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Investment Week: How AI is shaping the wealth management industry
Jaco Cebula, Chief Technology Officer of Multrees Investor Services, explains how artificial intelligence (AI) is shaping wealth firms’ internal processes and client experiences.
With potential for increased efficiency and reduced costs, the application of AI in the wealth management industry is set to escalate rapidly.
AI can assist wealth management firms in two broad areas: ‘first line’ client facing interaction, and in the automation of internally facing processes and capture of knowledge.
The aim is for AI to improve the experience for clients, whilst also enhancing a firm’s internal processes and efficiencies.
In a client facing capacity, AI can provide an option for the first point of digital contact, with the ultimate intention of saving both the firm and the client time for routine tasks.
It can also prompt strategic interaction based on critical ‘events’ that are derived from the full extent of personal and financial data available.
However, a key consideration is ensuring that any AI solution, such as an adviser chat bot, can recognise when it is on the verge of exceeding its capabilities and should pass the client to a ‘real’ adviser – getting this hybrid model correct is a key challenge in this market segment.
An alternative, and possibly more innovative approach, is to integrate facial and voice emotion processing APIs into your apps that can be used to identify when the client experience is becoming strained and automatically transfer the client to a ‘real’ adviser.
At a time when client costs and charges are already under close scrutiny, the danger is that high-net-worth individuals and ultra-high-net-worth (HNW/UHNW) individuals may not appreciate the lack of personal touch provided by AI.
Therefore, the general sentiment among wealth management experts is that client-facing AI is not yet advanced enough, nor is it currently appropriate for firms that specialise in wealth management for HNW/UHNW individuals.
This provides a degree of respite for the wealth management firms. The key aspects of the bespoke, personal relationships these firms offer is something that AI currently struggles with, e.g. empathy, responsiveness, the ‘personal touch’ and human intuition.
While such qualities are outside the realm of existing AI technology, the clock is ticking as technology improves.
Nevertheless, what is required clearly goes way beyond the simple Turing test approach to AI, whereby a human would be unable to distinguish between another human and a machine. This, therefore, buys some time for firms in this segment.
As long as HNW/UHNW clients continue to invest enormous sums of money and pay premium fees, it is hard to imagine a time when they would prefer a robot (beyond initial novelty value), rather than an experienced and fully trained individual, looking after their account in a more holistic fashion.
In some ways, the more interesting application of AI is internally within firms looking to improve productivity.
Robotic process automation holds huge opportunities for improving processes and streamlining the middle and back office, particularly when there is long term investment in legacy technologies that do not have the benefit of modern Web APIs for integration.
It is perhaps helpful to think of these types of automation as ‘macros on steroids’, but with the key differentiators of requiring little by way of actual coding, and far greater reliance on machine learning to capture highly complex, yet predictable tasks.
However, it is important to avoid a key pitfall with this technology, i.e. using automation as a ‘sticking plaster’ to compensate for fundamentally broken processes, or poor interfacing and data quality.
‘Chatbot’ technology is another form of AI which is becoming increasing accessible. There are some great Cognitive Services and Data Analytics APIs that can be used in conjunction with existing cloud ‘chatbot’ frameworks to build out proof-of-concept AI solutions.
The key first step is for firms to spend time with their IT department or external IT provider, evaluating the available technologies.
A good starting point is to build out ‘proof of concept’ chat bots that can draw on existing customer data, business processes and wider corporate knowledge, with internal staff providing the initial user base.
The educational and discovery aspect of this initial work can be considered more important than the outcome, and it should be used to provide the inspiration and foundation for any subsequent, more strategic, developments.
Additionally, operational support AI bots can provide ‘expert advice’ to less experienced staff when programmed with a consistent training strategy.
The technology can serve as a mechanism to formalise the capture, harvesting and retention of organisational knowledge, which greatly helps with any succession planning.
Finally, the RegTech space is a large area of AI development, contributing to easing the ever-growing burden of compliance.
The automation of KYC/AML is an example which has seen a good deal of growth.
Firms that are early adopters in the existing technology advances in this area can radically streamline their entire on-boarding process.
