To learn about portfolio management in Canada, Finance Monthly hears from Constantine Lycos, the Founder and CEO of Lycos Asset Management Inc., a Vancouver-based firm offering investment management services to business owners and professionals. Constantine has over 20 years of experience as an investment professional, holds the Chartered Financial Analyst designation, as well as a Master’s degree from Oxford University in Mathematical Finance.

In what ways does Lycos Asset Management do things differently than other investment management companies?

I believe several factors differentiate us from other firms:

• We are a boutique firm and we look after a relatively small number of families’ investment portfolios and our clients really matter, they are not rounding errors as they can be for large firms managing billions of dollars.
• Our vision, which is to manage clients’ ‘serious money’ as a marathon, using a proven and consistent approach to grow and preserve clients’ wealth with a long-term investment objective. We believe that the centerpiece for success is a long-term plan that outlines the investment polices to follow, so that clients can reach their unique goals. Our experience is that asset mix decisions have the greatest impact on portfolio returns as well as portfolio risk and we pay a lot of attention to getting that right for each and every client. The foundation of investing ‘serious money’ requires patience, discipline and objectivity.
• We are committed to the success of our clients and to fostering long-lasting relationships and we tend to have a very low client turnover rate.
• We are independent and ‘fee-only’, only compensated by our clients.
• Our advice is objective and unbiased.
• Our counsel is without conflicts of interest.
• Our integrity of counsel is uppermost.
• We are fiduciaries, i.e. we are obligated by law to put our clients’ interests first, ahead of ours and do what’s in their best interests. While this is true of all portfolio managers in Canada, portfolio managers currently make up a very small percent of the investment professionals helping families invest and manage their wealth, so we operate at the highest level.
• Client portfolios subject to a minimum asset size are fully customizable allowing for special circumstances to be taken into consideration and for better tax efficiency.
• We have a value investment philosophy. We look for good investments where there is good inherent value in the investment. If the market takes such investment down in price unless the fundamentals have changed, we feel good buying more of such investment. While this is true for all asset classes it is especially true for public traded equites where market prices may fluctuate a lot more than the inherent intrinsic values of the investments. This not only makes us more comfortable navigating volatile markets, it also provides us with opportunities at times when other investors are running scared, realising losses and taking permanent hits to their portfolios.
• The biggest problem investors face is in our opinion a behavioral bias, specifically recency bias. Investors tend to give more weight to recent performance than they probably should, feel good when markets are down and commit more capital at higher prices, feel bad when markets are up and either sell or do not commit new capital at lower prices. Our investment philosophy helps us fight this in clients’ portfolios, forcing us to buy when prices are generally low and sell when prices are generally high. We also help educate clients of the huge importance of the correct investment behavior and how it can determine their financial success more so than picking any individual investment.
• Our investment philosophy also helps us avoid ‘benchmarkitis’, a disease that has plagued the investment management community, where investment managers construct client portfolios in such as way is to be very similar to market benchmarks. This is done unintentionally by over-diversification or intentionally by trying to avoid the risk of under-performing a benchmark by a wide margin. This behavior is usually not in the best interest of clients and allows for a dumb investments, usually in highly overvalued stocks, that can have devastating effects when markets go down.

When is the best time for a family office or business owner to take on a portfolio manager?

Immediately! Business owners and professionals with a minimum of $500K of investable assets that do not work with a team of investment professionals that are fiduciaries do themselves a huge dis-service. I will emphasise the word fiduciary again, as our industry has been very good at making things look very complicated when they don’t have to be. Fiduciaries have to do what’s in the clients’ best interest. Portfolio managers licensed to operate in Canada, in order to earn the right to be able to invest client money on a discretionary basis (i.e. the portfolio manager decides what investments make up the investment portfolio), have achieved the highest level of professional qualifications, experience and integrity and are obligated by law to act in the best interests of clients. Hiring a portfolio manager when a family’s nest egg has reached 500K is a no brainer, even if they are already working with a financial adviser, typically at a bank. Our fees are usually lower than the banks’, and perhaps more importantly - the opportunities for improvements in the family’s investment portfolio and tax efficiency are huge. If they are not working with an investment professional already, the opportunities are even bigger. Research has shown that investors working with an adviser have vastly outperformed, on average, investors investing on their own. A 2016 study by Dalbar concluded that the average investor grew 100K to 305K over the previous 30 years when over the same period, the stock market would have grown 100K to 2.3 million! Working with an investment professional, especially one that subscribes to a value investment philosophy, would likely have produced at least similar results to that of the stock market. My US stock picks over the last 17 years have outperformed the market by roughly 3.5% per year, with the market returning 202% total return and my picks returning (net of fees) 425%.

What can you advise for strengthening an investment strategy?

Typically, if there is room for improvement in an investment strategy, it comes from the risk management side, for example incorporating low cost hedging. Hedging is hopefully a drag in investment performance because it means that the main investment strategy is performing well, but is there just in case the strategy does not work.

For what reasons might a client’s portfolio need to be customised?

The two most common reasons are a family’s over exposure to specific stock or sector and tax efficiency. An Executive’s or Senior Manager’s stock options or holdings in a publicly traded stock can be dealt with by using a custom portfolio - part of which includes a hedge against that single stock risk and/or sector risk. Similarly, a business owner’s exposure to a particular sector or industry can be hedged or dealt with by using a custom portfolio approach. Additionally, every family’s tax situation is different - some carry unused capital losses for example and some don’t. Thus, different strategies can be employed depending on the circumstances of the individuals involved. Capital loss harvesting can be employed for some families but not necessarily for others. More flexibility allows for better efficiency.

What is your process for identifying the risks and opportunities?

We typically look after a family’s whole nest egg and the opportunities and risks can be on the investment side, the tax side, the estate side, etc. In order to help clients as best as we can, we need to (and do) get to know our clients very well. Then the risks and opportunities specific to them and their situation will reveal themselves.

