The quality and efficiency of financial management services have improved by leaps and bounds after the industry finally decided to embrace the Internet of Things. But as impressive as the changes are, there’s still a lot more to do to meet the expectations of a more demanding client-base. Thus, it doesn’t take much to figure out that future innovations need to focus on more inclusive and interactive models that make the most of available technology.
It’s too early to tell what the future holds for the industry. However, these trends give us a glimpse of how wealth management could look like in the years to come.
A More Digital Industry
Looking back at how “traditional” things used to be for the wealth management industry merely a decade ago, the rapid and strategic digitalization of most firms and companies is nothing short of amazing.
As big and small companies alike prepare for an influx of younger and hipper clients, automation and digital integration become even more essential aspects of their marketing efforts. In fact, industry leaders are already carrying out groundbreaking centralized digital marketing strategies that are pushing the rest to follow their lead.
To thrive, organizations have to rethink and reshape their approaches and decipher how they can use technology to their advantage.
Robo Advisors at Your Service
Witnessing how successful chatbots are at offering 24/7 customer support for many companies around the globe, the financial services industry strives to do the same – if not better – with robo-advisors.
While this can be a huge hit-or-miss situation, it’s a risk worth taking for many asset management firms. Aside from software-based solutions being more cost-effective than traditional investment management, this development has the potential to catch the fancy of millennials who are almost always fascinated with what technology can do.
You can’t deny that digital assistants enhance and empower customer experience. Be that as it may, it's too soon to tell for sure if robo-advisors will ever become competent replacements for human advisors, especially in offering customized and long term investments proposals.
Sustainable Investing Becomes an Even Bigger Hit
The growing interest in sustainable investing is expected to swell in the coming years as more people are encouraged to take socially and environmentally-conscious investments.
Millennials have been leading the awareness campaign towards sustainable investing and its principles; and the overall response has been positive, to say the least.
At the rate things are going, wealth managers will have to pay more attention to impact investments and find a way to incorporate the ESG philosophy into their management approaches, should they wish to attract the millennial market.
The Age of Better-informed Investors
There was very little interest in wealth management pursuits in the past few decades because the majority of the population basically had no idea what it’s all about. Thankfully, things have changed, and they continue to change for the better.
As information and resources on asset management and financial services become easier to access, people from all walks of life are opening up to the concept of investing and becoming more conscious of the state of their financial health.
The future shines bright for the wealth management industry.
In an economy that produces somewhere in the region of $80 trillion of gross domestic product a year, oil and gas drilling make up somewhere between 2% and 3% of the global economy.
Technologies thought unthinkable only a few years ago have revolutionised the way business go about finding their resources and the attitudes to the future of the oil business.
Here, we look at some of the trends and challenges currently circulating in the industry.
The Trends
The ‘Smart-Oilfield’
The oil industry is currently enjoying significant investment to create digitalised oilfields that offer integrated data communication across wellheads, pipelines and mechanical systems.
This collective data produces real-time analytics for data centres that can regulate oil-flows to optimise production.
Experts believe this extra intelligence has the potential to increase the net value of oil and gas assets by an eye-watering 25%.
Technology Striking Rich
Within the last decade, worry around the quantity of oil left remaining dominated the industry. Thanks to the technological advances of the last five or so years, oil companies have discovered resources so significant that these once very real concerns are now a distant memory.
4D seismic technology has created huge benefits in reservoir monitoring and is now used universally to maximise return on investment.
The development of the Subsea oilfields has reduced both infrastructure and production costs, with deeper exploration providing greater profits and risks in equal measure.
While controversial in its application, fracking of shale basins has taken US crude oil output to its highest peak since 1989, and overseas developments are in process and set to have a significant impact on the industry.
Finally, advances in oil recovery technology offer the potential to make enormous efficiency improvements. As it stands, only around one third of oil is recovered in drilling processes, meaning there are huge financial gains to be had through improving the infrastructure.
Even with some of these processes still in their infancy, the tech-revolution is offering the potential for unfathomable gains.
The Challenges
The Competition for Talent
As with any industry, the competition for top talent is fierce, but with an aging and shrinking talent pool, the oil industry’s big guns are having to invest more than ever into attracting the best people to their business.
