It was a little more than 500 years ago that Copernicus began to describe the mechanisms supporting his theory that the Sun, rather than the Earth, was at the center of the solar system. I see the change in banking – from a product channel to offering packaged advice – as a Copernican-level transformation in the financial services industry.
Of course it’s not that asset managers and wealth managers necessarily wanted to change their business model based on advantageous asymmetries of information. But the confluence of the high cost of capital or banks, interest rates approaching zero, cost transparency rules (eg. MiFID2, PRIIPS, DOL Fiduciary Standards, RDR) and the rapid growth and high cost of compliance are making it a matter of survival.
With their products commoditizing and losing their revenue sharing features, financial institutions are looking to compete and differentiate based on their ability to provide powerfully personalized customer experiences. In fact, the very notion of measuring payments, savings and investments, which long were mapped to benchmarks, increasingly are mapped to personal goals. At the core of building personalized experiences is data. Not just raw data, but carefully curated, highly analyzed data, including: real-time dialogues focused on an individual investor preferences and priorities rather than standard questionnaires, a social media and sentiment blueprint of each investors, patterns of correlations among pieces of information from large public datasets.
In a mobile and digital world, where life-changing information and decisions are only a fingertip away, it seems only natural that the advent of digital investment advice would emerge as a game changer, disrupting the way manufacturers and distribution networks operate and transparently share their revenues.
Here are three recommendations that can help you get started on the path to providing customers with meaningful personalized experiences:
- Take a company-wide view of digital tools and goal-based investing (GBI) as cornerstones of the overall distribution strategy
- Use a behavioral approach, using cognitive insights and social media analytics to fully understand individual investor goals, motivations and financial priorities
- Construct a single diagnostic view of each investor: from initial onboarding to seasoned and loyal clients.
I think Copernicus would have liked this era. Just as he placed the Sun in the center of the solar system, GBI and Gamification correctly place individual investors (irrespective of their net worth or portfolio size) at the center of the investment relationship.
Paolo Sironi is recognised author of portfolio management and financial innovation. He links strategic innovation in Finance and Technology in his current role as FinTech Thought Leader for IBM Watson Financial Services, pioneering in understanding the practical implications of AI and FinTech digitalisation to manage institutional risks and personal wealth. www.thepsironi.com. This article is an edited experpt from Paolo Sironi's novel, "FinTech Innovation: from Robo-Advisors to Goal based Investing and Gamification" (Wiley, 2016).
Paolo Sironi will be discussing the future of product fees at the upcoming FundForum International in Berlin, 12-14 June. Find out more about the world's leading asset management conference.