Wealth management technology so far has seen comparatively little disruption in the technology space.
Where many a fintech has popped up overnight, applying AI to credit scoring, or offering data rich insights and an improved customer journey, the wealth management sector has been squeezed by rising costs imposed by rigorous regulation and a motley of challengers offering lower investment fees.
If that doesn’t spell the need for innovation, I don’t know what does.
It would seem that most organisations are stuck somewhere in the middle of digital explorer (26%) and digital player (29%) - some 55%, according to the opening speaker, Thomas Zink, Research Director of IDC. Some 21% sat before digital explorer as ‘digital resistor’ and ahead of digital player were ‘digital transformer’ (18%) and ‘digital disrupter’ (6%).
Let’s start with a cynical approach to that spectrum - can we maintain a successful business as a ‘digital player’ by simply being better than the ‘explorers’ and ‘resistors’?
The squeeze on revenue and cost
As the three scenarios in the above slide illustrate, a do nothing approach is not sustainable.
As is so often the case, that middling ground with little differentiation only really delineates itself in hindsight. To escape that ‘digital explorer/player’ bracket it is not good enough to simply optimise existing business with various IT-enabled processes; Lorenzo Pagnin, CTO of Objectway, put it best, using Henry Ford’s ‘faster horses’ quote. Instead, Thomas Zink suggests moving IT into the limelight – for, IT is the product - and viewing that platform as an enabler of ecosystems.
What does it all mean beyond the dynamic words, and what specific ‘enablers’ are we talking about?
As any good analyst, Thomas Zink took a reactive approach to guessing at the market’s direction using trusty percentages and it all roads seem to lead to AI. Only 6% of organisations are currently using embedded artificial intelligence CRM systems with 51% planning to do similar things in the future. A similar 50% will look to use AI and machine learning to drive security efforts. Hybrid advisories of ‘augmented intelligence’ i.e. human intelligence aided by AI, has already proven to be a hot topic for many years, but Zink suggested now more than ever we were moving to a tipping point. The audience did not meet this prediction with particular surprise.
Beyond AI, Zink looked to the wider financial world and how new legislations - PSD2, GDPR and the Open Banking initiative - are changing the way we treat data and third parties. Likewise, there will be a spillover into wealth management and a ‘last train out’ attitude to going totally digital. We’ve already begun to see a totally digital approach by a number of small, agile challengers but, Zink predicts, 25% of Tier 1 banks will have a connected banking core by 2020, be that through cloud technology or a distributed ledger.
The voice of the market
If Thomas Zink had set up the dilemma, Peter Schramme, CEO of Objectway, provided an answer as to how they’d apply those technologies.
Automation both for heavy-lifting data and as a front end makeover. Reduces costs, strengthens compliance and risk, organisational efficiency, business opportunity robo hybrid solutions. Improved customer interface.
Self-service and hybrid enablement i.e. I fix it, you fix it - we fix it. Self service activates and engages clients whilst making them sticky. Reduces administrative overheads through self-onboarding.
Mass customised and personalised client journey Integrate and understand, analyze and discover, act and optimise, execute and deliver. In essence, one factory process for all individual units of clients.
Technology as a good butler Present when needed, invisible when not. The human element still very important.
Open data The fuel for true holistic client engagement, prompted by Open Banking.
In short, Peter Schramme concluded that wealth management technology providers would have to cherry pick the technologies most likely to become mainstream, rather than hedging bets and dabbling in all. It all pointed towards a renewed acceptance in best of breed solutions - the accompanying agility is a welcome by-product.
Interview with the CPO: If you’re API and you know it…
What’s behind this acceptance? Evidently, the agility provided to pick various solutions to provide a bespoke wealth management platform is appealing to the larger organisation with the IT capabilities to monitor and patch. That is down, in major part, to an improvement and acceptance in APIs to integrate many services into one streamlined process (at least, in theory).
With this in mind, I took the question to Objectway’s Chief Product Officer, Georgios Lekkas, to quiz him on tech, trends and challenges of the wealth management sector.
Georgios studied electronic engineering and computer science before completing a PhD in distributed Artificial Intelligence. Whilst working at the European Commission’s research Georgios met the director of Objectway and came on board as the chief technology officer, and now holds the position of chief product officer. For Georgios, IT certainly is the product.
From tech to product development; what led to that change?
I like the business side. I deal with new products and revamping and renewing older products, both front and back office. Objectway has a large range of products, like a menu a la carte, where you can have an integrated suite front to back or only a front office etc. or mix and match the two - it's a flexible proposition. we strive to offer an integrated solution but now there's more acceptance of the best of breed and individual picking, largely down to the acceptance of integration and APIs from other markets and sectors.
What's driving innovation in the wealth management market?
The clients of our customers are demanding more in terms of ease of use, user experience; quicker and better. There's also the pressure of cost and that's where we have to apply innovation to cut off time and ultimately save money. That means real-time capabilities are more important, as well as latency and a highly efficient IT delivery from the cloud and microservices for on-demand scalability.
