FINance & TECHnology

Transcription

1 PRMIA event in Sydney, 26th May - hosted by Macquarie Bank FINance & TECHnology Robo-technology and Goal Based Investing lead banking innovation Paolo Sironi IBM Risk Analytics Leader Wealth Management Risk Analytics and Thought Leadership

2 Agenda u Digital robo-trends v Are robots truly disruptive or not? What s in the future of advisors? x Goal Based Investing 2015 IBM Corporation

3 Winners and Laggards U/HNW MASS/ AFFLUENT 7% annual groth By The World Wealth Report from Capgemini and RBC Wealth Management strong service/brand competition, blurred line beteen on/off shore, Asia, execution quality 43% global ealth is underserved By Crédit Suisse Research Institute, Global Wealth Databook better engagement means orkflo changes, cultural/knoledge gap, digital agenda, obsolete/silos infrastructure, retirement plans RETAIL +100% AUM robo-advisors (2014) By Aite Group, size matters (tighter margins), digital agenda, automatisation, millennials, retirement plans 2015 IBM Corporation 3

4 Industry leitmotif regulation ADDED VALUE SERVICE to PERSO NALISA TION of differentiate compete comply cross the fence remunerate engage attract enforce action establish brand personalise invest. experience invest. goals invest. horizons product selection re-balancing freq. model portfolios financial nes scenario analysis financial alerts digital access digitalisation / FinTechs 2015 IBM Corporation 4

5 Robo-advisors can be a disruptive global trend The display order doesn't represent establishment date, quality nor business dimension 2040 transformed GBI robo-4-advisors robo-advisors 2014 matured +100% AUM AUM 0.01% 2013 noticed venture capital research conferences 2015 IBM Corporation 5

6 LENDING PAYMENTS ROBO-ADVISORS PRIVATE EQUITY BIG DATA FINancial TECHnology Some examples not exhaustive of industry reality FinTechs focus on the digitalisation of the financial system: S $! 4 robo-advisors MC h PROFILE ADVISE RE-BALANCE INDEXING 2015 IBM Corporation 6

7 Are robo-advisors truly disruptive? 2015 IBM Corporation 7

8 performance Disruptive and Sustaining Innovation Theory of innovation Goal Based Investing sustaining innovation higher margins and more demanding customers once products gain foothold, improvement cycle restarts u improvement rate + innovation a client can absorb and a variability around time v disruptive innovation introduces simplified and less expensive products/services, to appeal to ne or less-demanding customers 2015 IBM Corporation 8

9 Who feels threatened? Not only humans Mutual Funds Index ETF Active managers not so active Human Advisors Platforms Custodians h ( J Indexing 2.0 Indexing 3.0 Robo-advisors Robo-4-advisors algorithms zero trans. costs tax harvesting pers. smart-beta rule based algo Millennials Baby Boomers. All-In-1 vertically integrated platforms cyborgs Only true active managers ill be able to differentiate. Advisors ill focus on gamma (adding value in financial planning) rather alpha (investment management) IBM Corporation 9

10 What s in the future of advisors? 2015 IBM Corporation 1

11 Self-Directed Digital business models are blurring the verticals Omni-Channel Personalised info Peer analysis Social media Timely alerts FinTech Retail Mass / Affluent HNW / UHNW Advised robo-advisor Mild Medium Strong Guided re-balancing Retirement planning Long-term investing Added-value reporting Prob. Scenario Opt IBM Corporation 1

12 ROBO-ADVISORS ROBO-4-ADVISORS From disruption to sustained groth Goal Based Investing Digital isation J 2015 IBM Corporation 1

13 What is GBI 2015 IBM Corporation 1

14 Guiding advisors to build client centric portfolios Achieving one s goals requires a good balance beteen ambitions, risks and understanding of liquidity and investment horizon. For ho long shall I keep invested? time Ho much risk am I illing to bear? risk ambition What is my investment goal? What is the probability of achieving / missing my goal? 2015 IBM Corporation 1

15 What s ne in WM? Goal Based Investing Retirement plans by Nobel Price Robert C. Merton: The Crisis in Retirement Planning (HBR, 2014). GBI optimisation by EDHEC RiskInstitute and Merril Lynch (2015) The customer needs orry about three things only: her retirement income goals, ho much she is prepared to contribute from her current income, and ho long she plans to ork. The only feedback she needs from her plan provider is her probability of achieving her income goals. Merril Lynch goalsbased accounts to reach US$ 200 billion milestone. InvestmentNes (Nov. 2014) GBI practice by Jean Brunel (2015) GBI optimisation by Paolo Sironi (2015) Ne approach to Maximise the ealth management that probability of allos individuals to reaching investment take on a more active goals over time, hile role in the allocation of complying ith a risk their assets threshold IBM Corporation 1

16 Intuitive risk based dialogue beteen advisors and investors Expected Short Fall 151 Probability of -18% Expected Return Tracking Error achieving a goal losing money Sharpe Ratio Value at Risk % earning less than 40% 60% 32.50% Variance Volatility 20% 0% Probability 80% 100% 2015 IBM Corporation 1 6

17 Make probability of reaching goals your investment criteria Modern Portfolio Theory Goal Based Investing Cash Equity JP Equity EU Treasury US Treasury EU A Exp. Return 4.5% pa Volatility 20% pa 20% 0% 40% 60% goal 80% 100% Probability Equity US Treasury US Treasury EU Cash Equity JP B Equity EU Exp. Return 5.5% pa Volatility 30% pa 20% 0% 40% 60% goal 80% 100% Probability Equity US 2015 IBM Corporation 1 7

18 Monitoring portfolios and goals over time Graphical representation of past performance and future performance (Mark-to-Future). 1

19 Paolo Sironi Leader Wealth Management Risk Analytics and Thought Leadership Thank you 1