On the investment side, the risks and opportunities are more investment specific rather than client specific. We typically find the best investment opportunities in equities. They typically carry with them the most risk. Our value investment philosophy of ‘buying good businesses at good prices’ helps both to identify good opportunities and mitigate risk through a margin of safety in our valuation process. Typically, we would prefer lower beta stocks to higher beta stocks (relative volatility to that of the market), if other stock attributes are similar. My best stock ideas are in the fund that I manage, the Lycos Value Fund.

We also find good investment opportunities in private equity, albeit with an even longer time horizon than publicly traded stocks. For private equity, we would rely on outside managers. The process here is more with identifying competent and honest outside managers that are also reasonable on fees, an approach every investor should be using in selecting investment managers.

Fixed income investments are challenging in this low-interest-rate environment and are going to be challenging for years to come as either rates stay low or go up, essentially devaluing the worth of longer dated debt. We are at this point underweighting high-grade corporate bonds as the additional yield these bonds offer over government bonds is not enough to compensate for the additional risk and reduced diversification benefits, due to the higher correlation to equities. At this point, we prefer shorter-term private debt financing growth companies in the US or commercial mortgages also in the US, as the yields are better and the US economy is doing well. We also obtain private debt exposure through outside managers, so the process here is similar. In addition to analysing the risks and opportunities inherent in the asset class, we try to identify competent, honest and low-fee outside managers to help us. We also use long dated US Treasuries and long dated provincial bonds that carry the so-called duration risk, i.e. that the value of our holdings will go down as yields go up, not because of the yield we are getting from there, but primarily because of their negative correlation to risky assets such as equities.

Finally, and most importantly of all - how do all the different pieces fit together? Getting the asset mix right is the most important decision for us. Our process there is that for any particular return target for a client portfolio - we optimise the allocation to the various asset classes so that the portfolio can have the highest expected Sharpe ratio, i.e. the highest expected return divided by the expected volatility of the portfolio. We have found that this method has worked quite well.

Of what importance are third-party custodians in the management process?

Having independent third-party custodians to hold client cash and securities is important to our clients. As managers, we make buy and sell decisions on clients’ behalf, but we do not have physical access to their money, cannot make withdrawals from their accounts and essentially, have trading authority only. This is a good standard, one that I believe should be a requirement for all investment funds and a standard that helps maintain a high integrity and trust in the markets. I believe that the Madoff scandal would have been avoided if this was a requirement then, as the custodian for Madoff’s funds was a related party, not an independent third party.

What are the signs of a good investment to buy into?

Equities tend to make the best investments over time so I’ll focus on this asset class. Shares of businesses (“stocks”) whether traded on a stock exchange or not, represent fractional ownership of the businesses. Investors sometimes lose track of that simple fact and think of stocks as things that go up and down based on random macro-economic events, geopolitical events, company news, investor phycology, etc. While all of these may be true at one time or another, they neglect the two most important factors: the quality of the underlying business and even more importantly the price/valuation of the business in question. A good way to bring these two important factors into focus would be to think that you owned the entire business, not just a fraction of it, and that you couldn’t sell for a very long time, if ever. With that in mind, good investments will tend to be shares of good businesses bought at a good price. What makes a business a good business? This is not a particularly hard question. Some signs are:

1. The business has a good track record of profitability, for example an average return on equity over the last 5 years of at least 10% per year;

2. Good future prospects: for example, analysts are expecting decent growth over the next 3%-5% years;

3. A strong balance sheet;

4. The business has some ability to control its own destiny, rather than rely on external
factors such as the price of commodities or energy; As far as price is concerned, traditional valuation metrics here work well: low price to book, low price to earnings, low price to sales, low price to cashflow. Additionally, else being equal, given two stocks with the same attributes, a stock with a lower price volatility would be preferable.Stocks that meet the above criteria tend to do really well over time and make great investments. I have made it my aim in my professional life to look for such investments! Examples of good investments like these today would be: Walgreens (WBA) with a 5 year average Return on Equity (ROE) of 16%, price to book (P/B) of 2.26 and price toearnings (P/E) of 10; Arrow Electronics (ARW), Toyota Motors (TM) and Goldman Sachs (GS) with similar attributes.

Is there anything else you would like to add? 

I would like to reiterate the most important takeaways for investors: 1. Work with an investment advisor if you do not already have one, research has shown that investors working with an advisor vastly outperform those that do not. 2. Work with a fiduciary if you have enough money to invest such a portfolio manager. A fiduciary has to by law put your interests first ahead of their own or other clients’. 3. Do not let emotions dictate when you invest money, invest money consistently: do not sell after markets are down just because they are down and do not add to investments after they’ve gone up in value because you feel good about them. Using an investment manager with a “value” investment philosophy will go a long way in helping with that.

Website: http://www.lycosasset.com/

The financial services industry has witnessed considerable hype around artificial intelligence (AI) in recent months. We’re all seeing a slew of articles in the media, at conference keynote presentations and think-tanks tasked with leading the revolution. Below Sundeep Tengur, Senior Business Solutions Manager at SAS, explains how in the fight against fraud, AI is taking over as a dominant strategy, fuelled primarily by data.

AI indeed appears to be the new gold rush for large organisations and FinTech companies alike. However, with little common understanding of what AI really entails, there is growing fear of missing the boat on a technology hailed as the ‘holy grail of the data age.’ Devising an AI strategy has therefore become a boardroom conundrum for many business leaders.

How did it come to this – especially since less than two decades back, most popular references of artificial intelligence were in sci-fi movies? Will AI revolutionise the world of financial services? And more specifically, what does it bring to the party with regards to fraud detection? Let’s separate fact from fiction and explore what lies beyond the inflated expectations.

Why now?

Many practical ideas involving AI have been developed since the late 90s and early 00s but we’re only now seeing a surge in implementation of AI-driven use-cases. There are two main drivers behind this: new data assets and increased computational power. As the industry embraced big data, the breadth and depth of data within financial institutions has grown exponentially, powered by low-cost and distributed systems such as Hadoop. Computing power is also heavily commoditised, evidenced by modern smartphones now as powerful as many legacy business servers. The time for AI has started, but it will certainly require a journey for organisations to reach operational maturity rather than being a binary switch.

