small-tiles Vineet Malhotra | 17 Apr 2019

Musicians, poets and philosophers have spent entire lifetimes asking the question, "Who am I?" In the not-so-distant future, the answer to that question may be stored in our personal blockchain profiles — digital "arks" that contain the details of every decision, action and purchase we've made since the day we were born. Say goodbye to your birth certificate, credit score, passport, professional resume and medical history, and say hello to the future of blockchain: your blockchain profile. Your unique answer to the question "Who are you?" will be a chronological, hyper-detailed, immutable record that says with unprecedented certainty, "This is who I am." Blockchain will not live inside our thoughts, emotions, dreams or nightmares. It will not capture the inner dialogues people reveal in personal diaries or while talking to the bathroom mirror in the morning. Blockchain will, however, never forget when you broke your arm at the age of five (climbing a bannister), how your heart rate spiked when you first met your spouse (you dropped your drink) or that you paid extra for rush delivery of a new pair of black shoes (your cousin's wedding). Blockchain may not be the "you" robed Greek philosophers had in mind, but it will be the "you" the rest of the world sees — ideally, with your permission. Know Your Rights in a Digital World   Businesses want access to your decisions. Information detailing why you choose to vacation in Vietnam, eat mussels at your favorite Italian spot every Tuesday night or only use a medium-bristle toothbrush is valuable to companies that want to sell you — and people like you — airline tickets, fresh seafood and toothpaste. Every online decision you make and action you take is data that reveals part of your personality and thought processes. In recent years, businesses and policymakers have debated how much access companies should have to an individual's personal decisions — especially what they read, click on and buy online. While there are powerful forces seeking to retain control over the data individuals create when using online services, the winds are shifting, and regulatory momentum is beginning to favor the individual. In May 2018, the E.U. set forth the landmark General Data Privacy Regulation (GDPR) that firmly establishes basic legal rights regarding data privacy, ownership, control, consent and portability for all of its citizens, regardless of where they live.1 In the U.S., the HIPPA Privacy Rule establishes national standards to protect individuals' medical records and other personal health information.2 These regulations are in place to protect citizens from organizations who may seek to use personal data for purposes other than what it was collected for, or for which consent has been explicitly given — and provide instruments to exact considerable penalties on entities that violate those laws. In an era of digital transformation, it is critical that people appreciate the value of their personal data and the extent of their rights to privacy. For Sale: Sleeping Habits and Exercise Routines   Personal data is now part of the supply-and-demand dynamics driving capitalistic enterprises. Consumers not only possess purchasing power but also access to the thoughts and activities that precede particular purchases. This information is invaluable to companies that use data-driven strategies to sell their products and services to targeted consumers. Before blockchain technology, it wasn't possible to have a comprehensive record that kept track of an individual's purchases and behaviors within the context of everything else happening in their lives. But now, it is possible. Today, blockchain makes it possible for people to have an immutable profile of unimaginable detail, one that begins on the day they're born and develops throughout their entire lives — recording everything from when they lost their first tooth to the names of their grandchildren. Every doctor visit, every homework question, every mouse click, every page view. Businesses, naturally, will develop innumerable ways to incentivize people to allow access to their data. With individual rights established as the legal default, consumers will hold the power in this relationship and can monetize their data by renting access to various aspects of their blockchain profiles — from their sleeping habits to exercise routines. As deeper access is granted and more data sources are connected, behaviors can be predicted with greater accuracy, increasing the value of an individual's profile. In effect, individuals will be able to self-identify as willing marketing targets who offer their comprehensive descriptive profiles for sale in an emerging digital marketplace for personal data — a development that will radically alter the business of advertising, data research and analytics. A World of 8.5 Billion "Personhoods"   In 2030, the global population is expected to reach 8.5 billion. By that time, blockchains could consistently, reliably and securely organize data around the individuals who comprise the world's communities and nations. This makes person-centric societies technically possible, where citizens' actions and behaviors are digitally recorded in their "personhood" — an immutable record that serves as a single source of truth to their experiences and sensibilities. People, in essence, will regularly create real-time data that is chronologically added to their collective profile — which includes health records, educational backgrounds, professional credentials, voter registrations, driver's licenses, criminal histories, financial status and any other notable aspect of being a person. "Personhood" could become the universally accepted record to which all identity-related information can be tied. All the processes once needed to validate