Like many others, the investment industry is dealing with significant changes driven by digital, social, and economic factors. The pandemic accelerated some of these influences, while others have gradually evolved. One trend shaping our future is online customer interaction. In a business traditionally built on face-to-face contact, Covid proved that it was certainly possible for wealth managers to liaise with clients remotely. Since then, there has been a lot of focus on keeping online communication channels open. This is absolutely vital. However, there is a much broader picture to consider. If firms want to thrive in a new era of wealth management innovation, the sector as a whole must embrace a holistic approach to digitisation.

Investors are calling for personalisation, democratisation, and transparency. And pressure to meet these demands is mounting fast against a backdrop of high interest rates and economic uncertainty. Satisfying expectations requires innovative thinking and the clever use of data to deliver customer-centric experiences tailored to the individual.

Wealth management may have been relatively slow to adopt digital transformation, but we can learn from segments that have advanced faster to facilitate a smoother transition. One is healthcare, where the benefits of digitisation for both clients and industry professionals are clear.

 

Putting Investors In The Driving Seat

Healthcare had to harness digital technology as part of the immediate response to Covid, but the sudden shift also helped to address longer-term dissatisfaction. Even pre-pandemic, care pathways were not cohesive and too little attention was paid to improving the patient experience.

The gap was especially apparent at a time when lifestyle brands were investing heavily in digital tools to deepen connections with customers as they moved seamlessly between channels. With technology being used to create comprehensive journeys and hyper-personalised services in sectors such as retail, patients were becoming frustrated, and health outcomes were being jeopardised.

As innovators from technology, telecom, and consumer industries entered the healthcare market, they recognised that patient portals weren’t doing enough to streamline multiple touchpoints and consolidate massive amounts of data – all of which would help put the patient in control. That’s when the digital front door was developed, engaging patients at each stage using everyday technology. It gave people a gateway to their care that was clear, convenient, and accessible.

Investors want to be in the driving seat of their financial future in a similar way. Wealth management client portals are far from delivering a holistic view of an individual’s financial wellbeing independently of where and what those investments may be. As end-to-end care pathways have emerged, we need a digital front door that allows us to create comprehensive wealth pathways that federate identities, and unifies Know Your Customer (KYC) and Anti-Money Laundering (AML) processes, connecting all of a person’s assets in a single-pane-of-glass solution.

A consolidated view of data also means we can move from focusing on products to concentrating on hyper- personalisation of wealth pathways and customer outcomes. It will allow wealth managers to develop bespoke risk profiles and custom portfolios aligned with investors’ Environmental, Social and Governance (ESG) preferences and structured for their personal values, based on a customised 360-degree picture incorporating different facets of their personal life.

With so much to consider, rapid transformation can be overwhelming, which is why no entity, regardless of their size, should expect to digitise systems and processes alone. Savvy healthcare providers saw that ground-breaking innovation could only come from successful partnerships. Similarly, it’s important for the wealth management firms to keep an open mind and be on the lookout for synergies. Competitors can also be valuable collaborators, and it’s better to move forward in a stronger position together rather than risk losing your place in the market.

 

Making Wellbeing A Strategic Focus Through Technology

Integrating new technologies isn’t only about elevating client experiences; it’s fundamental for employee wellbeing. In healthcare, there is the concept of clinical decision support systems (CDSS). This data-driven software is designed to improve healthcare delivery, supporting clinicians in complex decision-making processes by ensuring they have the right information to improve patient outcomes.

As a result, healthcare practitioners get more time to spend with patients helping them to make informed choices about their care. As these systems became more widespread, they had a significant positive impact by reducing the time it took to properly understand a patient’s needs at a specific stage in the care pathway.

It also helped to improve the overall patient experience by reducing misdiagnosis, side effects and potential drug interactions early, which in turn provided better peace of mind for medical workers. Of course, improvements can still be made, which will happen as technologies and processes evolve.