Adding to the above trends, this means the oil industry is a good one to be in, with notable increases in base salaries alongside additional incentives and perks in recent years.
However, with specialised experience lying predominantly with the older age groups, oil companies face a key challenge in recruiting and training the next generation, not to mention matching the staffing demands of a starved sector.
The Obituary of Oil?
Despite new found and untapped resources, there are several challenges facing the oil industry that collectively pose the question: is the end of the industry nigh?
With an ever-growing market in sustainable energy, continuing price volatility and inflationary costs on wages and raw materials, oil companies face serious challenges in remaining competitively priced and diversifying their services to keep going in fluctuating market.
Even with the rise of green technologies like the electric car market, fossil fuels still have a major part to play in the next few decades of global industry. It is, however, simply a case of proving that to investors who have an eye on the future.
Last year, the United Nations declared that 55% of the global population lives in cities. By 2050, it is predicted to increase to 68%. Population increase is widely recognised as the primary cause of this.
North America and Europe are among the two most urbanised areas in the world. The UK has seen massive growth in terms of urban dwellers, with Liverpool’s population growing by 181% between 2002 and 2015.
How will cities cope with a continuous growth in residents? Smart City planning could provide the solution. Using technology and data, local authorities across the globe are working to create dependable infrastructure for urban areas. And many designers have started to include blockchain in the process.
Below, we list the main reasons why.
Transparency
Blockchain records are unalterable – any transaction details can be viewed with complete transparency. Equally, private accounts are only accessible for cryptographic key holders. Both aspects can benefit any investor – especially one that wants to outsource to a third party.
Take local authorities and governments, for example. In hiring architects and labourers that buy through blockchain, they can see exactly where money goes. And so, it could maximise asset management.
In addition, project leaders will be able to measure costs against plans. With the ability to do this throughout the process, high costs can be avoided immediately. Payment documents could be used to reduce spending in the future, too.
Blockchain’s transparency can simplify the process of city planning – and could make it a great deal smarter.
Infrastructure
The term “Smart City” applies to all aspects of a metropolis, from infrastructure to public services. In regard to the latter, easy access to blockchain advice centres could be immensely helpful for many city residents.
The digital ledger has become popular with several people in the UK. In December 2018, 32 million Britons were reported to own Blockchain wallets. And this amount could very well increase. Some experts even describe this as the answer to all money problems.
City authorities looking to “Smart” plan, therefore, might want to take this statistic into consideration. Cities that supply blockchain help and information sources could make everyday transactions far easier for a lot of citizens.
In turn, this could strengthen the reliability of the city – one of the key principles of Smart City planning.
Property Industry
There are several advantages to living in a smart city. This is largely because it aims to offer straightforward daily services, from public transport to financial transactions.
The London Infrastructure Plan, for example, has been designed to enhance the ecological and economical effects of the capital, as well as its safety. Urban areas that are set for improvement often attract prospective property buyers.
If a local authority seeks to include new homes in its Smart city plan, blockchain records could entice investors. With full details on how living spaces have been built, people may be more inclined to invest.
And higher levels of investment could generate money for local projects and schemes that can benefit the city and its community.
Technology has already transformed how money is exchanged. And thanks to blockchain, it may revolutionise urban life throughout the world. Could this be a smarter way to spend than traditional payment methods? More to the point, will it determine how our living spaces are built?
Business telecommunications provider, 4Com has looked into Britons’ attitudes towards their co-workers to reveal just how willing the nation is to create meaningful relationships with those they spend so much time with day-to-day.
According to the research, our willingness to be social in the workplace differs from industry to industry. Finance comes in as the friendliest occupation with a huge four in five (81%) of workers saying they have made lifelong friendships with colleagues, refuting the idea that work is merely a place to get a job done, then go home.
Based on the percentage of people (per industry) who said they have made meaningful friendships at work, 4Com can reveal that the top five friendliest industries in the UK, are:
- Financial services (81.1%)
- Business to business (80.8%)
- Health/healthcare (79.5%)
- Education (77.9%)
- Retail (77.9%)
But is having close friendships at work a help or a hindrance?