identity will be replaced by an individual's comprehensive blockchain profile. The commoditization of personal data will profoundly impact how people relate to businesses and each other. Will being held accountable to one's own "personhood" — and knowing that the details of our lives will forever be recorded in our blockchain profile — change how we behave? Will attempting to increase the value of one's "personhood" become an extension of trying to improve their own lives? Or vice versa? The rise of "personhood" could change our collective understanding of ownership in ways the human race hasn't witnessed since the concept of personal property rights first emerged. The Future Challenges to a Blockchain World   There are always casualties to sweeping technological advancements. With the proliferation of blockchain technology and the rising value of individuals' data, societies risk becoming even more polarized along financial and class lines. Individuals with more purchasing power inherently possess data that is more valuable to businesses that sell products and services or governmental institutions that could benefit from their financial support or influence. Those without money or access to modern technologies will face profound disadvantages unless governments — especially those in growth economies — implement regulations that protect vulnerable citizens from being left behind. Growth economies must also find ways to integrate intermediaries who will fight the prospect of obsolescence as blockchain technologies become more popular. Though the future is difficult to predict, and change always creates challenges, history teaches us that where value is created, technology eventually wins. The future of blockchain presents the human race with the opportunity to understand each other, and ourselves, in unprecedented ways. By providing new insights into human behaviors, relationships and business interactions, we can learn from each other and improve conditions for everyone. Perhaps blockchain data will even convincingly demonstrate to humanity how similar we all are. In the future, the most important questions people can ask themselves is not, "Who am I as a person?" but, "Who are we as a society?" The answer to that question may create the type of civilization only dreamed of by musicians, poets and philosophers. Interested in learning more about blockchain? Check out: Mercer Digital's Blockchain 101 Overview. 1Palmer, Danny. "What Is GDPR? Everything You Need to Know About the New General Data Protection Regulations." ZDNet, 2"The HIPAA Privacy Rule." Office for Civil Rights,  


small-tiles Vineet Malhotra | 11 Apr 2019

Vincenzo Peruggia was born on 8 October, 1881.  Some thirty years later on a Monday morning in 1911, the diminutive 160-cm Italian man strapped on a white smock—to blend in with the other employees at the Louvre in Paris—and walked out carrying the Mona Lisa.  He simply lifted it off the wall.  For the next two years Leonardo Da Vinci’s iconic masterpiece lay stuffed in a trunk in the thief’s Paris apartment.  Vincenzo eventually grew anxious and returned to Florence in his beloved homeland where he contacted an art dealer and attempted to peddle the famous painting.  The police arrested him in his hotel room.  What makes this story fascinating is not that it was so shockingly easy to walk away with a world renowned Renaissance-era treasure, but that Vincenzo’s crime was doomed from the very beginning.  Everyone in the art world knew the origins of the Mona Lisa, the value of the Mona Lisa and the journey of the Mona Lisa to her home in the Louvre.  The painting’s entire provenance was well documented and agreed upon.  Introducing the stolen masterpiece back into the art world without setting off alarms everywhere was impossible.  Blockchain technology offers that same level of transparency and authenticity for everything from a Persian tapestry and a toro sushi roll to a refinanced mortgage loan, or even a single lemon.  Here’s how: Mutually Agreed Upon Single Source of Truth   The first step to documenting data on a blockchain requires operational processes that focus on first-time accuracy.  From the initial step, all parties involved in a transaction must confirm the identity, value and controlling stipulations that regulate the blockchain asset.  In our story featuring Vincenzo Peruggia, for instance: This is Da Vinci’s painting, the Mona Lisa.  She hangs on this particular wall in the Louvre.  She is worth $800 million.  No, she is not for sale.  The value and circumstances have been established.  If anyone attempts to steal or tamper with the Mona Lisa, the involved parties—the world, in this case—will notice.  With blockchain, once the mutually agreed upon initial information is captured accurately, it becomes the single source of truth.  It never needs to be verified.  Once the integrity of the data related to the information asset has been established, blockchain technology prevents any nefarious actors from being able to manipulate it because everyone in the blockchain is looking at the same information, at the same time, from their respective computers, distributed throughout the world.  Everyone is privy to the original confirmed and verified asset and what happens to that data moving forward.  Attempting to exploit or plunder that digital asset would be like trying to steal the Mona Lisa from countless, well-protected Louvres all over the world. Intermediaries Are Not Needed   Blockchain technology eliminates the need for an intermediary, or middle man.  Intermediaries are commonly tasked with providing integrity to transactional processes involving parties that are not familiar with each other.  Banks serve as intermediaries for financial transactions between individuals and businesses.  