In wealth and asset management, we have the capability to develop wealth decision support systems, which will provide the same type of benefits as clinical decision support systems. Applications that analyse financial data to provide real-time impacts on a client’s portfolio, show how decisions and recommendations align with investor preferences, and minimise risk will certainly reduce stress and improve work/life balance.

Meanwhile automating repetitive manual tasks, like analysing numerous data points to provide the best investment options, allows client managers to focus more on cultivating customer relationships.

We can also unlock further potential in areas by leveraging the power of technology and generative Artificial Intelligence (AI), enabling us to simplify the personalisation of investments and eliminate cognitive bias from investment decisions. We’re seeing examples of this already with the rise in robo-advisors or using ChatGPT for personalised customer communications – new possibilities are emerging all the time.

When we look at the biggest stress factors, KYC/AML, risk management, impact analysis, rebalancing, tax management, market volatility, and governance are all very high on the list. A digital-first approach will help to alleviate these stressors, resulting in a healthier, more productive environment.

It’s an exciting time for wealth and asset management firms that are willing to leave their comfort zones and integrate digital capabilities to keep pace with change. In an environment where innovation and collaboration are crucial, Industrial Thought Ltd. is committed to working with the industry to develop effective strategies, so companies can stand out from the crowd, deliver superior experiences for investors, and build a legacy of innovation and collaboration that will benefit future generations.

We believe that by working together, we can deliver exceptional experiences for our clients, our industry, and our planet which will pave the way towards a more sustainable, equitable, and prosperous world.

 

First published in the PIMFA Spring Journal 2023 on 22 June 2023.

By Nuno Godinho, Group CEO of Industrial Thought Group

People increasingly ask whether traditional advisory firms and private banks will continue to exist in the wealth and asset management industry. My educated guess is yes. But to survive, they must offer a very different kind of service, focused on demonstrating their value to investors. Much of what wealth managers provide has become commoditised, meaning that they need new ways to elevate their offerings aimed at helping the customer rather than optimising internal systems.

The best avenue to advance the future of innovative wealth management would be to develop an open ecosystem, which acts as a one-stop-shop serving both investors and wealth and asset management industry professionals. This kind of ecosystem or marketplace would allow stakeholders to see tailored information, select the relevant components and compare what’s on offer at every stage of the investment journey. As a result, we could meet everyone’s needs in a transparent, and collaborative environment with personalisation and massive potential for progress.

 

Calls for a new approach to innovative wealth management

Digital transformation is evolving rapidly on the path to wealth management 4.0. This is being driven by several influences, most notably a change in customer requirements. Investors want a 360-degree view of their wealth, encompassing all the various entities they interact with. A lack of integration to date has made this impossible.

Whereas people are used to seamless, interconnected experiences and personalised recommendations in sectors such as retail and healthcare, we haven’t been able to offer that yet in wealth management. This has caused frustration especially amongst Millennial and Gen Z audiences, who already feel excluded by private bankers.

To stay relevant and democratise their products and services, wealth managers need to embrace interoperability and share crucial information rather than sticking to individual data ponds. Combining data ponds into a centralised lake would create a holistic picture that puts the investor, not the wealth manager, in the driving seat.

The wealth manager will always be there to advise, but people want to know exactly what they are buying into, how their chosen firms operate internally, and what return on investment they are getting. That’s also where the need to expose internal insights such as portfolio management, portfolio analysis, portfolio reporting, and risk analysis comes in.

To present a granular view, advisors must understand the investor’s entire experience, not only the small part they play in. By developing an industry-wide digital front door, in other words, a far more sophisticated kind of client portal focused on the investor’s full end-to-end wealth journey, we can connect all data in one place, with easy access points, plus the added value of analysis and trends. Customers can then see what differentiates providers and investments, enabling them to evaluate opportunities and risk on a completely new level.

As a precursor to sharing data, the industry should adopt unified standards for exchanging digital information. These are big steps to take. And, naturally, some providers will be nervous about opening themselves up to scrutiny. However, change is happening whether people like it or not – relinquish control or lose customers altogether.