Where this is combined with advances in banking Web APIs, new client on-boarding could theoretically become instantaneous.
The robots are coming, and the opportunities for wealth managers are plentiful.
Framework development and initial release of new Web Application Programming Interface (Multrees Web API)
Multrees to provide Web Application Programming Interface (Web API) service solutions
- Simple, automated and real-time integration with other B2B and B2C applications
- Straight-through processing via native REST (Representational State Transfer) architecture
- Industry standard security and common integration code samples
Multrees Investor Services (Multrees), an independent specialist provider of global custody, consolidated reporting and investment administration solutions to wealth managers and private investment offices, announces the successful completion of the framework development and initial release of its new Web Application Programming Interface (Multrees Web API).
Multrees is using this platform to build functionality that enhances its existing interfacing capability, both with other organisations and partner software applications, to significantly reinforce its existing systems and data integration capabilities.
By creating a single and comprehensive interface covering its core services, the Multrees Web API will provide the following benefits:
- Secure and segregated integration to client-retained applications. For example, integrating a client’s CRM application into the platform means that creating a new client record becomes a straight-through, automated process.
- Consistent mechanism for accessing reporting data across multiple platforms.
- Improved white-labelling and customisation of functionality, enabling transformed digital integration.
The investment in a highly extensible development and deployment framework, using the latest Microsoft technologies, allows Multrees to quickly add new functionality in an extremely agile fashion. Primary roll out will cover core business entities and provide reporting and lookup data to enhance the functionality in the Multrees Compass web portal. Subsequent phases will aim to add further data capture functionality and make the client on-boarding journey a seamless process, such as integration into CRM tools.
Jaco Cebula, Chief Technology Officer at Multrees said: “As a specialist wealth management solutions provider, particularly from a technology point of view, we strive to stay ahead of the curve by continuously innovating and further enhancing our products and services. This enables our clients to remain competitive and take full advantage of new and emerging technologies.”
Web APIs have created an ecosystem for companies, ranging from the tech giants to smaller niche players, looking for a seamless customer experience. Multrees’ new Web API initiative is an exemplary model of delivering a frictionless customer experience.
Initial Technical API Documentation is available here
The Cyber Menace And How Wealth Managers Should Face It
In the UK alone, businesses were hit 230,000 times each by cyber-attacks in 2016. Jaco Cebula, Chief Technology Officer, Multrees Investor Services, gives his insight into how firms must organise themselves to ensure they minimise this risk:
“Cybersecurity threats have undoubtedly become more intense over the years and will naturally drive more and more of the attention and the budgets of businesses globally to focus on mitigating the issue. The most recent case of the WannaCrypt cyber-attack which affected over 150 countries is the best real-time example of the rapidity and the scale of the impact this can have.
“The cyber challenge will remain complex and evolve rapidly, placing companies, particularly those dealing with vast volumes of financial data, under immense pressure. They must keep customer data safe and drive the need for constant innovation to maintain robust security frameworks and help minimise the risk of security breaches.
“Worldwide annual expenditure on cybersecurity software, hardware and services is expected to reach $101.6 billion by 2020 compared with spending of $73.7 billion in 2016, according to research from the International Data Corporation (IDC).
“While constant innovation is crucial in tackling the issue, the approach should also be a holistic one, involving people and an improved process of intelligence gathering, and sharing of that intelligence via more effective communication channels.
“The need to rapidly generate new products to survive in a highly competitive market makes delivering robust security controls extremely challenging. However, as the level of threats grow, it is crucial that banks become more open when it comes to their cyber strategy and work together as an ecosystem to combat the issue.”
“The more traditional ‘technical’ approach to cyber security, while necessary, is not sufficient in itself to ensure that firms can minimise the impact of any attack. The majority of regulated firms will have controls in place to ensure that their IT security team is taking the necessary measures, such as keeping virus definitions up to date, patching servers, locking down firewalls, setting minimum required permissions, providing intrusion detection systems, and testing perimeter defences etc.”
“However, while the WannaCrypt ransomware attack has shown spectacularly that there are no grounds for complacency in these areas, it important to realise that many of the most effective measures lie beyond the realm of IT Security, and relate more to a less predictable area of vulnerability – an organisation’s people.”
