Peering Into The Future of Bank Wealth Technology

Looking forward 10 years into the future of any industry is mixture of one part research, one part intuition and one part luck.  And we have to wait a decade to see if the predictions were even close to being right.

InvestEdge, a leading provider of innovative financial advisory technology solutions, gave their clients a peek into the future of roboadvisors, artificial intelligence, goals-based planning and value-based investing at their Strategic Partner Forum, which was held from May 9-10 in Philadelphia.

Trends Driving Adoption of Digital Advice

Will Trout, Head of Wealth Management Research, Celent, described four trends that are driving the adoption of digital advice in wealth management:

  1. Fragmentation of Retail Delivery
  2. Shift to Passive Investing/ETFs
  3. NextGen Investors
  4. Digitization

A perfect storm of long-term market trends, technological advances and a new generation of investors who were weaned on the Internet and mobile devices gave rise to the explosion of hype that was the roboadvisors.

While roboadvisors have not upended the industry in terms of assets gathered, their legacy has delivered a number of significant changes to how advice is delivered:

Automated Real-Time Onboarding

I believe this is the most important improvement in the delivery of financial advice that has ben provided by robo-advisors, IMHO. The industry wallowed in paper-based account opening for decades with 100-page Fedex packages being shipped back and forth from advisor to client and no one batting an eye or wondering why. It was just the way it was always done.

Commoditization of ETF Portfolios

This has had a huge impact on advisors that believed that their primary value added was investment management. Easy and very cheap access to portfolios of ETFs has driven many advisors to leave the business or add new products and services like financial planning.

Digital apps like Acorns offers baskets of low-cost funds in a gamified user interface that minimizes the investment aspect and plays up the expense management and cash flow functionality.

Innovative Client Experience with Tech-Savvy Reporting

Advisory firms quickly have finally learned that a modern, web-based deliver channel is table stakes for just about every client who isn’t a Baby Boomer. Investors have been spoiled by online retailers and social media who invest millions in designing an immersive user experience that is often one step ahead of what the user is thinking.

Is Artificial Intelligence Making Advice Smarter?

AI is a force multiplier for technology as it increases the reach and power of financial advisors, Trout explained.

He then asked how can we get beyond the hype and buzz and focus on the tangible benefits of AI?

I don’t think that our biggest problem is cutting through the hype on AI.  I expect to see more media stories in 2018 about what might be called the “dark side” of AI. As humans are squeezed out of the decision making process and algorithms are increasingly relied upon to determine who get jobs, credit cards, insurance, college admission or jail time.

Financial services firms will have to spend heavily to keep up with the likes of Amazon, Google and Facebook. Last year, BlackRock cut 40 staff from their equity active management teams, including seven portfolio managers, and switched their funds to quantitative investment strategies, which are run mostly by trading algorithms.

How can we avoid client-facing tools and interfaces crossing the line from intuitive to creepy?  Trout recommended that firms pay careful attention to the categories of data that they collect and process and the level of personal details they include.  It should be clear that certain classes of data that represent non-financial parts of clients’ lives should be off limits and not included in any recommendation engines or algorithms. (See “Don’t Get Creepy”: Privacy in Wealth Management & Emerging Technology Trends)

“Information will be set free,” Trout exclaimed, but warned that it should be utilized through a lens of privacy and discretion.

Planning-Based Advice is the Future

Bill Martin, Chief Investment Officer, INTRUST Bank, noted that a recent survey of investors’ perceptions about different professions showed that their opinion of the honesty and ethics of bankers had declined by 10% over the past decade.

Banks must improve their perception among investors over the upcoming ten years if they plan to stay relevant in the face of stiff competition from unexpected directions, he insisted.

The two channels with largest asset growth over the past decade (including an estimate for 2019) RIA’s are retail direct, which includes roboadvisors as well as self-directed investment behemoths Schwab, Fidelity and Vanguard.

RIA’s have been quicker to adopt planning-based focus, Martin pointed out.  But most off the shelf financial planning software lacks the ability to implement actionnable investment insights, he noted.  (See Stranger Things Are Happening to Financial Planning Software)

Many of the largest firms in the wealth management industry are developing next-generation capabilities and systems that will deliver a comprehensive household-management solution that seamlessly connects goals-based planning, product coordination, asset allocation, investment management and income distribution.

What can the industry do collectively to lay the foundation for broad acceptance and adoption of goals-based wealth management? According to industry legends Len Reinhart, Jim Tracy and Chuck Widgersome of the elements that should be incorporated into a strategic and operational plan include:

  • Financial literacy. Increase understanding of how investment products work and why saving for retirement is critical
  • Simplification. Find ways to help make investing more straightforward for clients.
  • Partnering. Create a broad coalition to articulate the elements of goals-based wealth management.
  • Measurement. Develop metrics of the effectiveness of goals-based wealth management.
  • Standards. Define industry standards and best practices for each component.
  • Regulation. Encourage and advance government policies that benefit investors.
  • Technology. Keep pace with other industries that are pushing the envelop on user experience and intuitive financial processes.

(See 4 Top Financial Planning Software Apps for Advisors)

Value Investing Driven by Market Disruptors

Disruption driven by innovative firms like Amazon, Netflix an Tesla will drive returns for value-based investors over the long-term according to Greg Dahlman, Sr VP, Portfolio Manager, Dana Investment Advisors.

New research shows that Amazon controlled 44% of all online sales in the U.S. last year, according to eMarketer data cited by Recode. That’s up from 38% in 2016.

But are these trends temporary or permanent?  You must review the data in order answer this question.

In the first quarter of this year, companies that traded at 30x earnings were up 11%, Dahlman observed. Only technology and consumer discretionary sectors outperformed the market, but if you take out Amazon and Netflix they would have lost money!

And how can a value investor get in on these stocks?

One “back door’ method for playing Amazon is to buy Packaging Corporation of America (PCA), Dahlman explained. PCA makes those ubiquitous Amazon boxes with the friendly smiles on them that get delivered to everyone’s doorstep, he noted.

International Markets to Outperform US

US tax cuts and the potential repatriation of overseas income by US corporations can be global growth drivers, explained Jack White, Senior Portfolio Manager at Todd Asset Management.

After an equity market breaks out from a long-term trading range, history shows that we can expect 11-17 years of a bull markets that does better than expected, White proposed. The US broke out of our sideways trading range four years ago and we’re getting 2% economic growth back, so we can expect positive returns, White described.

Emerging markets will outperform developed markets due to tremendous pent-up consumer demand in those regions, White countered.

White also predicted that international market returns will outperform the US over the next 5-10 years.

Bank Wealth Technology

I read a prediction that half of the current pure-play robo-advisors will be acquired or merged within the next three years.  Is that part of a normal business cycle for a new market or a sign that investors are no longer enamored with the idea of faceless, digital advice?

Should artificial intelligence be measured not by it’s improvements in efficiency but also it’s social responsibility?

Is it possible that someone can disrupt Amazon before they disrupt the banking sector?bank wealth technology



The Wealth Tech Today blog is published by Craig Iskowitz, founder and CEO of Ezra Group, a boutique consulting firm that caters to banks, broker-dealers, RIA’s, asset managers and the leading vendors in the surrounding #fintech space. He can be reached at