Don’t run before you can walk

The Gartner Hype Cycle for Emerging Technologies infers that there is a disconnect between the reality today and the vision for AI, an observation shared by many industry analysts. The research suggests that machine learning and deep learning could take between two-to-five years to meet market expectations, while artificial general intelligence (commonly referred to as strong AI, i.e. automation that could successfully perform any intellectual task in the same capacity as a human) could take up to 10 years for mainstream adoption.

Other publications predict that the pace could be much faster. The IDC FutureScape report suggests that “cognitive computing, artificial intelligence and machine learning will become the fastest growing segments of software development by the end of 2018; by 2021, 90% of organizations will be incorporating cognitive/AI and machine learning into new enterprise apps.”

AI adoption may still be in its infancy, but new implementations have gained significant momentum and early results show huge promise. For most financial organisations faced with rising fraud losses and the prohibitive costs linked to investigations, AI is increasingly positioned as a key technology to help automate instant fraud decisions, maximise the detection performance as well as streamlining alert volumes in the near future.

Data is the rocket fuel

Whilst AI certainly has the potential to add significant value in the detection of fraud, deploying a successful model is no simple feat. For every successful AI model, there are many more failed attempts than many would care to admit, and the root cause is often data. Data is the fuel for an operational risk engine: Poor input will lead to sub-optimal results, no matter how good the detection algorithms are. This means more noise in the fraud alerts with false positives as well as undetected cases.

On top of generic data concerns, there are additional, often overlooked factors which directly impact the effectiveness of data used for fraud management:

• Geographical variances in data.
• Varying risk appetites across products and channels.
• Accuracy of fraud classification (i.e. which proportion of the alerts marked as fraud are effectively confirmed ones).
• Relatively rare occurance of fraud compared to the huge bulk of transactions; having a suitable sample to train a model isn’t always guaranteed.

Ensuring that data meets minimum benchmarks is therefore critical, especially with ongoing digitalisation programmes which will subject banks to an avalanche of new data assets. These can certainly help augment fraud detection capabilities but need to be balanced with increased data protection and privacy regulations.

A hybrid ecosystem for fraud detection

Techniques available under the banner of artificial intelligence such as machine learning, deep learning, etc. are powerful assets but all seasoned counter-fraud professionals know the adage: Don’t put all your eggs in one basket.

Relying solely on predictive analytics to guard against fraud would be a naïve decision. In the context of the PSD2 (payment services directive) regulation in EU member states, a new payment channel is being introduced along with new payments actors and services, which will in turn drive new customer behaviour. Without historical data, predictive techniques such as AI will be starved of a valid training sample and therefore be rendered ineffective in the short term. Instead, the new risk factors can be mitigated through business scenarios and anomaly detection using peer group analysis, as part of a hybrid detection approach.

Yet another challenge is the ability to digest the output of some AI models into meaningful outcomes. Techniques such as neural networks or deep learning offer great accuracy and statistical fit but can also be opaque, delivering limited insight for interpretability and tuning. A “computer says no” response with no alternative workflows or complementary investigation tools creates friction in the transactional journey in cases of false positives, and may lead to customer attrition and reputational damage - a costly outcome in a digital era where customers can easily switch banks from the comfort of their homes.

Holistic view

For effective detection and deterrence, fraud strategists must gain a holistic view over their threat landscape. To achieve this, financial organisations should adopt multi-layered defences - but to ensure success, they need to aim for balance in their strategy. Balance between robust counter-fraud measures and positive customer experience. Balance between rigid internal controls and customer-centricity. And balance between curbing fraud losses and meeting revenue targets. Analytics is the fulcrum that can provide this necessary balance.

AI is a huge cog in the fraud operations machinery but one must not lose sight of the bigger picture. Real value lies in translating ‘artificial intelligence’ into ‘actionable intelligence’. In doing so, remember that your organisation does not need an AI strategy; instead let AI help drive your business strategy.

Digital transformation in finance has been the word on many people’s lips for some time now with new FinTechs being created on a daily basis. But it’s not just the FinTechs that have made a shift in this sector, it is also the big global tech firms such as Google, Apple, Facebook, Amazon and Microsoft (GAFAM) that are now giving many organisations a run for their money, finance included, particularly with the Payment Services Directive 2 (PSD2) coming into force.

Flexible and nimble challenger banks are also looking at how they can inject the market with customer-led, creative and digital solutions. Whilst there have been casualties and many failed attempts to claim a share of the market, this injection of competition has certainly stirred things up and made everyone review their brand, how they operate and engage customers more effectively.

Given the challenges over the last ten years, and the marketing-led approach that has been taken by many of these new entrants in financial services, it’s not surprising that the spotlight has returned to marketing and communications as a central component to developing a robust growth strategy.

Monzo, for example, is one such organisation that has ripped up the rule books and taken a fresh new approach to engaging a younger, digital first end customer. Having started as a digital only banking service it was granted a full banking license earlier this year.

Never has it been more relevant and important to have a robust marketing and communications process to support reputation and the development of more credible and trusted relationship with customers.

Central to this is being clear as to what your story is, and what you want to be known for. In an industry where there are many new and older organisations, having a clear point of view that is different and positions you as a credible leader is key to success.

Integral to this communication’s led approach is having a CEO and leadership team that will take the plunge and lead the discussion along this journey. As the head of an organisation, the CEO will directly influence the personality of the business. He or she will set the tone for business behaviours and be fundamental in the creation of its identity (with a little help along the way). In many ways, the CEO is an essential member of the marketing team and leading voice piece for the business, or arguably should be.

Whilst CEOs are rightly focused on growth and financial return, they also recognise the value of building the ‘good’ reputation of their business, with many seeing themselves as the reputational stewards. The KPMG 2017 Global CEO outlook report outlines how reputation and risk, alongside trust in a time of disruption, has risen on the CEO agenda to become one of the top most important issues they face today.

We recently surveyed over 500 CEOs and CMOs, and our research showed us that whilst 95% of CEOs claim to regularly engage with marketing, over 70% then go on to provide a range of reasons why this does not happen in reality. When the CMOs were asked about the levels of contact that they had with their CEO, 42% said they still struggled to engage their CEO. This was particularly interesting given the fact that 84% of CEOs believe that a robust communications strategy is critical to business growth.