 

Benefits for all

Developing an open ecosystem won’t only benefit investors. Greater transparency, increased connections, and correlations will make it easier for firms to innovate and identify value-added services. And, with standardised data exchange models already in place, it will be quicker to forge powerful collaborations. For example, if incumbents are interested in creating new digital products, they won’t need to go at it alone. Instead, they will have access to the best fintechs and other partners as part of the ecosystem.

The more shared data we can leverage, the more it would help to measure volatility and add value from a risk perspective. We could predict probable scenarios and show investors the impact on their portfolios. Likewise, we can personalise recommendations more effectively when all available information is connected.

Identifying and onboarding new customers also becomes easier, even with a growing number of self-directed investors. If firms are part of an ecosystem that includes all types of investors, there is a connection from the start. That relationship can then be nurtured when the time is right, depending where an investor is on their journey. It is a warm lead because both parties belong to the ecosystem. Moreover, KYC, the AML checks have already been done, saving time and money.

Historically, the industry has relied on investors doing the running. It was a status symbol to have a wealth manager or private banker, but times have changed and status is being redefined. An investor’s priority now is service quality. They want to understand what differentiates one organisation from the other.

Consequently, firms need to stop waiting for people to come to them and go where the customer is. Being part of something bigger i.e. an industry ecosystem is a natural step, otherwise companies restrict their visibility. We can draw parallels with Apple and Google’s app stores. Eventually, we may see multiple ecosystems and it makes sense to get involved in more than one, to increase the probability of winning business.

To seize opportunities moving forward, collaboration and standardisation are essential.

 

Originally Published on Wealth Briefing on 6 September 2023

By Nuno Godinho, Group CEO of Industrial Thought Group

 

About the author
Nuno Godinho is the Group CEO of Industrial Thought Ltd, the parent company for a group of companies shaping the future of financial technology, data products, and innovative wealth management. Originally from Portugal, Nuno is an international board member, CEO and entrepreneur with more than 25 years in business and digital transformation. In addition to founding technology consultancy Diisruptance, his previous roles have included chief technology officer, chief product officer, and chief digital officer with organisations, such as Microsoft, GE, and SAGE. 

Fast-tracking the future of wealth management innovation is a complex undertaking that Industrial Thought Limited has committed to… and there are a number of factors that will contribute to the success of this goal.

Identifying the best approach, or rather the best multi-prong approach, is crucial in navigating our way through a situation that benefits both investors and companies in the sector.

Our visionary CEO, Nuno Godinho, shares his take on how consumerization, personal relationships, investor values, technology, and more are paramount in achieving this goal.

At Industrial Thought Limited, we believe that innovation in wealth management is not just about adopting new technologies, but also about rethinking the entire approach to financial services. This involves understanding the evolving needs of our clients and staying ahead of industry trends. We focus on creating personalised experiences that cater to individual investor values and preferences.

In our journey towards innovation, we emphasise the importance of sustainable investing benefits. As investors become more conscious of environmental and social impacts, we strive to incorporate these considerations into our wealth management strategies. This not only aligns with our ethical values but also enhances the long-term returns for our clients.

Check out the full Wealth Whispers podcast episode to understand Industrial Thought Limited’s ambitions to fast-track the future of wealth management innovation: https://wealthwhispers.podbean.com/e/fast-tracking-the-future-of-the-wealth-management-industry/

Next, we’ll be looking at how well-known companies such as Apple are looking to transition into the financial services industry – stay tuned!

In recent years, the advent of AI has sparked both excitement and scrutiny within the Wealth Management industry. The technology’s capabilities, including but certainly not limited to generative AI algorithms like ChatGPT, offer a new dimension to data analysis, market prediction, and portfolio management. However, while it presents a promising avenue for enhancing decision-making and elevating client interaction, AI also carries inherent challenges that demand careful consideration.

 

Benefits of AI in Wealth Management:

In a world where CX is key, AI enables wealth managers to provide personalised advice, improved portfolio performance, real-time insights, and convenient access to information and support. Previously it has been impossible for advisors to deliver hyper-personalisation at scale; now, AI-driven customisation lets them tailor investment strategies and recommendations to their clients’ unique financial goals, risk tolerance, and investment horizon.