Real estate agents act as intermediaries to navigate the paperwork of real estate sales.  Even illegal intermediaries, such as illicit music downloading platforms, steal significant amounts of royalties from musicians who have their songs stolen or plagiarized online.  Blockchain can eliminate the necessity and impact of all of these types of intermediaries.   Take Eriko Matsuyama, a hypothetical 23-year-old art student at Tohoku University in Japan, who is attending a study abroad program in Paris.  Eriko, a talented painter, spends every morning camped in front of the Mona Lisa composing elaborate watercolors, each offering a unique interpretation of Da Vinci’s muse.  She even has an online store where she sells her original paintings to her fans around the world.  Through blockchain technology Eriko is able to authenticate the time, date and development of each original painting, and send both the original watercolor and an exclusive digital copy to her purchasers.  Should the purchaser decide to sell either the original print or the digital copy, the blockchain can serve as proof of authenticity.  Perhaps, 30 years in the future, Eriko has become a famous artist whose work commands millions of dollars.  Those same watercolors, and their digital copies, will hold more value because the blockchain guarantees their origin and authenticity throughout the years, regardless of how many times they’ve been bought or sold…without ever needing an intermediary to verify authenticity or assist in the process. Data Becomes Like a Physical Object   The Mona Lisa is, of course, a physical object.  So are Eriko’s original watercolors, which she signs by hand; but the digital copies of her paintings are digital assets.  Today, digital assets can be anything from an individual’s health records to the deed for a parcel of land.  Blockchain makes it possible for a data asset to exist in the digital world just like a physical object does in the real world.  The data asset can exist as just one usable copy of a data file.  With a blockchain there is always only one usable and protected copy—just like the unique digital rendering of an original Eriko Matsuyama painting.  It can be bought and sold, but never manipulated, illegally copied or misappropriated.  In the span of 30 years, the digital copy of an Eriko Matsuyama watercolor migh be bought and sold a dozen times to individuals or businesses who may want it to print it for everything from T-shirts to wallpaper.  But only one digital copy will ever, and always, exist. Supply and demand determines the price of any product or service.  If the quantity of a digital asset is limited, then that asset is considered scarce—and supply and demand dynamics come into play, just as in the physical world.  This desirability by the market creates quantifiable value that can be applied to everything from an individual asset to a cryptocurrency. Technology is constantly driving the world forward.  In the future, the digital realm will be characterized by a matrix of digital trade routes of all sizes—each protected by the blockchain, free of piracy and disinformation.  If blockchain and modern technologies had been around in 1911, the Mona Lisa would have been reclaimed in less than two hours, instead of two years.  Today, the iconic face of the Rennaisance has even more reasons to smile.   To learn more about blockchain read Mercer Digital’s Blockchain 101 Overview.


small-tiles David Anderson | 03 Apr 2019

Asian pension systems are facing major challenges. The region is experiencing seismic demographic changes, with rapidly aging populations and declining birthrates. But investment returns are relatively low due to geopolitical uncertainty and minimal interest rates. With the region having relatively few robust retirement systems, many Asian countries will struggle to provide adequate pensions. Governments need to take positive action now to reduce financial pressures and avoid intergenerational conflicts between the young and old. Life expectancy at birth in the region has increased by seven to 14 years in most countries during the last 40 years, according to the 2018 Melbourne Mercer Global Pension Index (MMGPI), which ranks pension systems round the world on adequacy, sustainability and integrity. This is an average of one additional year every four years. The increased life expectancy of a 65-year-old over the last 40 years has ranged from 1.7 years in Indonesia to 8.1 years in Singapore. Much of the rest of the world is facing similar challenges relating to aging populations, and nations are pursuing similar policy reforms. These include raising pension ages, encouraging people to work longer, increasing the funding levels set aside for retirement and reducing the amount of money people can take out of their pension accounts before they reach retirement age. The 2018 MMGPI findings pose the fundamental question: What reforms can Asian governments implement to improve the long-term outcomes of their retirement income systems? The natural starting place to create a world-class pension system is ensuring the right balance between adequacy and sustainability. A system providing generous benefits in the short-term is unlikely to be sustainable, while a system that's sustainable over many years usually provides modest benefits. Without changes to retirement ages and eligibility ages to access social security and private pensions, the pressure on retirement systems will increase, which could threaten the financial security provided to the elderly. Increased workforce participation by women and older workers can improve adequacy and sustainability. Japan, China and South Korea rank near the bottom of the Mercer index. Their pension systems do not represent a sustainable model to support the retirement of current and future generations. If left unchanged, these countries will