According to Consultant Psychologist and Clinic Director Dr. Elena Touroni from The Chelsea Psychology Clinic, close relationships at work can actually be good for productivity. She says: “When people get on well and develop friendships, there is a greater supportive and positive energy, which ultimately makes the experience of going to work more pleasant. Although it can be more complex in some instances, being in an environment that you enjoy generally has a positive effect on your overall productivity. Long story short: happier people work harder.”
This tallies with the experiences of financial services workers as the majority of those with close friendships agree that the relationship makes them more productive. Their top reasons for this are:
- Because they make me enjoy my job more (72%)
- Because I know I can ask them questions about things I’m not certain on (51%)
- Because I can turn to them for advice (40%)
Speaking about her best friend, Rachel from Leeds says: “I met my best friend two years ago at work. A few weeks after starting at the company, I went to the Christmas party where I met the other newbie, Charly. We clicked straight away, couldn’t stop talking and literally cried with laughter. We quickly became inseparable in and outside of the office.
“As we were both new to working in the industry, we helped each other tremendously. We had talents in different areas of the job and felt comfortable asking each other for help without the fear of judgment on things we weren’t yet confident in. This helped to ease any anxieties or worries about our own abilities and learn new skills. We stood side by side throughout the (many) ups and downs, in and outside of work, and although she’s moved to a different country, I know we’ll be friends for life.”
On the other hand, almost one in five (19%) of finance workers say they have never established a relationship with colleagues that go beyond the normal small talk. For them, the most common reason is simply that they are at work to do a job, not for friendship (40%), while a further two in five (40%) admitted having nothing in common with their workmates. This is most true however, for those in the public sector, of which one in four (25%) have never made meaningful relationships at work.
Consultant psychologist Dr. Touroni provides some insight: “Some people can find vulnerability in a work environment threatening, so preserving a boundary between personal and professional life helps them feel more secure. This self-protective mechanism is especially relevant when one is in a position of authority. Close friendships become a lot more complicated when a power dynamic is introduced, so it is often easier to maintain a level of distance with lower-level colleagues if you are in a position of seniority over them.”
Commenting on the research, Mark Pearcy, Head of Marketing at 4Com, said: “We spend a lot of time with our colleagues, more so than with our other friends and family, so it’s nice to see we’re building strong and meaningful relationships with these people. To help you make the most of your work relationships, we have put together a blog post with more findings from the study and some helpful tips.”
(Source: 4Com)
2018 has been the year that the financial services industry welcomed machine learning (ML) and artificial intelligence (AI) with open arms. However, there is much hearsay on the topic of machine learning, so what should anyone believe? Let’s start with three big myths, as explained by Dave Webber, director of concept management, data strategy and innovation, TransUnion.
While reports last year found that the financial industry was seriously lagging in its adoption – only 37% of organisations said they expected to use AI functionality within the next 18 months – there has been a step-change this year. A study by Adobe and Econsultancy found that the majority (61%) are either already using AI, or plan to adopt the technology within the next 12 months.
Whilst these numbers are positive, it still highlights how over a third of financial services businesses still aren’t even considering using ML or AI. This needs to change.
Both AI and ML have the ability to completely alter and change the way we do business, streamlining processes, reducing costs and improving efficiency. You only need to look at the benefits other sectors, which adopted the technology earlier, are experiencing right now to be convinced. For example, retail businesses are using ML to provide convenient, responsive and personalised services for customers based on their online browsing behaviour, while in healthcare, computer-assisted diagnoses are being used to uncover diseases quicker and more accurately than the human eye.
The benefits of AI and ML are numerous, but in the financial industry, there are still a number of common misconceptions and myths that are slowing down adoption of the technology. It’s time we dispelled them.
1. Machine learning is too risky for financial services
Trust takes on an entirely different and elevated meaning in the finance sector compared to an industry like retail, in which a trial mentality is more acceptable. Fraud protection specialists, for example, may therefore place more trust in traditional systems that they have always used successfully to flag fraudulent applications.
But as fraudsters grow ever more sophisticated with their techniques, a greater array of data and tools are required to detect suspicious or criminal activity, and the demands on the human workforce to spot things will be too high. Through ML, we’re instead able to pull together a vast amount of contextual data to determine whether an application is legitimate.