AI algorithms can also analyse vast amounts of data to identify trends and opportunities, resulting in potentially higher returns on investments. And, more widespread use of automation will gradually reduce the cost of wealth management services, meaning higher-quality investment advice at a lower price. This is critical as firms fight to stay relevant for modern investors disillusioned by traditional advisory firms and private banks.

Relationship-wise, there are many other advantages. AI-driven data analytics make it easier to gain a deeper understanding of an investor’s needs, preferences, and behaviours, all of which help to build long-term relationships. Through predictive analytics, firms can differentiate their service and proactively identify new investment opportunities, such as emerging market trends or underperforming assets. At the same time, chatbots and virtual assistants facilitate constant communication to answer queries and increase engagement. By strategically integrating AI technology into their operations, firms have the power to optimise top and bottom lines, strengthen client connections and position themselves for long-term growth.

 

Navigating the Ethical and Practical Challenges:

While AI holds remarkable potential, major obstacles must be overcome. With AI’s reliance on large amounts of data, ensuring client data confidentiality, managing consent, and complying with global data protection regulations like GDPR are significant challenges. Another issue is algorithmic bias – as AI learns from data, it may inadvertently perpetuate inequalities or biases present in the training datasets used. Vigilance is necessary to ensure that AI systems don’t amplify these issues. A key concern is the absence of standard governance, leading to a lack of accountability and transparency. Black-box algorithms can make decisions without providing clear explanations for their reasoning, making it difficult for clients and regulators to understand and trust AI-driven outcomes. Overall, the responsibility for AI-generated recommendations remains complex, requiring collaborative efforts to establish robust regulatory frameworks.

 

Striving for Data Integrity and Reliability:

The efficacy of AI-driven solutions hinges on the quality of training dataset they are supplied with and rely upon. Therefore, ensuring accurate, unbiased, and comprehensive datasets is paramount to generating trustworthy insights. The absence of standardised data sharing can lead to skewed results, ultimately impacting the quality of AI-generated advice. Transparency in data usage, validation, and generation reasoning will be pivotal to cultivating client trust and minimising systemic risks, which ties back to the absence of standard governance, as the output from AI-generated advice will only be as good as the data sets provided. We need to understand the “lineage” of all data used and generated by the algorithms. Until the industry can come to some accord on how we plan to use all of our respective data, it will be prone to various biases and fragmented advice, which will lead to liability and reliability issues down the line. It’s worthwhile wondering whether we can see the industry opening up in an age of data equals value.

 

The Role of Collaborative Partnerships:

Amidst these challenges, collaborative partnerships emerge as a potent avenue. Established wealth management firms can harness the expertise of FinTech AI companies to augment their capabilities while mitigating the risks associated with AI adoption. A symbiotic relationship, where innovative AI solutions are developed by trusted partners, helps safeguard against potential pitfalls and aligns with the pursuit of ethical, data-driven decision-making.

 

Looking Ahead: Striking a Balance for Sustainable Progress:

As we journey into the AI-powered future of wealth management, it’s evident that a balanced approach is essential. The integration of AI has the potential to expedite the transition to wealth management 4.0, revolutionising personalised client experiences and advisory services. However, this progress must be underpinned by clear ethical guidelines, data integrity, and collaborative partnerships. Striking this equilibrium promises not only a more informed, efficient, and personalised industry but also one that upholds the principles of transparency, accountability, and client trust.

 

In conclusion, AI’s impact on the wealth and asset management landscape is profound, offering unparalleled insights and opportunities. While navigating challenges will be crucial, a collective effort to harness AI’s power while ensuring its responsible application will pave the way for a resilient, future-forward industry.