suffer social conflicts, since pension benefits will not be distributed equally between generations. Japan, for instance, is taking baby steps to reform its pension system by gradually raising the mandatory retirement age of some 3.4 million civil servants to 65 from the current 60 years of age. Japanese retirees can now choose to start receiving their pensions at any point between the ages of 60 and 70, with greater monthly payments offered to those who start at age 65 or older. Having the world's highest life expectancy and lowest birthrate, Japan's population is expected to shrink. This challenging situation is already contributing to skill shortages, which will further impact Japan's shrinking tax revenue base. The Japanese government could improve its pension system by encouraging higher levels of household savings and continuing to increase the level of state pension coverage, since 49 percent of the working age population is not covered by private pension plans. Introducing a requirement that part of the retirement benefit must be taken as an income stream and not a lump sum will improve the overall sustainability of the social security system — as would reducing government debt as a percentage of gross domestic product, as this improves the likelihood that the current level of pension payments can be maintained. China faces different issues. China's unique pension system comprises various plans for urban and rural populations, as well as for rural migrants and public sector workers. The urban and rural systems have a pay-as-you-go basic pension consisting of a pooled account (from employer contributions or government expenditure) and funded individual accounts (from employee contributions). Supplementary plans are also provided by some employers, particularly in urban areas. The Chinese pension system could be improved by increasing the use of workers' contributions to pensions to enhance the overall retirement protection of workers and increasing minimum support for the poorest retirees. A requirement that part of the supplementary retirement benefit must be taken as an income stream should be introduced, as well. More investment options should be offered to pension holders to permit a greater exposure to growth assets, while pension plans should improve their communications with members. Hong Kong should consider introducing tax incentives to encourage voluntary member contributions, thus increasing retirement savings. Hong Kong should also require that part of the retirement benefit be taken as an income stream. Older workers should be retained in the labor market as life expectancies rise. South Korea suffers from one of the weakest pension systems for the poor when expressed as a percentage of the average wage at just six percent. Its system would benefit by improving the level of support provided to the poorest pensioners, introducing a requirement that part of the retirement benefit from private pension arrangements be taken as an income stream and increasing the overall level of contributions. Singapore's well-structured pension system is ranked top in the region and has seen improvements in sustainability. Its retirement system, the Central Provident Fund, provides flexibility to its members, who include all employed Singaporean residents and permanent residents. But more can be done. Barriers to establishing tax-approved group corporate retirement plans should be reduced, and the CPF should also be opened to temporary nonresident workers who comprise more than a third of the labor force. The age that CPF members can access their savings should be raised, as well. Since pension systems are an intergenerational issue, they require a long-term perspective. Pension systems, which are one of the largest institutional investors in any market, should increasingly recognize the importance of acting as good stewards of the capital entrusted to them, including managing risks, such as climate change. With Asia's aging populations staying productive well into their 70s and even 80s, it is critical to improve the provision of adequate and sustainable retirement income. Raising the retirement age, expanding the coverage of private pensions for workers and encouraging financial planning and early savings should be the focus of employers and policy makers. Article originally published in Nikkei Asian Review.


small-tiles Gareth Anderson | 21 Mar 2019

The size and scale of China’s domestic marketplace has become one the nation’s greatest economic achievements. From the middle-class explosion to the sweeping impact of digital transformation throughout its population and industries, China—and the global economy—are entering a new era of investment opportunities. There is money to be made by investing in China but opening up the country’s heavily regulated domestic assets to foreign investors entails a learning curve on both sides. Perspective: China vs. Growth Economies The Mercer report The Inclusion of China A-Shares in MSCI Indices: Implications for Asset Managers and Investors, explains why opening China’s domestic market to the global economy has created a wave of excitement throughout the international investment community and marketplace. This enthusiasm is being carefully managed by the measured strategy China and the MSCI are implementing while forging a framework for future growth. The initial phase only weighted 226 stocks at a mere 5 percent of their market cap, demonstrating that this new era will be defined by an incremental, long-term mindset. This cautious approach may be welcome news to competing growth economies in the region. Despite the conservative rollout of Chinese A-shares (domestic assets) to the international marketplace, inclusion in the MSCI Index will profoundly impact the global economic landscape, especially with regard to the influence of emerging economies. Take, for instance, what the MSCI Index will look like with the inclusion of 5 percent of Chinese A-shares, and then at 100 percent inclusion. Growth economies such as India, Taiwan and South Korea may be negatively impacted by the inclusion of domestic China in global indexes, especially if investors shift their focus from growth markets to new opportunities in Chinese A-shares. (Source: MSCI) Change is inherently fraught with breakthroughs, obstacles and the anxiety of the unknown. Though no one can 100 percent accurately predict the future, let’s examine the opportunities and challenges of China’s new status in the global economy, and what it means to equity investors. Opportunities from Inclusion in MSCI: 1.      