Crystal Ball Gazing: FinTech Predictions for 2017

Published by Craig Iskowitz, CEO and Founder of Ezra Group, LLC
January 17th, 2017

blog2In words attributed to Mark Twain and Yogi Berra, “It is dangerous to make forecasts, especially about the future.”  However, in an industry as fast-changing as asset management, accurate insights can make a difference between leading the pack and scrambling to stay afloat. 2016 brought rising operating costs, fee pressures and regulation uncertainty. Where can we find the silver lining as we ring in the new year?

Four Trends That Will Shape Asset Management In 2017

An effective blueprint for the year ahead must include your firm’s response to known variables, as well as bandwidth to respond to the unexpected. Read on for four trends that will continue to influence and impact your business.

1.      Regulatory uncertainty

The DOL Fiduciary Standard is set to take effect in April 2017, but there are some indications that a Trump administration may reduce the reach of the regulation. While outright repeal is unlikely, the rule may be delayed or tweaked. The degree to which Trump’s Department of Justice chooses to pursue lawsuits related to the DOL could also offer a lever for changing the standard without going through a formal rulemaking process.

Then there is the SEC. The Commission is currently considering new rules that would affect reporting, liquidity and stress testing. However, the SEC chair is about to step down, clearing the path for Trump to eliminate and stop pursuing tough Wall Street regulations. If Trump’s SEC takes aim at corporate disclosure, the current policy could be shaken up into an unrecognizable state.

Can you turn the current pressures and uncertainty to your advantage? Many firms choose to continue their preparations for increased transparency with the intention of positioning their client-centric approach as a key differentiator regardless of what happens with the rulings. Firms like Merrill Lynch have gone as far as to advertise their pro-fiduciary position to the public to gain a competitive edge.

There are more questions than answers as the clock strikes midnight, but be prepared for continued regulatory tension to define early 2017.

1.      Boom in mobile apps

Digital service standards will continue to rise as discerning clients demand up-to-date information and reports at their fingertips. Clients and advisors who use social media (and that includes most of them) now know what an intuitive and interactive feed looks like. They want their money management tools to work and feel the same way.

It is no wonder that alternate CRM platforms are gaining popularity. Wealthbox is billed as “the CRM you will actually enjoy” with an elegant and powerful interface that is exceptionally intuitive. In 2015, Wealthbox was the first CRM to offer a built-in internal messaging tool powered by Slack to boost team collaboration. eMoney Advisor, a heavyweight in financial planning software, also comes with a Facebook-like user display of real-time alerts, tasks and news.

Convenience and ease of use may have been the hallmark of early automated investment platforms, but traditional investment management firms are borrowing the best ideas from successful robo-advisors to boost the human business model. By building user-friendly client portals and a seamless user experience, advisor offices that leverage technology to create a stronger connection with clients will win the day.

2.      Big data and machine learning

Today’s reality is that data is cheap and plentiful. Long gone are the days when all you needed for data analysis and modeling was an Excel spreadsheet and a cup of coffee! New tools are required to parse through the ever-expanding volume of data to find the diamonds in the rough.

As data storage has expanded, computing capabilities have grown to include advanced analytics and natural language processing. If Amazon can predict your next favorite book or new electronic device, why can’t an asset manager use big data to get insights into market fluctuations and client needs?

While we aren’t going to be asking Siri for investment advice, artificial intelligence programs that are industry specific are already guiding many companies’ decisions. According to the IBM Institute for Business Management, more than 25% of financial firms have already implemented Big Data projects – a trend that is likely to increase going forward.

Speaking of IBM, a new robo-advisor platform, called Marstone, has embedded IBM’s Watson AI engine into their technology solution for advisors. The goal of the collaboration is to produce a tool that will support advisors through considerable computing power enhanced with machine learning. Watson AI made the news in 2013 after beating a panel of Jeopardy champions. Time will tell how well it plays in the wealth advisor space.

Raw data is unstructured and incoherent. Those who can turn the tsunami wave of bits and bytes into actionable insights will be in a position to create better outcomes for themselves and their clients. In 2017, the tasks of capturing, organizing and making sense of data will remain high on the priority list for both asset manager and advisors.

3.      Process automation to streamline back-office functions

Fee compression has been the industry buzzword for a few years now, pushing firms to streamline offerings and operations. Banks and their asset management departments may be in the worst shape. According to research published by CapGemini Consulting, top 10 global investment banks have as many as two back office support staff persons for every client-facing employee. That creates room for operational inefficiencies and lapses. In fact, legacy system inefficiencies have been found to cause as many as 60% of client satisfaction issues. Between excessive reliance on paper and high potential for human error, operational processes are clunky and frustrating for both managers and clients.

2017 is likely to see a continued move towards automating back-office functions and repetitive tasks in an effort to create more efficiency. Client onboarding and compliance are two areas where automation can make processes smoother, less expensive and easier to manage. Use of eSignatures is just one example of technology that makes life better for advisors and clients alike. Dealing with paper documents that must be printed, signed, and scanned is so 2016.

Advances in automated portfolio management tools that streamline rebalancing and cash management can contribute to the bottom line. According to research from Envestnet | Tamarac, the average firm that is still rebalancing client portfolios manually is leaving thousands of dollars on the table.

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Forecast: Sun and Storms Ahead?

No matter what happens with the DOL Fiduciary Standard, 2017 will be a year of fast-paced change. Successful firms will take the long-term strategic view and turn constraints and challenges into business opportunities. The best advice is to embrace technology as a tool that can improve your efficiency, give you better information for making decisions and create a stronger service model for your clients.

About the Author: Craig Iskowitz is CEO and founder of Ezra Group, LLC, located in East Brunswick, NJ. Ezra Group is a management consulting firm providing advice to the financial services industry on business and technology strategy, software development, and marketing. Craig has over 20 years of experience in wealth management, retail and institutional brokerage, market data and front and middle office operations. He previously worked for ADP Brokerage Services (now Broadridge Financial) for almost 10 years before becoming a consultant. His clients include many Fortune 500 firms such as The Bank of New York, Fiserv, Standard & Poor’s, and J.P. Morgan Chase. Craig is also the editor and publisher of the Wealth Management Today blog (www.wmtoday.com), which focuses on news and information for the wealth management industry with focus on fee-based advisory platforms. Craig is also available to speak on wealth management trends, participate in industry panels, or present one of his industry classes such as, Managed Accounts 101. Craig can be reached at craig@ezragroupllc.com

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