It appears that whilst many leaders believe they are involved and engaged, there is a perception gap between the CEO and CMO on what this really means, and what is required of the CEO.

So, despite its growing importance in driving growth and supporting new entrants in the financial services industry and further, there is still a real challenge that needs to be overcome in educating the CEO and leadership teams around marketing and communications in practise and their need to engage actively in this. They may understand its importance, but it appears many CEOs are still unclear about the role they should play, and the value this will have.

For more information on this topic and advice about how we can help you approach this please go to: https://speedcommunications.com/xchange/leadership-marketing-gap/

Amazon was once a small business selling books on the internet. Now it’s at the top of its game, with its hands in a multitude of baskets. Surely there’s a wide variety of lessons we can learn from their dynamic strategies. Below, Karen Wheeler, Vice President and Country Manager UK at Affinion, presents Finance Monthly with a guide to Amazon’s operations through the eyes of financial organizations.

It’s rare to meet someone who has never used the world’s largest internet retailer, Amazon. Whether it’s conquering Christmas lists, watching boxsets through Prime or managing life admin through the intelligent personal assistant Alexa, its offerings are endless.

This extensive list of services and benefits that are all designed around user convenience, simplicity and enhanced customer experience is one of the biggest contributing factors to its success.

Financial organisations, however niche or specialist, can take a leaf out of Amazon’s book when it comes to engaging with customers and harnessing innovative solutions to continuously improve their offering.

Here are five lessons financial firms such as banks and insurance companies can learn from Amazon.

1. Put the customer at the forefront of any business model

Listening to what the customer wants has been the driving force behind many of Amazon’s products and developments. McKinsey’s CEO guide to customer experience advises that the strategy “begins with considering the customer – not the organisation – at the centre of the exercise”.

This can often be quite a challenging ethos for the financial services sector to buy into, particularly for the more traditional bricks-and-mortar companies where the focus is often on the results of a new initiative, rather than the journey the company must take its customers on to get there.

It’s a case of convincing senior management that the initiative is a risk worth taking and just requires some patience. Amazon originally launched Prime as an experiment to gauge customers’ reactions of ‘Super Saver Shipping’ and it was predicted to flop. Nowadays it’s one of the world’s most popular membership programmes, generating $3.2bn (£2.3bn) in revenue in 2017, up 47 per cent from 2016.

2. Don’t wait to follow a disruptive competitor

To stay ahead of the curve amidst the flurry of fintech start-ups, financial organisations need to come up with their own innovative customer experience solutions, rather than allow newcomers to do so first and then follow suit.

From the customer’s perspective, a proactive approach will always go down better than a reactive one. Amazon CEO Jeff Bezos has previously spoken about tech companies obsessing over their competitors and waiting for them launch something new so that they can ‘one-up’ it. He once wrote: “Many companies describe themselves as customer-focused, but few walk the walk. Most big technology companies are competitor focused. They see what others are doing, and then work to fast follow.”

What sets Amazon apart is listening to what the customer wants and prioritising them over competitors.

A great example in the insurance sector is US digital insurer Lemonade, who last year set a world record for the speed and ease of paying out on a claim of just three seconds. This was done through its AI virtual assistant ‘Jim’ and has helped to kickstart a new trend of using AI in the industry. Ultimately, Lemonade listened to the masses in that most of us see shopping around for insurance and filing claims as complicated and admin-heavy. A quick, simple, paperless alternative would no doubt result in increased customer loyalty and, in turn, increased profits.

3. Analytics are key for personalisation

It’s no secret that Amazon is one of the leaders that has paved the way for analytics. It’s through the company recognising the need for them which has led to customers becoming accustomed to personalisation and expecting it as soon as they have had their first interaction with a business.

Financial organisations are no exception to this and, while it may seem like a scary commitment to more traditional firms, it doesn’t have to be complicated. A classic, simple example is Amazon storing customers’ shopping habits and sending them prompts for new products similar or related to those they have purchased in the past.

In the financial world, digital bank Monzo is leading the charge by monitoring customers’ spending habits to offer them financial advice to help them save money and budget responsibly. For example, its data once showed that 30,000 of its customers were using their debit cards to pay for transport in London – so Monzo can advise them they could save money if they invested in a year-long travel card, for instance.

There are endless things financial organisations can do using customer data to provide the customer with an experience unique to them, rather than continuing to make them feel like just another cog in the wheel. At Affinion we believe in ‘hyper-personalisation’, in that these days it’s no longer good enough to just know a customer’s history of transactions with a company and when their birthday is.

Customers are getting more tech-savvy by the day and are expecting real-time responses with a deep insight into their interactional behaviour – they won’t remain engaged if follow up contact is irrelevant and untargeted. Customer engagement has moved on from companies communicating to the masses, it’s about creating tailored, intuitive relationships with them on an individual basis.

4. Venture out into new areas

The way we live as a society is forever changing and, as we get busier and busier, any small gesture to make life that little bit easier goes a long way. The consolidation of services such as banking, insurance, mobile phone networks, utilities and shopping is a great way to ensure customers remain loyal to a brand as it will – if done right – add value and reduce hassle to their lives.

As an expert at disrupting industries, Amazon has taken note of this growing need for convenience over the years and has expanded its offering for customers, allowing them to carry out multiple day-to-day tasks with one account. In the last few months alone, Amazon has hinted that it may acquire a bank to break into the financial industry and potentially start its own healthcare company.

Regardless of size, financial organisations should always be looking for new areas they could tap into to broaden their offering and show customers that their needs are at front of mind.

5. Always go above and beyond

A rising factor in the way that customers align themselves to a brand is its stance on ethical issues and its contributions back into society. It’s a shift that seems to be most prominent with Generation Y, as the Chartered Institute of Marketing found that 81 per cent of millennials expect companies to make a public commitment to good corporate citizenship and nine in 10 would switch brands to one associated with a good cause.

Amazon has gone that one step further, with its AmazonSmile initiative that allows the customer to choose a charitable organisation that it will donate 0.5% of eligible purchases to. Not only does this show Amazon’s commitment to charitable causes, it gives the customer control of where their money ends up.