Market Size: The Chinese domestic market is large, comprising more than 3,000 stocks, and is the most liquid in the world. Since the beginning of 2017, the Shanghai and Shenzhen Stock Exchanges have experienced higher aggregate daily trading volume than the New York and NASDAQ Stock Exchanges combined.  2.     Diversity: The Chinese domestic market entails a cross-section of companies that represent a broad number of industries, and it is much more diversified at the sector level than the China shares listed in the Hong Kong Stock Exchange (which is highly concentrated in IT and financials). 3.     Uniqueness: Historically, China’s A-share market has displayed a low correlation with other equity markets, marking an era of new and unexplored opportunities to create value. 4.     Limited Foreign Ownership: With domestic Chinese retail investors comprising more than 75 percent of the free-float market cap—the number of outstanding shares available to the general public—there is a lack of informed institutional owners in the market. The unprecedented nature of the situation can create inefficiencies, but also yield an environment that can be conducive to investors willing to explore new opportunities. Challenges from Inclusion in MSCI: 1.      Volatility: Although the market is large and liquid, it is volatile and has experienced periods when liquidity has fallen dramatically in short periods of time. However, China has taken steps to mitigate volatility, including the formation of a “national team” to help stabilize the market by purchasing A-shares in times of market stress. 2.     Concentration: There is concern regarding the composition of benchmarks when China A-shares are included in indices at their full weight. Global emerging market benchmarks are relatively diversified at present, but they will become increasingly dominated by China following the full inclusion of the China A-share market. However, to address this issue, many innovative organizations are recruiting analysts and portfolio managers experienced in the region—or are nurturing in-house/hybrid solutions to explore standalone investments and other strategies. 3.     Global Uncertainty: Trade tensions between the US and China, and other geopolitical concerns have made some investors skittish about opportunities in China’s domestic marketplace. As markets seek stability over chaos, an unknown future and emerging investment realities and mechanisms will have some organizations choosing to stay on the sidelines. This, however, means more potential opportunities for investors with the portfolios and risk tolerance to explore new opportunities. To learn more about how the inclusion of China’s A-shares in MSCI Indices will impact the global marketplace and create new investment opportunities for your organization, visit Mercer Wealth and Investments (or Mercer Wealth and Investments – China).

Editors' Picks


Know Thyself: Building Business Cultures in Growth Economies
Dhruv Mehra | 07 Mar 2019

Culture is how people make sense of the world. From the cacophonous streets of Mumbai and sultry beaches of Brazil to the neon lights of Tokyo and rhythms of Mexico City, culture gives us our identity. Culture is also scalable. Nations, regions and workplaces have cultures that define their collective individuals. When groups of people behave according to a shared understanding of values and sensibilities, they are contributing to a culture. Businesses in growth economies must act now to establish prosperous internal business cultures that embrace the emerging opportunities of a digitally transforming world. Build Consensus Throughout the Business   The evolving global economy presents growth nations with unprecedented access to a borderless international marketplace. The rapid pace of change, however, has many business leaders at odds regarding the value and role of culture to their financial success. This lack of consensus can muddle a company's vision, as well as confound a business' workforce and consumer base. C-suite executives, managers and HR professionals — in businesses throughout the world — often have different interpretations of what internal culture means to profitability. The high-level takeaways from Mercer's research report, "Mitigating Culture Risk to Drive Deal Value," which focused on the mergers and acquisitions industry, offers businesses throughout growth economies valuable insights into the complexities of building consensus around culture:  C-suite executives rate governance and decision-making processes as the most important components of culture (60%).  Independent advisors believe performance management (measurement) can and should play a role in driving organizational change and defining culture (45%) — only 18 percent of HR professionals agree. Corporate development professionals (41%) think that risk tolerance and management can undermine a transaction. HR professionals rate collaboration (69%) and empowerment (54%) as the most important components of culture.    