The robot revolution

The robot revolution

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Fintech revolution is often associated with disruptive, next generation technological innovations, visualising a time, for instance, when tech-savvy consumers conduct their financial affairs exclusively on smartphone apps. However, asset managers have generally been slow to find ways of successfully applying fintech solutions, at least in the front office.

In retail banking, customer-facing fintech can trace its roots back to the introduction of ATMs in the 1960s and has since experienced wave after wave of progress from cashless card products to internet banking, on-line brokerage and comparison websites. 

So far, less glamourous fintech initiatives aimed at introducing more automated, cost-effective ways of doing business through existing distribution channels. 

Most of the work has so far taken place in the middle and back offices, with the dematerialisation of securities, followed by new IT and communications systems to support electronic trading, straight through processing, and real-time reporting/analytics across asset classes and client segments. Firms have tended to outsource technology-intensive operations to global custodians and other providers. 

Nonetheless, the cumulative worldwide investment in fintech over the next three years could exceed $150bn, according to PwC estimates. 

Early attempts 

Executives have tried to apply technology to enhance clientfacing activities. They’ve had bold visions of harnessing the power of the internet and mobile phone technology to innovate across the business cycle: helping to build brand/ product awareness; generate new business leads; automate the creditscoring/ signing-up of new customers; and giving customers on-line reporting, advice and access to their finances. 

Unfortunately, the investment has not always delivered benefits commensurate with the costs, for either the providers or their customers. Genuine innovations have been muddled up with business process re-engineering projects. Objectives have become confused by attempts to be all things to all people, and constrained by the difficulties of linking different product areas. Front-end applications have placed demands on systems and procedures that middle and back offices have simply been unable to deliver. 

The business risk and regulatory issues associated with fintech solutions have also been under-estimated. Fraud is an ever-present danger surrounding valuable internetbased financial data and transactions. There is also the risk of unscrupulous actions from some new market entrants, which naturally concerns the regulators. 

Robo-advisory solutions are regarded as one of the genuinely new customer-facing innovations in the market. These solutions are attracting significant attention and investment as fintech firms seek to construct an innovative, cost effective internet-based asset management advisory service for investors. 

It will be interesting to see whether robo-advisors actually transform the way asset management products are distributed, or simply help existing providers and channels, including asset managers, brokers and IFAs, meet specific market needs in a more cost-effective way. 

Asset management is actually well-suited to a more robotic approach. Anyone who has sat through presentations from different asset managers on their supposedly unique investment process knows how similar such processes can be. 

There are also certainly routine analytical tasks that can be programmed into automated systems, including support for risk/return appraisals, KYC requirements, financial planning and strategic asset allocation decisions. In these and other of areas, new technologies will undoubtedly have an impact on the market, providing better structure and consistency to advisory services as well as consolidating the shared expertise of industry professionals. 

As things stand, rather than from fintech, the most significant innovations are being driven by the providers of ETFs, which dramatically reduce the basis point cost of investing and diversifying across conventional as well as increasingly alternative markets. Ultimately, combining fintech solutions with products such as ETFs should create a winning combination. 

The big question is who will be the winners and losers in the battle for customers’ investment business? Can new entrants without a high street track record persuade mass market investors to hand over their hard-earned savings and investments? Or, will customers prefer to use long-standing providers with an established reputation? 

The lesson from the dot-com boom is that some gamechanging new entrants will disrupt market customs and practices. Nevertheless, established firms, with a strong customer franchise, are still in a good position to compete. The key will be to find the right way to introduce new technologies and, critically, back this up with the right level of human interaction to help customers make those technologies and advisory services work. 

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