There is no lack of differing opinions on the future of wealth management as everyone wants to be heard. We know for sure that the future of wealth management industry is most definitely shaped by the influx of new technologies, significant global regulatory turbulence, and various changes in the customer behavior. So what else is new? We have recently witnessed how new players have entered – with great success – to areas of the financial services industry that were considered off-bounds for innovative new entrants, and even the mainstream C-suite is constantly talking about going all digital. 1)Financial Times (2016). Barclays UK sees digital technology as crucial to its future. [Accessed 3 Aug 2017]
It’s no wonder that the wealth management industry is very keen to understand how the complex equation of growth versus profitability is supposed to work in the era of growing revenue and expense pressures combined with the fast-changing client expectation and behaviors. It’s not clear that pure business model innovation is enough as most incumbents are not operating with the similar mindset as the newcomers, and as we have already seen, it’s not business as usual. Something much more profound is underway, and traditional money managers, financial advisors and private bankers are struggling with the pace and magnitude of multidimensional change as we speak. It’s important both for financial services professionals and executives, as well as to private clients, to understand what’s really going on; and as it was said earlier, there are various opinions out there.
I have been reading news commentary and numerous reports in the last couple of years, and although each separate paper makes sense on its own, they don’t form a coherent picture, which makes it harder for non-professionals and educated laymen to really understand what’s happening and why. Paolo Sironi‘s 2)IntelligentHQ (2015). Paolo Sironi IBM Interview Innovating Wealth Management and Investment Analytics. [Accessed 4 Aug 2017]; World Fintech Forum (2016). Session of Robo Advisor – Paolo Sironi. [Accessed 4 Aug 2017] new book published last year, Fintech Innovation: From Robo-Advisors to Goal Based Investing and Gamification, is one of the very few books available on the market that offers a two-speed approach to the ongoing change. At first, it discusses at the general level the emergence of digital wealth management and focuses mainly on the rise of robo-advisory, and secondly, there are several in-depth dives to the practicalities of the ongoing change ranging from the analysis of megatrends to the basics of goal-based investing. Although the book has solid theoretical foundations, it’s not a dusty old tome just full of random references but instead, it’s a handy and applicable living document of this particular age wealth management is currently going through. Sironi’s take on the evolution of financial technology in general and insights on the global fintech ecosystem are worth checking out.
Sironi’s book is organized around three central themes. The first part consists of a high-level theoretical overview of innovation management in financial services industry, and Sironi links disruptive innovation (robo-advisory and automatization of portfolio management) and sustaining innovation (goal-based investing and gamification). The second part of the book covers multiple themes ranging from the rise of robo-advisory to the most significant trends affecting the wealth management industry at the moment. The third part delves into the goal-based investing and gamification, and at the end of this section, Sironi provides one page summary of the whole book. As Sironi highlights,
Most of this book invites the reader to review the underlying forces which foster transformation in wealth management, but and not only to look at the surface of the vibrant FinTech ecosystem; it invites the reader to see that TECH innovation brought forward by today’s Robo-Advisors is incomplete without and equivalent FIN innovation about scenario analysis and porfolio construction.
The author believes that the financial services industry is experiencing profound changes thanks to the rise of financial technology, and he explains in detail manner how robo-technologies are going to change wealth management quickly. 3)See my multiple takes on robo-advisors here. In his book, Sironi doesn’t tackle just with the most simple supply-side factors, but instead, he takes a holistic look at new technologies, changing investors behavior, regulation, and analytics. Sironi presents “a vision for the future of personal banking in which clients’ needs take centre stage, gamification helps them learn how to make better investment decisions, and the industry thrives in a more symmetrical, transparent and risk-controlled landscape.” Also, Sironi pays careful attention to social and technology trends that are affecting the financial services sector in general and highlights how these various forces making financial advice more client-/advice-centric, long-term relationship-building, fee-only transparent, goal-based, and highlights how goal-based investing answers to these different changes. “Gamification is a way to simplify the challenges of creating solutions for holistic well-being,” Sironi argues.