Businesses in growth economies should be proactive about defining who they are as a culture. Does the culture value technological innovation and input from employees, or is it risk-averse and strictly hierarchical? Does the company stress individual effort or teamwork? Is it focused on international growth or regional prominence? Is it rebellious and irreverent or humble and serious? What is the definition of success, and how are the employees and customers factored into that definition? An effective corporate culture begins with building consensus throughout the leadership, workforce and operations. Clearly Articulate a Reason for Being Every business leader and employee must be able to answer the question: Why do we work here? The response to this self-reflective ask compels the people within a business — from top decision-makers to workers at every level — to internalize the reason the business exists. This understanding provides meaning and context as to why an individual elects to be part of the business and its mission.  Next, business leaders must articulate that reason for existence into strategic objectives illustrating the market value the business offers to whom and how. The strategic goals must accommodate the budget and timeline as understood by all employees — unifying everyone in a collaborative journey pursued within a shared value system. In Asia (excluding Japan), according to the "Mitigating Culture Risk to Drive Deal Value" report, 67 percent of respondents believe collaboration is a top behavior in "high-performing" work cultures. In Latin America, 65 percent of respondents agreed. However, "collaborative" did not make the top five list of drivers for high-performing work cultures among Japanese respondents. It is critical for businesses in growth economies to establish strong internal cultures before attempting to make an impact in the competitive global economy. That internal culture, however, can be inspired by a variety of influences — including geography. Hangzhou-based Alibaba, for example, has a very different culture than Shenzhen-based Tencent. A strong culture empowers businesses to differentiate themselves from competitors and effectively respond to adversity, risk and uncontrollable swings in the economy. Deciding how to approach risks and navigate challenges not only reveals the cultural values of a business but gives its employees and stakeholders a common cause that builds cohesion. A clearly articulated internal culture is key to longevity. For businesses looking to establish and strengthen their cultures in different geographies, having a fundamental understanding of geographical nuances, like collaboration, for example, can prove critical to setting and successfully achieving your strategic goals. Empower Leaders Who Live the Promise   Leadership is the foundation of every prosperous internal culture. In fact, the Mercer report reveals that, in Asia (not including Japan), 69 percent of respondents indicated "how leaders behave" was the number one "top driver" in a healthy organizational culture; in Latin America, the response was 64 percent. Japan led the group with a pronounced 74 percent response affirming the importance of leadership to workplacecultures. The success of businesses can often be directly linked to leaders who embody and communicate an organization's values to employees and customers. Both Alibaba and Tencent are renowned for their respective leaders, Jack Ma (now retired, of course) and Pony Ma. Leadership supplies vision, energy and direction. Assessing and selecting leaders who best represent a business' values and promises are critical to corporate cultures. This does not always mean choosing the most accomplished or most popular businessperson, but the one with the best chemistry, as in any relationship — the one who delivers inspiration, creativity and motivates others to push themselves. Effective leaders demand accountability from every employee, including themselves. CEOs, C-suites and managers must behave according to the values and standards of the business they represent. Leadership legitimizes culture by exercising the vision and expectations of the culture. Hypocritical leaders who do not lead by example demotivate employees and undermine the public's respect for the entire brand. A culture that values the fair distribution of accountability creates rapport and stewardship among its workforce. When people feel they belong to something meaningful and bigger than themselves, they transfer that goodwill into their work. Strong cultures create quality products, services and customer experiences. Align the Vision With People & Operations   Culture is the intangible force that bonds great companies. The ethereal nature of culture, however, makes it frustratingly elusive to many businesses — especially in growth economies where those cultures are entering a new era of global pressures and digital transformation. I explained in a webcast about the report above, "Culture is like the weather. We like to talk about it, complain about it and we blame it for things. But we really have no intention of doing anything about it or frankly don't know what we can do about it." To explain that businesses cannot afford to treat culture like the weather, because tremendous amounts of money and value are being left on the table. Culture, at its core, is an operational platform for people to work together. It is the epicenter of an organization's collective power. Though business cultures may be intangible, they can be easily recognized in the eyes and behaviors of employees and customers. Culture is everything from a workforce that understands its purpose and a single employee who feels professionally fulfilled to loyal customers who return again and again. Culture is when people come together and do something that gives them meaning. Culture is the reason a business exists.