This is an easy win for the financial sector, given that one of its sole purposes is to look after money and move it around. For firms that target younger generations in particular, looking at ways to involve customers in charitable donations in a fun, transparent and seamless way is a no-brainer for increasing loyalty and advocacy.

Always a chore, never a pleasure

For many people, personal finance is perceived as a chore and often quite complicated. Improving the customer experience and building in programmes to engage them can help greatly with this and financial organisations need to adopt the ‘customer first’ ethos that Amazon showcases so effortlessly. With new fintech disruptors creeping into view, keeping customers loyal has never been so important.

From AI to IP, with GDPR and cybersecurity in the midst, Karl Roe, VP Services & Cloud Solutions at Nuvias, tells Finance Monthly what’s in store for organisations using the cloud in 2018.

The Rise of AI

2018 will see Artificial Intelligence (AI) drive a transformational change among organisations and impact on cloud use.

ICT isn’t getting any simpler, and businesses are being forced to move faster as their customers’ requirements become more demanding. This is driving innovation in areas like AI, but automation of past processes won’t be enough to keep up with the “need for speed” in business agility.

We will see lots more AI projects and initiatives in 2018; it will be the cornerstone of change in automation of ICT. Proactive, automated, non-human decisions are now a necessity. Are the robots coming? Yes, they are – but we still need to develop the Intellectual Property (IP) to drive them.

IP Will Be Key

With emerging technologies like AI becoming more prominent in 2018, organisations are demanding bespoke software and solutions that solve their specific business problems.

As a result, companies are increasingly working with cloud service providers to gain a competitive advantage – this includes using public cloud providers to power their IP-centric solutions. Investment in infrastructure development is diminishing, replaced by a need for specific business-driven solutions that require unique software to bring these solutions to life.

From Partnering to Strategic Alliances

IP is the key, but many end users don’t have the time, resources or in-house skills to create their own unique solution that gives them the business advantage they require.

As such, they are forging long term business relationships with technology service providers who understand their need for change, and develop specific IP or software which utilises public cloud services, embraces AI, and most importantly which solves a business or specific customer problem.

Public cloud providers also need these strategic partner alliances to ensure there is a shorter time to value in moving workloads to the cloud, and providing solutions that move beyond IaaS (Infrastructure-as-a-Service) to fully utilising PaaS (Platform- as-a-Service).

PaaS as the Basis for Digital Transformation 

We are starting to see the SaaS (Software- as-a-Service) players now extending into PaaS in response to customer demand.

Customers that are using a SaaS kingpin like CRM want to extend that platform into other use cases and requirements. It’s been a long time coming but as the world moves to a cloud-first strategy, the complexity in integrated public clouds is driving companies to explore PaaS.

Secure Cloud Services & Cyber Security get Board Visibility

Cloud services have been a safe bet in the Boardroom in recent years, but now the question is, are they truly secure? Decisions to utilise cloud services have been a relatively easy Boardroom decision, due to their known cost and agility. But with more and more high-profile data breaches, questions are now being asked around cloud security at a Board level within businesses.

The damaging nature of cyber-attacks is now clearly in the line of sight of Board members. GDPR will also raise more questions at this level, making cyber security in the cloud a Board level priority.

The maxim that ‘failing to prepare is preparing to fail’ is particularly true when it comes to time-critical communication. Companies that take the time to formulate an effective rapid response framework can save both thousands of pounds and potential reputational risk.
Nino Sheikh-Thompkins, from Paragon Customer Communications, outlines how expert guidance can turn a potentially damaging situation into an opportunity to forge a better relationship with customers.

Be prepared to expect the unexpected

The advent of new legislation has generated an increased focus on how companies communicate with their customers. An integral part of this is rapid response communication – when a security breach, for instance, occurs or when there is a sizeable change in interest rates could have a far-reaching effect on a business.

Legislation focused on regulatory reform, such as the MIFID II – due to come into force in January – and the General Data Protection Regulation, which becomes law in May 2018, require businesses to have a clear strategy in place to ensure customers can be reached swiftly and effectively.

Regardless of statutory changes, there are a variety reasons why a business may need to communicate swiftly with customers. These include communicating unforeseen events such as price increases or sudden interest rate rises, to help clients better understand how they will be affected.

This is particularly pertinent in the financial sector, where engaged and informed customers are an important part of a well-functioning market; and to achieve this, people need access to appropriate information so they can make empowered decisions.

While some organisations may already have a rapid response plan in place which can be invoked as necessary, many others may have little or no experience of writing and distributing time-critical alerts.

Formulating a suitable, effective and detailed rapid response strategy may seem like a gargantuan task; however, extensive pressure will be put on resources to meet required deadlines if acting reactively. Without forward planning, the costs of delivery are likely to be increased by thousands of pounds – and up to around £120,000 in some cases.

The risk of using an ineffective or inappropriate method of communication is high, leading to further delays as a second wave of messages is sent and resulting in annoyance and confusion for the customer.

When time is of the essence

There are many options currently available, and new technology that can be employed to provide a rapid response alert in response to unforeseen circumstances is constantly being developed.

Choosing the most appropriate channel is a key factor in ensuring that seamless communication is achieved. Some organisations will have clients who have already expressed a preference on what form of message they prefer to receive, and this needs to be taken into account.

These include:
• SMS messages;
• Email communication;
• Printed letters distributed in the mail;
• A combination of all of the above.

Needless to say, in the event of a security breach, time is of the essence. The creation of pre-prepared, multi-channel templates, ready to be issued to customers with a tailored message, will save valuable time to comply with the 72-hour response deadline.

Is it achievable?

Many businesses may find their existing channels will not be adequate to deliver all aspects of an effective rapid response communication. A robust system will not only dispatch messages, but accurately trace their progress to ensure all customers have been reached within the right timeframe.

Working with a communications specialist will ensure both legal requirements and customer expectations are met. Leading experts will be able to manage any concerns surrounding accuracy, traceability and time frames. In fact, options exist for messages to be automatically deployed to a certain audience in the event that specific conditions are met – particularly pertinent in relation to the MIFID II 10% threshold rule.