“As a result, it seems pertinent to examine a number of key non-technical measures that demonstrate a number of ways that Multrees has tried to take cyber-security ‘out of the IT Security department’:
- Online training – this should be a mandatory part of the staff induction, and the CISI online training catalogue which includes an introduction to Cyber Security, is a good example.
- ‘Lunch and Learn’ approach – this covered the main ‘social engineering’ categories of Cyber Threats, and included real life examples, as well as reviews of actual attacks on Multrees and lessons learned.
- Understanding of different data domains – it is vital that individuals understand where and how corporate data is stored e.g. local devices, corporate network, cloud etc., as well as the risks inherent in each.
- Downstream supplier impacts – it is no longer sufficient to understand the impact of direct threats to your own organisation. Effective supplier management of application providers (both on-premise and cloud based), infrastructure/network partners and B2B counterparties should include due diligence on security measures, as well as reporting and transparency around any attacks via service reviews.
- IT ‘coding for security’ – a myriad of online courses and certifications are available to ensure that all software developers have an awareness of how to build security into their software ‘from the ground up’.
- Simulations – this does not have to be time consuming or costly, but it is vital that staff are aware of the procedures in the event of a ‘real world’ attack. A simple spear phishing simulation which requires a little creativity and the creation of a dummy website, could provide an opportunity to analyse the responses, to target training and resources more effectively. Ransomware is also very easy to simulate and track with only a small amount of scripting.
- Be aware of ‘patterns’ in attacks e.g. DDoS is often a cover for a more forensic data theft. It is important not to lose sight of the perimeter while dealing with the initial incident.
A key to getting buy-in to this activity is to understand that one will, inevitably, be the victim of some form of cyber-attack.
In 2016, Multrees itself was hit by a Ransomware attack that was not identified by the mail scanner. The effect of this breach, however, was minimised swiftly via appropriate user permissions, allied to effective segregation of the network, meaning that core databases and application files were simply not accessible. However, it is important to note that these technical protections would not have been necessary, had the offending email been treated with appropriate levels of suspicion and tighter scrutiny at the point of entry by the recipient.
Being hit by a real-life attack, even one with minimal impact, can provide a timely wake-up call to ensure that cyber awareness is embedded in the organisation’s culture.
WealthBriefing.com: UK wealth sector has no need to get into a Brexit panic; uncertainties show value of advice
The wealth management industry in the UK hasn’t reason to be scared about Brexit although some firms may struggle to get the talented staff they need to sustain growth, a roundtable discussion in London heard recently.
The industry should be able to adapt to the changed landscape caused by the UK’s departure from the European Union, although the sector will need to start making decisions relatively quickly, as the two-year period between the triggering of Article 50 and the actual departure deadline will pass rapidly, the roundtable, held by Multrees Investor Services, heard. Multrees is a specialist provider of consolidated reporting, investment administration and custody solutions.
The roundtable, at which your correspondent was present along with some other journalists, included speakers from Multrees, Lincoln Private Investment Office, Sandaire and Stonehage Fleming.
“Why would we change a lot if we don’t have to? If we maintain strong compliance and regulatory standards here, that should work. I’m not sure that the wealth management industry is going see a lot of clients withdrawing money from here and going to the EU,” Nigel Pilkington, chairman of Multrees, said.
Discussants seemed to broadly agree that the wealth management industry enjoyed a cluster of mutually-reinforcing benefits to being in London – language, law, communications proximity, timezone, culture, liquidity, relatively-light taxes and political stability. In combination, these factors gave London a formidable advantage in wealth management, even if certain regulatory and other complexities arise because of Brexit.
Ross Elder, managing partner of Lincoln, said there was a relatively tight timetable for the industry to consider; when holidays and other issues are taken into account, the UK doesn’t have two years to prepare for Brexit. “I don’t believe it is feasible for [the industry] to do it in that time,” he said. Perhaps paradoxically, the uncertainties of the present time underscore the need for high-quality advice.