Digital Transformation & Trust in the Investment Industry
Beverley Sharp | 07 Mar 2019

The impact of technology on today’s world has many confused and frustrated. They struggle to determine what information is real or fake, helpful or harmful. The investment industry is not immune to the digital transformation that is impacting how people view themselves, their money and their futures. CIOs need to recognize these changes and determine how to leverage the evolution of technology as it reverberates throughout the industry, and the world. Hype vs. Reality: The Truth Is In The Middle Much of the hype around Artificial Intelligence (AI) and digital transformation has centered on how technology and machines will replace employees in every industry, including the investment industry. AI is revolutionizing the process of interpreting valuations through the instant and comprehensive analysis of financial data and transactions, and stakeholder sentiments expressed across the Internet. AI offers new insights into unstructured data, financial behavior models and market volatility. However, the human element is still critical. As CIOs know, it is impossible to predict the future with 100% accuracy, but a mindful examination of data and research helps provide a sense of control of the unknown. The value of any security or asset is based partly on human perception. An investment team still needs to assess all of the information and data to make strategic, and very human, decisions on how to move forward. Advances in FinTech are benefitting CIOs and their teams in meaningful ways. For example, advanced data and analytical capabilities give them more detailed and enhanced risk dashboards, placing actionable information at their fingertips. FinTech’s insightful diagnostics also help them better understand how strategies are run and how to clearly delineate between luck and skill. But it’s still very much a qualitative game. FinTech is also significantly impacting the role of the consumer, as apps and other technology platforms offer them more control over their financial objectives and strategies. This is a positive development because when consumers pay more attention to their investment goals, everyone benefits. Currently, the speculation over advanced technologies dominating the industry has not come to fruition—and, like many emotionally-charged debates, the truth is usually somewhere in the middle. Robo-advisors Streamline Relationships Robo-systems and automation are helping firms streamline once bloated processes so client information is easier to access and contextualize. Many financial advisors have incorporated robo-advice into their services, providing clients with varying tiers of human interaction. From no-touch to high-touch, these different levels of interaction offer clients a menu of options to accommodate their desire to work with, or without, a live financial advisor. Robo-advisors and other technological advances will disrupt aspects of the industry, but also help financial advisors be more productive and valuable—for example, by leveraging technology that focuses on how advice is delivered to clients rather than how it is formulated. Yet, at the end of the day, many clients are still human beings who wish to speak with a human advisor before making a decision that will impact their and their family’s financial futures. Blockchain and Rebuilding Trust Mercer’s Healthy, Wealthy, and Work-wise report —conducted across 12 countries— examined who people trusted the most. At the high end were family, friends and employers. At the low end were financial intermediaries, banks and insurance companies. This is an issue for investment firms and the industry as a whole. After the global economic meltdown and the Great Recession, people simply stopped trusting the financial community. Many who have been burned by the industry (or know someone who has), tend to leave their money in minimal interest-bearing bank accounts, stuffed under their mattresses or buried in places far from the possible benefits of high-quality investing advice. Cue blockchain. Blockchain technology is a game changer for the investment community and its low trust metrics. Blockchain provides investors and clients with an immutable and secure digital record of financial transactions. Investors are attracted to the prioritization of transparency after an era of intentionally confusing finance structures—such as tranches and the bundling of subprime mortgages—left the world in a tailspin. For an industry that has struggled to build trust with clients and the public, blockchain offers a new age of accountability and means of building profitable relationships. As in other industries, clients and consumers are going online and taking control of the narrative. Businesses are being publicly held accountable for every decision and interaction. This increasing level of transparency will continue to be a compelling motivator for investment professionals and firms to provide the best services and results possible. This greater level of transparency, in truth, may be how the financial industry rebuilds lost trust with the public.  Individuals Taking Control Mercer—alongside other money managers and investment advisors—believes that governments, plan sponsors, financial intermediaries, and the industry in general, have a responsibility to help individuals recognize “What good looks like” regarding financial advice and investment products. So, as a service to the investment industry and to promote trust, in multiple markets including Singapore and Hong Kong, Mercer launched Mercer to accomplish two goals: (1)   Provide a rating system for funds that are available to individual investors. This enables investors and their financial advisors to compare funds according to their ratings. These ratings are based on deep-dive, qualitative investment due diligence. (2)   Give financial intermediaries that use the site—as an input to their recommendation process for clients—the opportunity to be featured on Mercer If an individual investor or financial advisor is looking for a high-quality entity to transact with, they can easily find and access a list of intermediaries using this credible due diligence in their process.    Digital transformation is here and accelerating at an exponential rate throughout the world. The possibilities are limitless. Investment firms should embrace the emergence of AI and smart technologies to explore new terrain and chart competitive landscapes. The evolution of technology is forever changing the industry, client expectations and how human beings relate to their money, themselves and their investments.  