Over time, automated systems can become more adept at spotting irregular data, resulting in more efficient fraud detection. Believing ML is too much of a risk in financial services is risky in itself. There is simply too much at stake when it comes to detecting and fighting fraud. By letting ML make decisions based on accurate and robust data, you can spend more time and attention on what the parameters of these decisions should be.
2. Machine learning is not ready to make better decisions
Financial institutions are understandably hesitant to adopt unproven technology, but in actual fact, we’ve been using ML and AI-based technology in our daily lives for years. Whether it be Amazon’s product recommendations, or asking Google or Siri for the quickest route home, we already trust ML implicitly – often without even realising.
The benefits of this realisation are also not limited to just fighting fraud; ML can also be a great asset in credit risk and affordability modelling. Through analysing huge amounts of existing data, the technology can help lenders back up their decisions to both consumers and regulators. It can also be used to flag applications where a customer is likely to default, as sample sets can be contrasted with actual decisions of the time to modify a business’s risk profile.
Far from exploring uncharted territory, ML focuses on using data to allow both man and machine to make better decisions together. Here at TransUnion, we conducted our own year-long machine learning trial which highlighted the possible benefits in the credit, fraud and insurance industries. In one case, the level of default in a portfolio of 60,000 credit cards was significantly reduced, whilst overall bad debt dropped by 10%.
3. Machine learning is difficult and time-consuming to implement
Owing to its growing status as the next generation of essential predictive tools, it is justifiable to view ML as an arcane technology that only a select few people can understand. But in reality it is relatively simple to adopt, and is primarily focused on supplementing traditional methods by working alongside existing systems.
As its name may suggest, ML is a largely autonomous process; it develops its algorithms over time as more and more data is used. This results in the quick and easy creation of more bespoke, dynamic and constantly developing models.
Clearly, far from being a time-consuming burden, the way ML can assist and supplement existing jobs will lead to dramatic increases in productivity and efficiency.
2018 has been a landmark year so far for the technology, but for the adoption rate to keep climbing, we need to bust these myths. Society already trusts ML implicitly, and the firms that are able to accept this fact and embrace it won’t just have the potential for substantial increases in productivity and efficiency, but they will ensure that they remain relevant in the future.
New research released from financial services technology leader FIS (NYSE: FIS) found that financial institutions with the most advanced operating models are growing nearly twice as fast as the rest of the industry.
The FIS research also found that financial services executives around the world are more confident in their underlying technology and operating models in 2018. Nearly half (47%) of firms surveyed said their operations function is strong enough to support their growth plans this year, compared with 28% in 2017.
The findings are part of the annual FIS Readiness Report, which surveyed more than 1,500 C-level and senior executives across buy-side, sell-side and insurance firms. The study asked executives of those firms to assess their organization’s capabilities across six key operational pillars. Based on their scores, FIS then further analysed those organizations ranking in the top 20% of the FIS Readiness scoring system. Classified as ‘Readiness Leaders,’ the top 20% were studied to see how their investment priorities differ from their peers and how that impacts their growth.
Readiness Leaders Outperform Peers
The research found that of the six operational pillars, firms’ digital innovation strategies have the most discernible link with stronger revenue growth, followed by automation and emerging technology. However digital innovation strategy ranked just 5.5 out of 10 on FIS’ index for performance, which highlights the weakest performance scores across the industry today.
Among the findings of the FIS 2018 ‘Pursuit for Growth’ report:
- Readiness Leaders achieved average revenue growth of 3.88% over the past 12 months, compared with 2.12% growth for the rest of the industry.
- 80% of Readiness Leaders have fully or near fully automated key processes, versus 46% of the rest of the industry.
- Nearly two-fifths of all respondents (38 percent) say they want to significantly reduce the size of their owned IT infrastructure over the next 12 months.
Martin Boyd, Head of Institutional & Wholesale at FIS, said: “Our research shows that financial services firms can increase their abilities to accelerate their growth if they evolve their traditional operating model of data management, efficiency and risk management into one built on digital innovation, emerging technologies and advanced automation. Based upon our research, those firms that have been able to expand their focus and modernize their operating model should be well placed for success in the future.”
(Source: FIS)
The controversy surrounding Facebook and privacy issues has made news headlines. However, data brokerage and the miss-use of information is nothing new.