A lot of this is driven from consumer technology. If Netflix can do it, why can't Objectway?
That expectation to scale commercial technology in line with consumer technology is also a key driver behind innovation.
Which technologies are in the process of innovation?
Lorenzo Pagnin, our chief technology officer, has a background in telecommunications and is bringing in cloud adoption. We use a hybrid solution, so partly in the cloud and partly on-premise, but that is with a view of providing the same sort of elastic service that the cloud can offer.
Another is microservices and the unification of Objectway products in a more unique blended suite because traditionally we had some products that were standalone. The idea is to have a micro-service responsible for a unique part of the data - it is essentially Netflix architecture. This sort of architecture is the future; nobody will tolerate downtime and everyone will expect immediate answers from their technology.
Blockchain is also very interesting, from a commercial and personal perspective. I started cryptocurrency investment as an experiment, much like crowdfunding, to understand the technological concept behind it and how it might be applied to wealth and asset management.
There are two schools of thought. The first is crypto as an asset class and the tokenization of everything. Right now it's a bit ridiculous and people have lost their money in the cryptorush, and there is much doubt over the concept but let's remember that the Mosaic browser and Netscape in 1995 were by no means flawless products; I remember the message that would say 'This might take several minutes'. Now we talk nano-seconds and 23 years later, it is a widespread and irreversible technology. The difference now is that everything is being disrupted, we are in a period of major technological disruption where many different technologies are converging.
The same is true in investing. Real estate is ripe for disruption as all you need is to replace the legacy middleman model with trust and greater individual investment opportunities - could that be a distributed ledger?
The other school of thought is blockchain for the enterprise to improve the platform for our customers. I'm particularly interested to see how the Australian Stock Exchange progresses on the technology with OTC derivatives. There's a concern here that, as intermediaries, they might potentially be disintermediated.
On the buy-side of wealth and asset managers there isn't the same mortal risk; they're not only technology intermediaries but intermediaries of clients and regulations. Very basically, these are the trends I am seeing in the market and we are monitoring the use cases before putting something into practice.
Interview with an Objectway customer: All glowing praise?
Geoff Towers, CEO of BNY Pershing, the wealth management arm of the New York based bank, is a businessman through and through. I took him aside to ask why he’d really chosen to go into business with Objectway. Spoiler: it’s not the answer you’d expect in an increasingly startup-heavy, young-friendly world.
What are you hearing from the wealth management industry in terms of what they want out of their technology?
We came to choose Objectway for all sorts of reasons, not least the pressure of regulators increasingly focusing on different parts of the value chain, so you have to turn your efforts to tightening up those sections of the value chain you know the best. That value chain is fragmented and the idea of a full vertical stack - where you can go from advisor screen through to a trading settlement custody - that end-to-end process is what people want to buy because you can't necessarily build it all yourself.
And we thought, at the time, it might be better leaving the building of the front-end - the investor portals and the advisor portals - to outside companies with the skills to do so. All our clients would still have a Pershing contract, and we manage the commercial relationship with Objectway. It's our job to make sure it performs and our clients look at us if it fails to perform.
We wanted to go to market with a full rich front-end; we have various clients who want full control over the customer journey and others who might not. There's the full stack clients - the wealth managers or the private banks - who don't have the time to build or the research required to perform user or penetration testing, Pershing does it all.
In the middle of the spectrum are those who want to pick best-of-breed; those who’d like a third party integration for cashflow modellers and capital tax. We can provide that third party integration but it is up to the client to manage that relationship with that third party.
At the other end of the spectrum, are the clients that want to build aspects of their stack themselves as that’s where they think can make a differentiation that is ultimately cost effective for the end-user. In that regard, they want to know if they can integrate our stack with their stack.
But why specifically Objectway?
Pershing has been around for 30 years in Europe, and 60 or so globally. It's a division of a bank that's been around for nearly 300 years. You worry if you partner with a company that's been around for two years that they haven’t weathered a storm. Change is constant and storms are frequent in this industry.
What if you go into business with a company, they go bust, and you have to go to the escrow account to try and understand their code and deploy it? That’s a nightmare. It’s very important to me that my business partner has weathered storms and change with a management team who have faced those difficulties. It might not be a very popular view among innovators in their baseball caps and sandals, but that’s what’s happening to a lot of those new firms - they go and sit in a garage, do something very clever in an unconstrained, unrestricted way and then they take it to market to try and commercialise it – ultimately they fail because they don’t have that commercial experience.
It's not the theory of mine. It's actually observable in the outside world. It’s that idea between being the ‘experimental’, the ‘clever’ and the ‘commercial’; it’s very difficult for any one human or group of like minded humans to possess all three.
We asked early on, is Objectway commercial enough?
I trust that these guys will have the ‘boring’ conversations around PSD2 and GDPR.
That's my reality when my customers say they don't want to have to think about keeping the front healthy. I want to know that MiFID II has a requirement that your technology or Objectway’s provides.
In conclusion, it is for that commercial experience to weather storms and change as well as technical expertise to deliver fantastic and flexible products that Pershing uses Objectway.