There is considerable uncertainty, judging by conversations in the sector, but it is unclear that Brexit will be a negative overall for the industry, Alexandra Altinger, chief executive officer of Sandaire, told the roundtable.
Stonehage Fleming’s Matthew Fleming, a partner at that firm, said that an issue he wanted to focus on was what he called “the marginalisation of a generation” - referring to young adults feeling that they were being sidelined by developments such as around Brexit. “Some of them are feeling quite bruised by the experience and trying to understand where they fit in,” he said.
On another “international” theme, attendees at the roundtable were asked how the UK’s clampdown on non-domiciled residents, along with tax changes to foreign-owned properties and other developments, might have affected the UK’s status as a place where high net worth individuals want to live. Altinger said that she has found that there appears to be a stronger emotional connection to the UK among such international wealthy persons than had been appreciated. There hasn’t been a large exodus of people, she said. “We haven’t seen clients leave [because of changes to non-dom laws]. There are just not that many other options,” she said.
One of the ironies of Brexit, said Chris Fisher, chief executive of Multrees, is that the uncertainties and changes will give wealth management advisors a chance to prove their worth. “You have to look at this as an opportunity,” Fisher, who said he had voted for Remain in the 2016 referendum, said.
Fleming said he took a different view to some on the controversies of the moment: “We are looking after clients where they are thinking in terms of the next 50 years rather than the next three years.”
Regulation and governance
Discussion took a turn away from Brexit and tax to the current waves of regulatory activity and compliance burdens associated with it. Altinger noted that the UK in some ways is at the forefront of understanding around “conduct risk”.
It is an issue of business research and development to be able to keep pace with the flow of regulation affecting financial services, Hugh Mullan, Multrees non-executive director, said.
The regulatory trend has helped drive some wealth management firms towards companies such as Multrees, Fisher argued. “The pace of change of regulation is not going to let up any time soon,” he said, referring as an example to the upcoming updates to European data protection regulations.
Lincoln’s Elder said: “I think that's the risk on the front end side is that the regulation puts off wealth management firms from giving what is their best advice and opinions to their clients."
Turning to the age-old debate about the pros and cons of active investment manager versus the so-called passive approach, Sandaire’s Altinger said that she expected to see some return to the active approach, but not a full-scale return to traditional active management. It has now become easier than ever before to custom-build indices giving exposure to specific strategies in a relatively cost-efficient way, she said.
Finally, attendees at the roundtable discussed the current trend of interest in private capital markets, both on the equity and the credit side. An issue is that with more money entering these sectors, there is likely to be some compression on returns, as was seen over a decade ago in the hedge funds space.
thewealthnet: London remains a credible market place despite Brexit and regulation increases- Multrees roundtable
Leading wealth management experts got together for a roundtable held by Multrees Investor Services, to strongly debate changes to the industry, in relation to Brexit, technology, culture, regulation and millennial mind-set.
The wealth management industry rest on three pillars, access to talent, a credible market place and a fair tax regime according to Alexandra Altinger, chief executive of Sandaire.
For Ms Altinger, Brexit, while creating uncertainty, is unlikely to impact London's credibility as a market place. Although the tax regime will change, she said, it will still be considered to be fair and not completely out of line with other jurisdictions, notably those in the EU. The main concern, therefore, will be access to talent as there is uncertainty around financial passporting which could make the industry less mobile.
From a client point of view, Ross Elder, managing partner of Lincoln Private Office, noted that there is a strong emotional connection to the UK. He said that global clients feel comfortable in the UK and with geopolitical risk going on elsewhere; people are more attracted to London despite uncertainties.
However, Mr Elder expressed concerns with regards to the feasibility of completing the Brexit negotiations in time. With the possibility of extended negotiations or a complete rupture from the EU, Mr Elder advises wealth managers, investors and firms to make decisions quickly and "look through the noise".
He added: "People will need high quality advice and you can still find that in London".
Chief executive of Multrees, Chris Fisher, believes that Brexit could be a positive for the wealth management industry. For him, it could create opportunity and freedom as the UK will no longer be tied to EU legislation and the UK can use Brexit as an opportunity to become more attractive.