The subtle manipulation of the way in which users respond to certain information stimuli is currently a hot topic of conversation. This after the recent Facebook/Cambridge Analytica scandal literally broke the internet in a way that no amount of funny cat video footage has ever managed to do. Whilst it certainly is no surprise that Facebook users find this kind of intrusion on privacy and thought manipulation to be exceptionally disturbing, it is interesting to note that many people consider this to be news, when in fact, it has been going on for a very, very long time. The only difference being that it was called by a different name.
The truth is, data, or information brokers have been around and doing business for almost as long as what the internet is old. It’s a multi-billion dollar industry and its not bound to come crashing down anytime soon. In many ways, the need for this type of intellectual trade is fuelled by everything from over-supply to economic recessions.
Companies have become increasingly more desperate to get a grip on effective marketing in order to sell their products to the best possible target market. Making the most profit from the least amount of effort and capital input has become the driving force behind every conceivable marketing strategy under the sun.
Information Is Money
Data brokers collect everything from census information, motor vehicle and driving records, court reports and voter registration lists, to medical records and internet browsing histories. The idea is to gather as much information about every conceivable human profile as possible.
This information is then categorised and grouped into typical market profiles, providing an in-depth analysis on everything from religious affiliation, political affiliation, household income and occupation to investment habits and product preferences.
It doesn’t require a technological genius to see why this information is worth thousands of dollars.
No Control
Individuals are usually not able to determine exactly what is known about them by data brokers. Most data brokers hold on to the information that they have obtained for an indefinite period of time. Loosely translated: the information may very well never go away. Part of the efficacy of the gleaning process is that historical information can be compared with the latest information in order to better determine customer trends as well as the rate at which certain dynamics evolve.
A very scary thought indeed, especially considering the fact that entities like social media giant Facebook still consider allowing companies like Cambridge Analytica to continue trolling its pages from an insider’s perspective, knowing full well that this is the case.
More Than Marketing
Moving away from the manipulative marketing point of view, information in general can be a very sensitive issue. The truth is, somewhere along the line, many of us have dabbled outside the borders of a marriage or relationship or have even discussed sensitive information relating to criminal behaviour and activities with contacts via instant messaging apps.
It’s safe to say that most of us would pay considerable amounts of cash in order to protect information of this nature, especially since the leaking of this information to interested parties can have dire effects on the very quality of our lives.
When considered in this light, blackmailing activities become a real and imminent danger, no longer something found only in crime and drama series on television. There’s also the risk of users information being used in scams, and con-artists are well versed in identity theft and assuming other peoples data as their own.
Its Free For A Reason
People have long been aware about the many dangers of over-sharing information on social media. Many people have fallen prey to identity theft and have lost everything but the clothes on their backs due to this. Imagine now the dire nature of the situation now that the problem is no longer criminals trolling social media pages that have not been sufficiently hidden from the public eye, but instead, are being handed sensitive information on a silver platter, for a minimal fee.
The question begs: is Facebook more than just a social media platform? Or has it been headed towards being a modern-day surveillance tool all along?
Perhaps there is a more sinister reason behind the fact that its free, and always will be, than what meets the eye.
Sources:
https://en.wikipedia.org/wiki/Information_broker
https://hbr.org/2018/04/facebook-is-changing-how-marketers-can-target-ads-what-does-that-mean-for-data-brokers
https://www.wsj.com/articles/facebook-says-its-ending-use-of-information-from-outside-data-brokers-for-ad-targeting-1522278352
https://thenextweb.com/facebook/2018/03/29/facebook-to-block-data-brokers-from-its-ad-network/
https://www.forbes.com/sites/kalevleetaru/2018/04/05/the-data-brokers-so-powerful-even-facebook-bought-their-data-but-they-got-me-wildly-wrong/#6740e0193107
From democratising data to driving value, blockchain has a lot of potential to improve on some of the credit industry’s greatest challenges. Here Alexander Dunaev, Co-Founder and COO at ID Finance, delves into how blockchain could disrupt credit agencies all over the world by providing a solution to address the broken and archaic data practices at the credit bureaus.