 

Originally Published on Finance Derivative on 26 September 2023

By Nuno Godinho, Group CEO of Industrial Thought Group

Our purpose at Industrial Thought is to unleash the full potential of a socially responsible, sustainable circular economy by managing and investing in the world’s most innovative businesses. We spearhead innovation in areas like data, scenario planning, proof of concept development and ESG. And while the group was founded in 2013, our story starts much earlier in 1994 with FSL (Financial Software Ltd). For many years, FSL took centre stage as the market leader and first choice for specialist investment tax solutions among the financial community’s most established companies.

Now, with the group’s collective expertise, we are facilitating a rapid transition to wealth management 4.0. This means becoming a strategic partner for the fintech industry by empowering stakeholders with cutting-edge products and insights that reduce risk, enhance their capabilities, and support their digital transition. We believe strongly in the power of collaboration to develop innovative wealth solutions and services for tomorrow’s world.

In addition to FSL, here’s what you need to know about our other group companies:

• Raw Knowledge is a specialist data provider for the wealth management industry. It provides the largest and highest quality securities and corporate actions database, offering tailored support for offshore fund reporting.
• Thought Train was introduced as a quick prototyping and minimum viable product generator.
• Established just this year, Thought Ventures invests in trailblazers not limited to financial services. It uses data, products and learnings from adjacent markets to accelerate the digital leap required in financial services.

Nuno Godinho, Group CEO of Industrial Thought Ltd. said: “we want to fast-track adjacent and disruptive innovation to create a transparent and connected customer experience that meets the individual needs of investors. We are in a prime position to achieve this because we’re fortunate to have a deep knowledge of the industry as a whole. We also have a strong understanding of the macro-level impacts, trends, threats and opportunities. This is an exciting time for us. As financial services moves towards the next stage of its evolution, driven by digital transformation, personalisation, sustainability, and impact investing, Industrial Thought is committed to leading the charge.”

If you are interested in discovering more about Industrial Thought’s innovative wealth solutions, or any of the companies within our group, we would love to share more details with you. Get in touch.

Written by Nuno Godinho, CEO of Industrial Thought Group

As is happening with almost all industries right now, it’s fair to first enumerate the potential advantages that will come from technology like Chat GPT (Chat GPT being one of a multitude of Generative AI solutions available, including but not limited to Google’s BARD, LLaMA from Meta, etc), or any other Generative AI technology, for the wealth management industry. This is what happens with any revolutionary technology that is sure to upend the paradigm of the day. 

It is important however to highlight that this is the day of the AI large language model, and whilst it’s a subsection of AI, it’s not AI in its entirety (our industry has been using AI and machine learning for a very long time in fact, but that is a chat for another day). This particular AI spinout is only as intelligent (for now) as the data with which it is trained on. We could take it that everything on the internet is good, honest, factually correct and brimming with purpose and reason… But that would be our downfall, and seemingly is a trap that others are occasionally falling into. 

Tech scions and industry pioneers like Geoffrey Hinton, Elon Musk and Sam Altman, with financial stakes in the technology, are sounding warning calls, and industries attempting to adopt Generative AI into the fold encounter new problems with each implementation of it. That is why governance on an industry-by-industry basis is critical. In the wealth and asset management industry, trust is paramount, and the power of Generative AI needs to be reckoned with thoughtfully. The first issue is the data that is used to train the technology – where does it come from? Is it verified? Is it fraudulent? Until it is trained on the right data, among all players, all the data put in and all the data verified, the sorts of data that are currently held in the incumbent companies such as ours (FSL & Raw Knowledge) and our partners – it will forever be biased if it isn’t ALL the data. With bias comes a lack of trust, and we, the wealth management industry are custodians of peoples’ earnings, their livelihoods. 

Trust and transparency must come first. 

Crucially, governments must, and certainly will, impose some kind of regulations, yet we do not know when and how that will be. Industries and corporations can do their own due diligence by creating a marketplace to share their respective data so that the technology can be trained appropriately. Think of it as a central point that amasses the data from different sources and normalises it to be one, coherent, accessible and comparable library. 