China’s Middle Class Can Change the Quality of Retirement
Janet Li | 20 Dec 2018

Quality of life is a powerful force. When a generation of citizens experiences unprecedented economic opportunities and long-term financial well-being, there is a strong desire to maintain—or advance—those standards. In China, a surging middle class is determined to enjoy their comfortable lifestyles well into the future. In addition, a younger generation of tech-savvy and financially sophisticated Chinese employees is redefining the meaning of retirement for a population of 1.4 billion people.  Trust plays a key role. The Chinese strongly believe in the ability of external financial support sources—such as the government, pensions funds, employers, families, life insurance benefits, and financial advisors—to provide for them in retirement. Younger workers just entering the workforce are placing even greater faith in online tools and financial apps to manage their long-term finances. This trust, however, will be tested as China pivots to accommodate larger global economic forces and powerful cultural developments—such as societal aging—as detailed in the Melbourne Mercer Global Pension Index (MMGPI). The Challenges of Adjusting to Change   The MMGPI measures the retirement income systems for nations based on three key sub-indexes: Adequacy, Sustainability and Integrity. A comprehensive analysis of these data sets determines a nation’s overall index rating. For 2018, China received an overall score of 46.2. For perspective, the Netherlands and Denmark received the highest ratings—with scores of 80.3 and 80.2, respectively—and Argentina earned the lowest rating at 39.2. Japan (48.2), Korea (47.3) and India (44.6) all received similar scores to China. Unsurprisingly, these growth economies face domestic and policy challenges that are familiar to China—especially with regard to providing financial support to millions of aging people in an era of declining birthrates.   In 1970, the average life expectancy in China was 59 years; today it is 76.5 years. Aging Chinese workers are living longer and causing seismic changes throughout population demographics in China. Increasing life expectancies will test the nation’s pension resources and the financial power of China’s middle class to support the parents and grandparents who worked so hard before them. Currently, China’s retirement income system entails a rural system and an urban system that leverages a pay-as-you-go basic pension. Those pensions consist of pooled accounts (from employer contributions or fiscal expenditures) and funded individual accounts from employee contributions. In some urban areas, employers also provide supplementary benefit plans. These combined resources, however, are not keeping pace with the needs of China’s aging population.  Communicating a Diversity of Resources The MMGPI’s analysis of China’s retirement income system reveals that the most impactful path forward entails bolstering existing services, implementing proactive policies and educating employees about the various options and programs that best suit their individual needs. Specifically, the index findings recommend that Chinese policymakers: 1. Continue to increase the coverage of workers already in pension systems. Enhancing coverage allows for a more robust safety net for millions of retired workers, raising the Adequacy quotient. 2. Increase the minimum level of support for the poorest aging individuals. This demographic represents the most vulnerable and highest at-risk group in the aging population, and the one that benefits the most from additional support. 3. Require that part of the supplementary retirement benefit must be taken as an income stream. Installment payments or income annuity payments offer a fixed, effective means of paying the bills—especially when used as part of a diversified retirement income strategy. 4. Increase the age to qualify for a state pension over time. People are living longer, which naturally translates into working longer and retiring later in life. This is key to boosting Sustainability. 5. Allow more investment options to members, thereby offering greater exposure to growth assets. Diversification is the foundation of smart investing. Providing more investment opportunities leads to increased financial stability—especially for China’s middle class, which desires new ways to empower their assets. 6. Improve communications and better educate members regarding the details of pension plans. The accelerated emergence of new investing mechanisms, policies and digital technologies means individuals are often uninformed about the latest opportunities.     A Collaborative Quality of Life   Successful cultures strive to provide a dignified quality of life to every member of society. This requires the fair and disciplined acquisition and distribution of assets. In modern China, those assets are largely being created by younger workers, particularly in the growing middle class which has experienced a tremendous rise in wages and opportunities. As China’s middle class increases its appetite for new consumers goods, high-quality luxury products and improved standards of living, it must also come to terms with budgeting for the long term—both for themselves and their aging family members.   Nearly 43% of Chinese workers expect to be able to enjoy their desired quality of life after retiring by increasing their retirement fund contributions and working side jobs to supplement their savings. This demonstrates that significant segments of the Chinese population acknowledge the pension challenges ahead and are taking informed personal actions to mitigate potential future struggles. This engaged approach to personal financial well-being, supplemented by smart retirement income systems from employers and government organizations can empower Chinese workers—from GenY and Millennials to their aging parents and grandparents—with a synergy of resources that will make quality of life a standard part of getting old. To learn more about retirement income systems in China and the rest of the world, download the full Melbourne Mercer Global Pension Index  and visit Mercer China.