An experienced rapid response provider will help organisations plan what action is required, create a choice of templates which can be swiftly edited as required, then trigger the delivery of the message, tracking, reporting and archiving as necessary. This will reduce the impact on the customer and preserve the integrity of the organisation, regardless of the scenario.

In summary, businesses assessing their existing provision should ask themselves:

• Can my current communication provider handle the multi-channel scale of my entire customer base?
• Do I know how best to communicate to each of my clients, balancing their preferences with regulatory requirements?
• Can the progress of each communication be traced, to ensure it is delivered within the necessary timeframe?

If the answer to any or all of these is ‘no’, it’s time to consult a communications expert to help plan, create and deliver an effective rapid response communications framework.

Website: http://www.paragon-europe.com/en-gb/content/paragon-customer-communications

Millennial leaders are set to shake up traditional company management as they focus on building businesses based on both profit and purpose, new research from American Express has revealed.

Redefining the C-Suite: Business the Millennial Way, surveyed over 2,300 global leaders and Millennial managers - the future leaders of business - to better understand how businesses will change as Millennials rise to senior management roles. The findings also provide an insight into how business leaders today can set their companies up for success in the future.

The research found that while over half (56%) of Millennials surveyed in the UK said that a C-Suite role is attractive to them, and that they are more likely than their Gen X counterparts to want a job that gives them status, Millennials also indicated that they want to shake up traditional business leadership.

75% of Millennials think that successful businesses of the future will see management look beyond the usual models of doing business and be more open to collaborating with new partners. Millennial professionals also think that teamwork is a more important quality in leaders than Gen X-ers, suggesting that the C-Suite of the future will promote a much flatter structure in the organisations they lead. Millennials also ranked passion as an important quality in leaders (30%) much more highly than their Gen X counterparts (19%).

As part of their C-Suite shake up, Millennial leaders will put employee wellbeing at the top of their agenda. When asked what the biggest challenges are to businesses of the future, Millennials’ top answer was paying employees fairly (49%), followed by retention of talent (40%). 74% of Millennials also say that successful businesses of the future will need to support employees outside of work, compared to just 67% of Gen X-ers.

The research also found that while the majority (76%) of future Millennial leaders think that businesses of the future will need to have a genuine purpose that resonates with people, they also recognise the importance of driving a profit – something often perceived as being at odds with doing purposeful business.

According to the research, 63% of Millennials say that it is important for them to be known for making a valuable difference in the world, and Millennials are more likely to invest in CSR when running their own businesses (58%) compared to their Gen X counterparts (50%).

At the same time, UK Millennials were found to have a keen eye on maximising shareholder profit, with 53% of Millennials saying that shareholder profit will be important for the success of businesses in the future compared to 46% of Gen X-ers. To achieve success in the future, 71% of Millennials also think that businesses will need to manage costs tightly, and 77% say that financial transparency will be important.

Commenting on the findings, Jose Carvalho, Senior VP and General Manager at American Express Global Commercial Payments Europe said, ‘Millennials are demanding more from the businesses they work for – and will come to lead. This is setting the stage for an evolution of the C-Suite, where they will seek to put both profit and purpose at the heart of their businesses whilst also structuring them in a way to ensure tight cost management and efficient processes.

Jose continued, ‘This offers valuable insight for today’s business leaders as they seek to future proof their organisations and prepare for Millennial leadership. At American Express, we are dedicated to providing payment products and services that are designed to help companies effectively evolve and navigate change to ensure they continue to get business done now and in the future.’

(Source: American Express)

For our October front cover story, Finance Monthly reached out to Joseph Pacini - the CEO and Co-Founder of XIO Group. He is responsible for the strategy and management of the global multibillion alternative investments and research. Headquartered in London, XIO Group also has operations in China, Hong Kong, Germany, Switzerland, United Kingdom and the United States.

XIO Group’s strategy is to identify and invest in market-leading and high-preforming businesses located across Europe and North America, and to help these companies in capitalizing on untapped opportunities in fast-growing markets, especially those in Asia. Here Joseph tells us more about it.

What have been the alternative investment trends in Hong Kong and globally in the past twelve months.

What we have seen is that there has been a tremendous amount of competition in the market for high-quality assets. To differentiate ourselves from our competitors, we have sought to uncover untapped opportunities and proprietary deals, in order to generate substantial returns for our investors.

What were XIO Group’s beginnings?

I had known Athene Li for many years from Asia and from when I was Head of Alternative Investments at BlackRock. Initially, we were planning to work together under the BlackRock Alternatives team, but after a variety of personal/firm decisions, we decided that it would be a great opportunity to set up our own firm with a specific strategy to invest in market-leading businesses and take them to Asia.

What considerations do you look at when identifying a business to invest in?

When we look at businesses, we want to have a market leader that is already dominant in their home market, but may not have achieved that globalization to the degree that they want. We then assist the company and help them grow. We can help them grow in many regions, whether that’s in North America, Europe or Asia. However, our particular expertise is in growth into China.

What challenges would you say you and XIO encounter on a regular basis? How are these resolved?

The challenges that we and XIO face on a regular basis are connected to the intense competition on the market. There’s also a misconception that we focus solely on Chinese companies, which couldn’t be farther from the truth. In fact, we do not invest in China at all; our growth opportunities are bringing companies from the West into global high-growth markets – and specifically China.

How does your experience in alternative investments inform your decision-making strategy at XIO Group?

Having worked at large firms previously, such as Bain Capital, JP Morgan and Blackrock, I understood how large institutional players assess and go after certain markets for alternative investments, so this has given me a great foundation. However, I think running your own firm is very different, as you are an entrepreneur as well and it forces you to be “scrappy”. Effectively, you fight harder when it is your own firm because you own your destiny – whether it be success or failure.

As CEO, how do you ensure you are directing the company in the correct direction? How do you advise your team to make the correct decisions for the company?