One marketplace can act similarly to how products such as Apple Health do for access to medical and wellness data – a central platform that pulls the data from numerous sources, devices and specialists, making it comparable and accessible for other Apps and healthcare providers whilst making it understandable and personal to the end user, it’s the hub API for millions of users and use cases. AI applications across wealth management will never be trustworthy or truly useful without the access, the open banking equivalent if you will, for the data – it always comes back to training the AI fairly and accurately. 

The large language models are fascinating and useful however, as mentioned they can speed up front-of-office tasks a million times over, automating the fluff and allowing those that know how to develop and work alongside the technology for the good of the industry. And this is key, “those that know how”, as it stands today, Generative AI is liable to generate biased results unless you know exactly what to do in the prompt, despite the proliferation of specialists sharing the secrets of prompting it. One of the biggest learning curves for the majority is not what Generative AI is capable of, it is how to ask it the right thing. 

Generative AI will undoubtedly accelerate wealth and asset management because it will enable much better personalisation, from understanding the customer better, to even being able to better communicate with the customer, it will strengthen and multiply connections and relationships. From a wealth manager’s perspective, the relationship is going to be much closer and much more personalised because you will now have the ability to search and discover what you previously could not, at speeds and depths not possible through human effort alone. AI will also speed up the creation of new advisory companies. Some of the things that you can do with Generative AI is create a new business model, build a business plan, and generate a new webpage, quicker, focusing more time on the value-added elements of wealth management – but it will take time before it can build portfolios and actually know market positions. Think about it, with AI as your sidekicks, a CEO, Product Manager/lead and a COO are capable, the three of them, in building out in a matter of days, functions and activities that prior to this tech would take an established team of 20+ months… 

Done right, Generative AI is already an opportunity for positive change, but with great power comes… All I am trying to say is that the industry should test, learn, and collaborate and with guidance and a level head, it will better serve us all.

The investment landscape has changed dramatically over the past few decades – environmental, social and governance concerns, ranging from a depleting ozone layer and unethical supply chains to corruption concerns and gender discrimination, have ushered in a new form of investing: sustainable and ethical investing. The practice of sustainable and ethical investing aims to produce sustainable outcomes while providing the same (or hopefully higher) returns as traditional investments. There are numerous benefits to this strategy. 

Firstly, sustainable and ethical investing has the intrinsic aim to improve the world. Adopting ESG investment models at a client’s request will therefore help push the needle towards a cleaner, more equitable world. The use of an ESG investment model also has the benefit of modernising an investment practice – the investing landscape has evolved to consider ESG as a mainstay, making it vital that investment and wealth managers employ a tool that allows them to factor in ESG preferences and, as a result, stay up to date.

Sustainable and ethical investing may also provide a monetary benefit – a Morningstar analysis discovered that “surviving sustainable funds (those that existed 10 years ago and still exist today) outperformed their surviving traditional funds over a 10 year period”. Similarly, research by the Morgan Stanley Institute for Sustainable Investing found that “sustainable equity funds outperformed their traditional peer funds by a median total return of 4.3 percentage points”.  While no investment is risk-free, sustainable and ethical investing does appear to provide a more than a financial benefit to those engaged in the practice, which may increase the client’s satisfaction.

Another benefit of sustainable and ethical investing is that it allows those involved in the investment decision making process to comply with current sustainability regulations and those that are likely to come. Regulators are increasingly seeing the importance of sustainability, with MiFiD II, the FCA’s new sustainable fund labels and more launched in a bid to promote transparency within the financial industry and to protect consumers. Investment managers who discuss sustainable and ethical investing into their clients are therefore not only adhering to the rules in place today, but are also setting themselves up for a smoother transition into the rules that will inevitably come in the future as the world moves towards a more sustainable outlook.

Sustainability is here to stay, and the investment industry can welcome the practice by observing the host of benefits it provides. The world is slowly taking steps towards becoming cleaner and greener, and the financial industry holds a pivotal key to unlocking this bright future.

ETHiX can enrich ESG discussions with clients, by providing an independent assessment, analysis and reporting of client portfolios and ESG models.  ETHiX helps customer-facing staff to enhance their use of ESG data with ESG portfolio monitoring and optimisation.  Contact us today to find out more.