The idea that the wealth management business is just taking simple baby steps towards some noticeable change in the far future is actually debunked by Sironi, and he emphasized the importance of understanding the present opportunities offered by new technologies. He lays down several ways the industry has already changed and is currently evolving, and provides valuable insights into the ways for example regulation effects the evolution of the whole industry and specific business models various service providers have adopted. Sironi, somewhat critical of the current portfolio management practices, suggests that goal-based investing will have a profound impact for wealth managers, and offers a way to gamify investing so that individual invests may modify their portfolio based on their behavior. As Sironi points out, “Goal Based Investing Gamification could be the ultimate case of innovation at the crossroad between FINance and TECHnology.”
It’s hard to coherently summarize Sironi’s book as it discusses the wealth management industry from multiple exciting angles, and therefore it’s impossible to say what the author thinks about this or that topic of interest. From the management point of view, there are a couple of things that I found very interesting: the asymmetry of information is evaporating, and thanks to the ever-growing population of tech-savvy investors and financial advisors, things are changing faster than we assume. This means that while customers might not know everything right now, they are getting smarter all the time.
Sironi also lays down four strategic imperatives for the wealth management firms that want to thrive in the future: digitize, become income-oriented, go robo-technology, and last but not least, embrace goal-based investing, rebalancing, and reporting (coupled with gamification). Asset managers, on the other hand, need to scale up their business and reach out directly to investors according to Sironi. Robo-platforms have various possibilities to grow, and as Sironi points out, “platforms have a clear competitive advantage as they are already embedded in the work of many financial advisors and could master digital revolution by engaging in a robo-transformation of their business model, hence turning into vertically integrated Robo-Platforms.” For digital financial advisors, Sironi offers multiple suggestions from mastering the generational shift to having a digital life. Also, Sironi discusses the future prospects of robo-advisors themselves and brings up specific compelling challenges to ponder more deeply on.
Sironi’s book is a full of fascinating insights and details, and therefore it can be easily read over and over again without one getting bored. It’s not overly technical, and even that there are some equations here and there, these sections can be skipped over without actually losing the big picture of the book. Although the book is principally aimed at financial professionals, advisors, and executives, it is easy to read for academics (with a decent amount of further sources) and educated laymen. Sironi writes clearly and fluently, making complicated issues and topics understandable.
Author’s depth of experience and knowledge is apparent, and Sironi is not one of those who just boldly breaches something nonsensical about tech this, biz that, and in the end, the reader is only left so confused. Sironi is well-aware of the complexities and uncertainties involved in writing about the topic, and in the first chapters of the book, the reader is calmly introduced with the basic terminology to make sure that things make sense. So, when you thought that you are going to read just about robo-advisory, you actually learn so much more about the nitty-gritty details of how the industry has evolved, what are the drivers of industry-wide change, and what are we currently witnessing in the intersection of business, technology, and people.
The book, although the subject may sound really dry, is an excellent achievement as there are still very few books available on the future of wealth management and financial advisory robo-technologies in general.
Even if you are not so much interested in the hype (and there is a lot of that in the public discussion and in Sironi’s book), you will certainly learn a lot just by skimming it through. 4)My only problem with the book was the lack of discussion on the current landscape of the robo-advisory industry and that there were no short vs. long-term predictions made on possible evolutionary pathways for the robo-advisors and the wealth management industry as a whole.
I highly recommend checking out this book if you are interested in understanding the future of digital wealth management.
|FinTech Innovation: From Robo-Advisors to Goal Based Investing and Gamification
By Paolo Sironi
180 pages. 2016. John Wiley & Sons. €36.00 (hardcover), €27.99 (e-book)
References [ + ]
|1.||↑||Financial Times (2016). Barclays UK sees digital technology as crucial to its future. [Accessed 3 Aug 2017]|
|2.||↑||IntelligentHQ (2015). Paolo Sironi IBM Interview Innovating Wealth Management and Investment Analytics. [Accessed 4 Aug 2017]; World Fintech Forum (2016). Session of Robo Advisor – Paolo Sironi. [Accessed 4 Aug 2017]|
|3.||↑||See my multiple takes on robo-advisors here.|
|4.||↑||My only problem with the book was the lack of discussion on the current landscape of the robo-advisory industry and that there were no short vs. long-term predictions made on possible evolutionary pathways for the robo-advisors and the wealth management industry as a whole.|