I would simply state that as CEO, my job is to set broad goals and principals, and then allow my team to work within our framework to achieve those objectives. For example, looking at where we want to diversify our business, how we want to grow our platform, the types of businesses we look for and how we build out our portfolio – these are the strategic areas I focus on. For other decisions, we allow that to be done more on a deal team basis. I look to give our colleagues the knowledge and responsibility, as well as opportunity to bring forward their ideas on what a good investment platform would be. With that also comes the accountability.

What does a typical day look like for you? What daily challenges do you encounter and how do you overcome them?

I tend to be travelling for 2 weeks of the month but my days are similar. I start with calls to Asia for the first few hours, then I deal with meetings in the UK and in the afternoon, and then I deal with calls back to the USA. My time is divided between approximately a third spent on client type of items, a third on existing portfolios and a third on new and potential investment opportunities.

The main challenge as a CEO is how to prioritise. You have to take in a lot of information and really prioritise what’s the most important thing that only you can deal with at that time and then delegate the remaining tasks to others.

What are your strategic goals and vision for XIO’s future?

Our goal is to continue to grow out our platform, at first in private equity. Our long-term objectives are related to eventually diversifying into other alternative assets classes, similarly to how I have done it at other firms and overtime, really build a diversified alternative investments platform.

About XIO

XIO Group is a global multi-billion dollar alternative investments firm headquartered in London, United Kingdom. XIO Group’s strategy is to identify and invest in market-leading and high-performing businesses located across Europe and North America and to partner with management to help these companies in capitalizing on untapped opportunities in fast growing markets, particularly those in Asia. XIO Group has operations in the United Kingdom, Germany, Switzerland, Israel, Hong Kong, Mainland China and the United States of America.

 

About Joseph Pacini

Joseph Pacini is the Chief Executive Officer and Co-Founder of XIO Group. Prior to XIO Group, Joseph was Managing Director and Head of BlackRock Alternative Investors (BAI) for Asia Pacific. Based in Hong Kong, Mr. Pacini was responsible for developing client-focused alternative investment strategies as well as the continued growth of BlackRock’s USD $24 billion alternatives platform and product offering in Asia.

Prior to joining BlackRock in 2012, Joseph was the Head of JP Morgan Alternative Investments Group in Asia. In that capacity, Mr. Pacini’s responsibilities included the business development, origination, due diligence and structuring of hedge fund, private equity, real estate and direct deal opportunities for its USD$10 billion platform.

Before moving to Asia, Mr. Pacini was a member of the JP Morgan Private Bank Alternative Investments Due Diligence Team based in New York. Prior to joining JP Morgan in 2003, Joseph was an Analyst at the private equity firm Bain Capital, LLC. in London, England.

Joseph received a Bachelor of Science in International Business from Brigham Young University where he graduated with University Honours.

Website: http://www.xiogroup.com

Mark Homer is a financially-free multi-millionaire property investor and entrepreneur, and below details the kind of mind to adopt when investing, when to cut your losses and how to manage losses.

Some people delude themselves that something is working to save face (or hard work), or because they don’t want to feel (especially publicly) that they made a mistake.

A mature investor will quickly accept his mistake(s), & often see it as a relevant lesson in the pursuit of success.

This process of honesty (to yourself and others around you) is an essential trait of a wise, profitable investor.

How quickly you recover from your mistakes & stop the losses measures your success and bank balance as much as your victories.

If you kid yourself, it will cost you in the long run, people will trust you less and you'll have no ‘room,’ for investments that really work.

Once you’re sure an investment is a lemon, cut your losses quickly & move on, taking the important lessons and the opportunity to make a sound investment replacement.

Although at the time painful, people will respect you for this honesty and are more likely to warm to or partner with you.

These investors/partners on the side-lines will be watching you on your investment journey, silently judging your actions remotely and seeing how you react to them.

You’ll be surprised how your mistakes (and how you deal with them) attract partners as much as your victories.

Many investors are afraid or closed with their knowledge, but as long as an investor isn’t local to you and buying exactly the same property/investment types, this caution is usually misplaced; very much an old school psychology of lack/not enough to go around.

People often don’t appreciate that being open with critical and valuable investment knowledge specific to your niche pays huge dividends, because people will want to reciprocate.

You’ll end up with a much larger collective knowledge base and value any information given in a very high regard.

I find it useful to watch what people do - not listen to what they say they are doing, as you get the greatest insight into the reality of what is working (and what is not).

Mark Homer is a financially-free multi-millionaire property investor and entrepreneur, whose contrarian, detailed understanding of the UK property market is unrivalled. Mark co-founded the UK’s largest property education company, Progressive Property, has bought and sold over 550 properties since the business began in 2006, and has co-authored four bestselling books during that time. Mark loves to uncover the investing strategies that 95% of the others fail to find, and takes pride in having thrived during some of the toughest economic years Britain has faced in the last century. 

Customer satisfaction isn’t something that resonates when we think about insurance companies, so what are they getting wrong? Karen Wheeler, Country Manager and Vice-President of Affinion UK, here presents for Finance Monthly 4 ways insurers can improve customer fulfilment.

The insurance industry didn’t have much cause for celebration when the Institute of Customer Satisfaction released its latest Customer Satisfaction Index. In a survey of over 10,000 UK customers, the sector faced the unenviable accolade of being the only sector not to improve its satisfaction index score compared to the previous six months. In contrast, banks, leisure and telcos were some of the sectors to show improved levels of customer satisfaction. This bad news was echoed by research by The Actuary, which revealed 27.9% find the insurance sector the worst when it comes to customer service.

So, for an industry which is notorious for low customer loyalty and bad service, what can providers do to build better relationships with their customers?

1. Stand out in a crowded market

The challenge insurers’ face is that they operate in a highly commoditised environment, with customers faced with a sea of overwhelming choice. And the truth is that customers are often only basing their choice on price. According to research by Marks & Spencer, 95% of respondents stated that price was one of the most important factors to them when deciding which insurance provider to choose.

Insurers also know their customers will typically only make contact when they either need to make a claim, or renew a policy. And making a claim usually happens at a point of crisis, for example theft, damage or loss – when people are, understandably, feeling worried about their possessions, health or family.