Blockchain is driving a paradigm shift in how we deal with data, rewriting the rulebook around approaches to data management, transparency and ownership. While digital finance is cutting the cost of serving the underbanked to drive financial inclusion, blockchain could offer a way of widening access to even greater numbers of consumers excluded from mainstream financial services.
Within lending, where we see blockchain having the biggest impact is on transforming the credit bureaus. The technology offers a much-needed solution to address the inefficiencies associated with data security, ID verification and data ownership.
Credit bureaus are not infallible
Although a number of new ways are emerging to determine loan eligibility, the largest banks and financial services providers still rely heavily on an individual’s credit history, sourced from credit agencies such as Equifax, Experian and TransUnion and its corresponding FICO score. Indeed 90 per cent of the largest US lending institutions use FICO scores.
The way in which credit histories are stored and accessed by corporates has historically made a great deal of sense and offered a multitude of benefits. It regulates how the data is stored, audited and accessed, and bestowing a government seal of approval provides the necessary level of trust among and consumers and contributors (i.e. the banks).
The severity of the recent Equifax data breach however – described by US Senator, Richard Blumenthal as ‘a historic data disaster,’ – where personal records for half of the US were compromised, exposed a number of critical flaws and vulnerabilities. Experian also suffered a breach in 2015, which affected more than 15 million customers.
In spite of the supposedly robust data storage safeguards, the hacks highlight that these databases are simply not safe enough and are certainly not immune from intrusion.
With first hand experience of dealing with multiple credit agencies across the seven markets ID Finance operates, I believe there are three key ways blockchain could address the inefficiencies associated with having a centralised credit system:
1) Reducing the costs and complexities associated with data verification:
Achieving a comprehensive view of a borrower’s financial discipline and credit capability requires extensive verification and evaluation throughout the lending process. This is both time consuming and costly particularly when multiple credit bureaus exist in a country.
As data isn’t shared among the credit agencies, each will inevitably hold a varying report of an individual’s credit history meaning we need to engage with all of the providers to gain a consolidated view of a borrower’s financial health.
The combined revenue of Experian, Equifax, TransUnion and FICO in 2016 was c. $15bn. These are the fees paid for mostly by the banks, to access the credit histories needed to carry out their day-to-day lending activities. In the most simplistic sense this is $15bn of fees and interest charges passed on to, and overpaid by the end user – via higher lending APRs – for the privilege of having access to credit.
At the same time the regulatory compliance surrounding the storage and distribution of credit histories creates high barriers to entry making the market oligopolistic and hence less competitive. It is hampering the ways and locations in which businesses can lend.
In short, we have a process whereby consumers are paying the steep price of having a centralised credit history facility, which isn’t immune to data breaches, while frequently creating hurdles for financial services firms to actually access the data. This process is broken and out-dated.
2) Blockchain as a key value driver in lending:
Blockchain – a tamper-proof ledger across multiple computers with data integrity maintained by the technological design rather than on an arbitrary administrative level – has the potential to address the broken and archaic data practices at the credit agencies.
Until recently there was no alternative to having a robust authority managing the credit database. However, it is precisely the lack of a centralised authority, which makes blockchain so suitable for the ledger keeping activity, and is what facilitated the most proliferated application of the technology within cryptocurrencies where reliability is key.
Storing the data across the blockchain network eliminates errors and the risks of the centralised storage. And without a central failure point a data breach is effectively impossible.
Without intermediaries to remunerate for the administration of the database, the cost of data access drops dramatically, meaning lenders can access the data without having to pay the ‘resource rent’ to the credit agencies.
3) Democratising data and handing ownership back to individuals:
As the data is no longer held in a central repository, ownership is handed back to the ultimate beneficiaries – the individuals whose data is being accessed. Borrowers will have constant and free access to their own financial data, which is rightfully theirs to own, and potentially monetise without the risk of identity theft and data leakages.
Blockchain can address the limitations of the credit system and boost financial inclusion as a result. The technology offers security, transparency, traceability and cost advantages, as well as achieving regulatory compliance and risk analysis.
While it may be too soon to predict the exact impact of blockchain in lending, what is apparent is the centralisation of the credit industry isn’t working. It’s time to rip up the rulebook and start afresh and blockchain offers a compelling solution.
David Clarke, a top 10 GRC influencer discusses the future of risk and compliance facing corporate and banks.