Nigel Pilkington, chairman of Multrees, does not expect Brexit to bring much change with it: "Why would we try to change if we don't need to? The only reason to change that much is if we are forced to. The best thing we can do is maintain our strong and well respected regulatory and compliance standards."
Mr Pilkington warned that if the UK changes its standards, it might result in wealth managers not accessing potential clients or in clients withdrawing their money.
Non-executive director of Multrees, Hugh Mullan, also agrees that Brexit might not bring drastic change. He pointed to the fact that most fund managers already deal with a multi-jurisdictional model so asset managers are "geared-up" for Brexit. For him, Brexit remains "business as usual". Mr Mullan also considers that UK regulation is strongly in favour of the end investor compared to other countries from the EU.
Indeed, Ms Altinger believes that the UK is at the forefront of good regulation with more transparency and accountability being introduced.
She said: “I think the UK is at the forefront of this whole conduct risk mind-set and that's really powerful. I think conduct risk is about good corporate cultures and so I think it will become ever more important. I think the conduct risk mind-set or framework is what we're evolving too, so that you can't short circuit that. I think others will end up adapting to that to some degree for sure. I think investors will ignore at their peril.”
Partner at Stonehage Fleming, Matthew Fleming stated that there is a danger that increasing regulation is forcing wealth managers to be quite "samey" and are becoming less and less diversified.
Mr Elder also pointed to the risks, particularly for the front-end. He commented that regulation could be putting off wealth management firms from giving what is best advice in their opinion: "As a firm, we must follow the letter and the spirit of the law but our ultimate goal is to provide best advice."
As well as political and regulatory changes, technology and innovation is another big theme affecting the wealth management industry.
"Robotics is coming," said Mr Elder. "There will be huge advantages but it's going to be the businesses that have the relationships and distributions that are going to have to pick up these skill sets. There are some areas where technology will allow firms to bypass inefficiencies which allows managers to free up time."
Mr Fleming considers that the relationship that you build with clients is more important than how you technologically interact with them: "It is a tool for spreading information, but technology doesn't necessarily help you communicate."
In terms of target audience, Mr Mullan stated that there is not enough money in advice for the mass affluent market as the lower fees don't justify the regulatory process to give customised advice. For him, the mass affluent market will be revolutionised with a large part of the market being automated.
Wealth managers come together to tackle the key issues affecting the industry
Multrees Investor Services is joined by Sandaire Family Investment Office, Stonehage Fleming, and Lincoln Private Investment Office at a roundtable discussion
- London to remain a competitive global wealth management hub
- UK regulation a contributing factor in London’s global appeal
- Technology will fail to replace human touch for UHNW clients
- The generational divide in investment strategy is becoming more prominent
Multrees Investor Services hosted a roundtable event on 11th April, which saw industry leaders discussing Brexit, tax, regulation, corporate governance, technology and investment strategy. Attendees included Alexandra Altinger, CEO of Sandaire, Matthew Fleming, Managing Partner at Stonehage Fleming, Ross Elder, Managing Partner at Lincoln Private Investment Office, and Chris Fisher, CEO of Multrees.
Alexandra Altinger, CEO of Sandaire, commented: “There is a stronger emotional connection to the UK than has previously been appreciated. London is global and open-minded. There is concern about what is changing in the UK due to Brexit, but the wealth has to go somewhere and there are few competitive alternatives. When looking at other options to the UK, it is a relative decision, there isn’t an ideal solution out there.”
Hugh Mullan, non-executive of Multrees and former UK CEO of Fidelity Investments, commented that: "UK regulation has tended to be strongly supportive of the rights and protection of the end client. That enhances the UK's case as an excellent domicile for client assets. Following Brexit, I do not see that priority changing and, in my opinion, we are very likely to continue to see further moves to strengthen the position of the end-investor as regulation continues to evolve”.
Ross Elder, managing partner of Lincoln, noticed similarities between the present and the 1999 dot-com bubble and urged restraint: “Undoubtedly there are huge advantages to robotics but nothing can replace the subjective, personalised part of what we do. Robo should ultimately help bypass wealth manager inefficiencies to allow advisers to spend time doing what they should be doing, which is focussing on their clients’ requirements and navigating markets.”
