“Investment firms should embrace the emergence of AI and smart technologies to explore new terrain and chart competitive landscapes.”
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 FundWatch.com 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 FundWatch.com. 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.