Paolo Sironi, the author of books FinTech innovation, quantitative finance, portfolio theory and thought leader in FINance & TECHnology, will be one of the keynote speakers at eFintech Show 2017. On the occasion of his participation, he granted us the following interview:
How do you see the future of Wealth Management?
Wealth Management industry is hit by a perfect storm, made of low interest rate environments, tighter regulation about investment transparency which is unveiling the conflicts of interest between manufacturers and distributors, higher costs of compliance. After the Global Financial Crisis final investors are demanding to take canter stage, and regulators are making a serious attempt for that to happen. PSD2, MIFID2 and PRIIPS in Europe are about to transform the industry from a distribution mechanism of financial products (transactional revenues) to a packaging mechanism of advice (recurrent revenues as advisory fees). But this transformation is not easy. Nobel laureate Robert Merton predicted himself an industry polarisation: onone side low cost passive investments (Exchange Traded Funds?) and on the other side very expensive solutions to manage wealthy patrimonies. What about affluent investors then? Fortunately, technology is here to help and FinTech innovation can help banks move out of the disruptive conundrum.
Do you think FinTech innovators could help the industry to be more innovating?
I do believe FinTech is already contributing to help the Wealth Management industry reach a new shore. Just think of Robo-Advisors. Although first robo-experiences were fairly unsophisticated, maybe to much single minded, they paved the way to transform the investment relationship to become a more digital, convenient and engaging play. Customer experience has never been so high on the banking agenda since Robo-Advisors demonstrated that more was possible, forcing industry powerhouses like Vanguard, Merrill Lynch and Blackrock to join the league and fight back.
What do you think Wealth Managers, Asset Managers and Banks should do to evolve in the new digital world?
Basically, market regulation is asking banks to change language and skin, avoid marketing market returns (which they don’t own) and deliver instead personalised advice (as knowledge they have). But personalisation is not about filtering news to fit clients interests and portfolios: that helps but doesn’t solve the problem. Personalisation means engaging customers to optimise their investment decision-making more transparently, raising their knowledge and financial literacy. Since investing is a push driven industry, digital would poses a threat without a change in language because consolidated product marketing techniques are bound to fail in the new world. That is why regulation is a perfect ally for digital innovation, because it is already inviting to change approach to a modality which can work on digital, detaching the industry from complex discussions about markets and re-focusing on individuals’ goals and needs. Knowledge is the next asset class that banks should digitise, and engage clients with to help them see the value for money they are asked to pay.
What kind of robo-advisors will achieve more success, the passive or the active ones?
All Robo-Advisors will have to evolve, actually they are already evolving, towards richer analysis of clients needs. This means using Goal Based Investing principles to merge the asset management perspective with financial planning, either fully digital or as a hybrid solution to augment the work of financial advisors. This shift will allow them to broaden the products typology and enrich their investment solutions to better fit clients’ needs.
Tell us about your recent book, FinTech Innovation: from Robo-Advisors to Goal Based Investing and Gamification.
“Fintech Innovation: from Robo-Advisors to Goal Based Investing and Gamification” (Wiley, 2016) spells out a vision for the future of personal banking in which clients’ needs take centre stage, gamification helps them learn how to make better investment decisions, and the industry thrives in a more symmetrical, transparent and risk-controlled landscape. Can technology make our life easier and decision making more intuitive? Would technology help human advisors or de-humanise our social and professional being? Do we fully trust our advisors? How does a Robo-Advisor work?
This Amazon bestseller answers these and more questions. What investors want is to access cost-effective added value services: simpler, more personalised and 100% trustworthy. What banks want is to regain customers’ confidence, increase revenues, reduce costs and comply with regulation. What regulators demand is transparency and fairness. What FinTech companies look for is growth by exploiting technology and user experiences to close the gap between investors’ needs and traditional services.