Time and budget savings, as a result of technological improvement and outsourcing, enable wealth managers and financial services providers to focus and invest in innovation, which is fundamental in attracting the next generation of UHNW clients.
Partner of Stonehage Fleming, Matthew Fleming, commented: “We’re seeing tension around the style of investment between the generations. The under 35s want their investment portfolio to make a positive contribution to society whilst making money. Whereas, and this is a massive generalisation, the older generation tend to want to make money and then do good with it. In some ways, this is driving the agenda for wealth managers.”
Changes to the wealth management industry will undoubtedly continue to develop as Article 50 negotiations transpire. As the financial services sector strives to satisfy its tech savvy and principled millennials, London will continue to remain a global wealth management hub.
Citywire Wealth Manager: Leveraging technology - A practical guide
Jaco Cebula, CTO at Multrees Investor Services, highlights the importance of wealth managers staying technically competitive and explains how organisations can encourage a culture of innovation.
The majority of the wealth managers we work with focus on relationship management to best cater to the needs of their high net worth clients. As a result, they often lack in-house technology experience.
By outsourcing to technologically advanced investor services specialists, wealth managers can stay technically competitive, and focused on their clients.
During an economic downturn it is even more important for finance and technology firms to continue to encourage and invest in innovation through technology. After all, innovation is driving growth across all industries and helping organisations to achieve a competitive edge.
Encouraging innovation within an organisation comes down to providing employees with the opportunity to put forward ideas. An office can have a space dedicated to discussing ideas. This ‘innovation hub’ promotes a form of ‘internal crowdsourcing’ where people will naturally gravitate towards the best ideas.
There has to be an understanding that there is quite a high attrition rate for new ideas, but businesses should not be ‘afraid to fail’, or to express ideas which may not survive. In fact, a ‘failed’ idea can be the catalyst for something even greater, helping to generate a new or improved vision for the business.
Who can select the best tech…
The best type of innovation is tailored to the industry voice and client needs. We are seeing additional demand within the development of Web APIs. Primarily used for providing a new mechanism to interact with other organisations, Web application programming interfaces (APIs) provide a business-to-business level of integration. They involve leveraging a number of cutting-edge technologies, but in doing so provide an opportunity to demonstrate technological capability.
By introducing a public interface into your services, you become placed, technically, in the shop window for other businesses to integrate their products to you.
This allows businesses to partner with other innovative software vendors and services and provide true end-to-end integration across a number of application technology stacks. Developing a Web API provides some of our more tech-savvy clients with a new way of integrating their business processes with us.
Tailored tech: a client example
Tailored tech is built to an organisation’s requirements and suited to the client-focused nature of the business. Recently, a client chose to focus their technology innovation specifically in the digital client delivery area. Rather than recruiting a large team of developers, they partnered with us to deliver their branded single sign-on, secure portal solution.
Recognising that they needed to be more sophisticated with their client information, which is held on our investment administration and custody platform, the client did not want an out-of-the-box option.
We worked with them to deliver a tailored solution geared towards their specific and immediate needs. This included the benefit of full Web API integration to the custody, reporting and related services provided from our services platform.
Financial Planning Today: Budget – reaction and key changes
Chris Fisher, CEO of Multrees Investor Services, speaks positively of Philip Hammond’s announcement, considering the needs of the UK financial services:
“The budget needed to protect the UK’s extremely strong financial services sector, and help encourage the retention of foreign talent within the industry.
With the triggering of Article 50 right around the corner, the Chancellor’s announcement goes some way to safeguard the competitiveness of the sector. The unchanged non-domicile tax regulation is positive in preventing a brain drain of talent to foreign fields. This, plus the proposed support regarding business rates, and the £270 million fund set aside for AI and robo development, will enable tech firms to innovate and stay ahead.
The government and UK companies must be bullish to ensure a thriving Britain beyond Brexit. Only this will ensure that, among the handful of prime global centres for financial services, the U.K remains at the vanguard.”