those who recruit clients to introduce an ongoing service into their proposition, which in many cases is about portfolio management as opposed to product selection


4) regulators globally are reconsidering the terms of retirement solutions in terms of the mandating of annuities, timing of releasing retirement pots etc, introducing more options for consumers and their advisers


5) whilst people who are accumulating assets may be regularly seeking to increase their investment or retirement pot, increasing numbers of people are relying on drawdown of capital to fund retirement or lifestyle needs in a low interest environment


6) this is encouraging a new era of investment / retirement solution that combines active portfolio management, personalized to each individual, to their level of investment sophistication, with the cash flow realities of monies being placed into and withdrawn from the investment and retirement pot


Now combine this all together, recognise that everyone's timing and cycles of cash flow adjustments is likely to be different, the assets may be held in multiple platforms for different investment types, multiply by thousands of members / investors, and overlay the increasing demand from regulators to ensure that this all operates squeaky clean....


If you are recognising this problem, and looking for a solution, I'd be happy to talk.










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A blast from the past

I was just looking back on some of the articles I wrote nearly 10 years ago. Check this one from August 2006 out and compare with what happening in the industry today..