These factors combined means insurers need to work hard to differentiate themselves from competitors by engaging with customers in a positive way, and finding new reasons to be a part of their lives. For example, thinking beyond the traditional, physical products insurance policies cover – homes, cars, phones – to solutions that can help customers keep their personal data safe online.

2. Deliver the right digital service

In a world where we live our lives through our devices – using apps to transfer money, ordering shopping to be delivered on the same day – it’s clear that insurers need to keep pace with the digital age. However, there are still improvements to be made, a recent survey by Eptica found the UK’s leading insurance companies fail to accurately answer more than two thirds (68%) of routine questions asked through the web, email, Twitter and Facebook.

Looking to the US for inspiration, digital insurer Lemonade is making waves for its digital-first, fuss-free approach to claims. At the start of 2017, its virtual assistant Jim set a world record as it reviewed, processed and paid a claim in 3 seconds – with no paperwork. If all insurers can aim to deliver this level of service, which brings cost and time-saving benefits to consumers, this could lead to increased engagement, loyalty and advocacy.

3. Think outside the box

Many people take out insurance policies and never have to make a claim. The appeal of a policy is the peace of mind it offers; consumers feel better knowing that if the worst happens, they have the support in place to help them. Of course, it isn’t just physical possessions – houses, cars, phones – that people want to protect.

With cyber hacking scandals hitting the headlines every week, consumers are increasingly aware, and worried about, the threat of online fraud. According to research by Callcredit Information Group, 66% of consumers perceive the risk of identity theft and online fraud as one of their biggest concerns around sharing personal information online.

As the old saying goes, prevention is better than cure – and this is certainly the case when it comes to online fraud. If a hacker finds out the password a person uses across several sites, it can quickly snowball out of control. This is clearly a risk many take, with Callcredit also revealing less than half (49%) of consumers regularly change their passwords as a way to prevent fraud.

4. Become their digital guardian angel

So what can insurers do to help their customers? When you consider the perception consumers’ have of their insurers as guardians of their belongings, there is a natural role they can play in helping customers to prevent and detect fraud incidents before they have even occurred – and help assist and resolve issues if they do arise. For example, providing cyber prevention and detection services that continually monitor their customers’ activity online and flags incidents when they’re at risk.

With insurance often seen as a necessary, but not particularly enjoyable part, of life, insurers need to think beyond their remit and consider how else they can add value and benefits to consumers’ lives. That way, they may well move up the table in the next Customer Satisfaction Index.

According to new research released this week by Dreyfus, a pioneer in US investing, half of individual investors (49%) have indicated they have yet to take any action to reevaluate their investment approach in light of the possibility of a shifting investment landscape, as we head into the eighth year of the economic recovery.

"As long-term risk/return expectations have shifted with an increase in inflation, the rise of US nationalism and record-low volatility, investors would be well-served to reevaluate their portfolios in light of changed circumstances to determine if they will continue to meet their investment objectives," said Mark Santero, Chief Executive Officer, The Dreyfus Corporation, a BNY Mellon company.

The "Helping Meet Investor Challenges Study" surveyed 1,250 investors with $50,000 or more in investable assets on their approach to investing. This is the first release of survey data that explores all elements of the group's investing lives, including engagement with investment professionals, portfolio allocations and appetite for risk. The study also surveyed 200 independent and institutionally-based advisors regarding the investing relationship between advisors and clients.

Older Investors Ignoring Past Market Precedents in Adjusting Portfolios

Older investors have had an opportunity to weather a variety of stock market highs, such as the bull markets from 1987-2000 and 2009 to the present, and lows, such as the savings and loan crisis in the 1980s, the stock market crash in 1987 and most recently the financial crisis of 2008. Yet, even with this past knowledge in the rearview mirror, the survey reveals:

• Sixty-one percent of investors aged 55+ indicated they have not or will not reevaluate their investment approach in today's existing investing environment.

In comparison, younger investors who experienced the 2008 market meltdown and who began their savings efforts in the earlier part of their careers demonstrated a forward-thinking approach to reevaluating their portfolios. This generation of investors between the ages of 21 and 34 indicated the following:

• Sixty-five percent had already evaluated their investment approach, compared to just 51% of those aged 35-54 and 39% of those aged 55+.
• A greater percentage of younger investors between 21-34 (63%) also indicated they had worked with an advisor in reevaluating their investments, while only a third (38%) of those 55+ had evaluated their investments with an advisor.

"Our survey revealed that younger investors have demonstrated in greater numbers a more proactive approach to reassessing their portfolios and seeking out their advisors for counsel, some of whom might lack the historical market experience and accumulated wealth of older investors," said Mark Santero.

Mass Affluent Investors Slow to Take Action on Their Portfolios

The survey also looked at the investment actions taken by mass affluent investors, those who had investable income between $250k and $2.5 million. The survey found nearly half of this audience had work to do in reviewing their portfolios and how more than a third had decided to do nothing with their portfolios:

• Forty-three percent of the total mass affluent investor audience had not reevaluated their investment approach in this new investment environment.
• Thirty-nine percent of mass affluent investors working with an advisor had not reevaluated their investment approach.

Investors Look to Advisors in Navigating the Way

Despite the last eight years of a US bull market, uncertainty is very much a reality in U.S. and global markets.

Yet a majority of investors remained on the sidelines, the survey found:

• Six in ten investors (60%) without a financial advisor are most likely to put off their plans to address today's market challenges, with only one-quarter (24%) saying that they plan to address challenges they face at some point in 2017.
• Seventeen percent said they don't have any plans to reevaluate their investment approach.

Santero added, "We believe investors who don't work with a professional advisor could greatly benefit from the insights an advisor can provide in tailoring a goals-based approach for their individual circumstances against today's investing environment of uneven economic growth. Options might include diversifying their US exposure with global fixed income and equities or considering dividend or alternative investing strategies."

Those individual investors who worked with an advisor had a greater likelihood of adjusting their portfolios. The findings revealed that:

• Almost three-quarters (65%) indicated they had reevaluated their investment approach, compared to two in five (40%) who had not worked with an advisor.
• Nearly three-quarters (73%) of advisors' clients changed their approach as a result of advice.

(Source: Dreyfus)