By Jordanne Pavao
The digital landscape of the investment management industry has become a more accessible, fast-paced terrain. The emergence of easy-to-consume digital asset management products such as Robinhood and Ellevest have lowered the barriers for novice and savvy investors alike, giving them instant, round-the-clock access to their portfolios.
These automated services now enable investors to keep pace with constantly changing markets, minimize missed opportunities, and understand the returns on their investments. To that end, the investment management industry at large is feeling the pressure to provide the same “always on” experience that today’s customers have come to expect from retail, banking, and other fields. This notion of ubiquitous connectivity is challenging traditional wealth management companies to reimagine the role that asset management plays throughout a client’s life.
Barriers to Transformation
The pervasiveness of mobile technology has played a vital role in increasing accessibility to asset management, but it’s just a start. There are steps yet to be taken that can disrupt the current state of digital asset management and better serve clients.
First-mover advantage will be granted to digital asset management offerings that take relevant action based on dynamic situational factors that impact a client’s personal investment goals or the state of his portfolio.
To date, “personalized” digital experiences are limited to proprietary data and manual client input. While this data is highly valuable, it’s considered table stakes and provides only a fragmented view of the client. In fact, this data is most valuable when combined with public data and sensory data from a client’s mobile device. This provides truly holistic views of clients, enabling wealth management firms to engage more intelligently and effectively with them.
For instance, a young investor’s promotion at work may provide her with more discretionary income. Based on the increase detected in her direct deposits, current investment portfolio and pertinent geopolitical events, she will receive a notification on her phone with options to move her idle funds into a relevant commodity exchange traded fund that will diversify her portfolio.
The next generation of digital asset management platforms will leverage contextual insight to adapt to each unique client’s needs—increasing the client’s financial literacy, reducing financial anxieties, and improving long-term financial wellness.
That said, bringing a high-impact, context-aware customer experience to market presents some struggles, including:
- IT limitations: Many asset managers have adopted automatic investing algorithms, aka robo advisors, as their core digital offerings, but these services have limitations. Robo advisors typically use template-driven criteria to prompt quicker decisions. These systems can reduce costs and proliferate customer reach, but rigid algorithms don’t account for dynamic situational factors, such as geopolitical events, that can affect both investor and portfolio. Understanding a user’s unique context is key to delivering a proactive customer engagement strategy and helping investors make informed decisions at every stage.
- Bridging the online-offline gap: Traditionally, asset managers build client relationships through in-person meetings. Today, the demand for always-on access requires the customer experience to be available digitally, but these online and offline services must be seen as complementary, not combative. This allows customers to resume their experience outside of in-person meetings. In addition, digital platforms can augment an asset manager’s knowledge and provide a fuller, more transparent financial blueprint for the client for in-person advising. Clients will have varying degrees of comfort with self-serve and assisted activities, and the most effective approach will allow them to customize the options to their preferences.
- Regulations: While not exactly a barrier, regulations such as the European Union’s upcoming General Data Protection Regulation are hurdles that must be overcome by any company that serves EU citizens. At the same time, this presents an opportunity for brokerage firms to bolster client relationships founded on informed consent and data transparency, in exchange for creating new value for clients.
Instituting Context-as-a-Service
Context-as-a-service remains a significant gap in the market, creating ripe opportunities for traditional brokerage firms to create digital channels that leverage proprietary, public and sensory data. Already, the industry has witnessed goal-oriented advising benefits, and an adaptive client experience powered by contextual data will only enhance them.
Asset managers who want to contextualize the customer experience using data intelligence have options if they want to provide the instantaneous, tailored services their clients demand. Start by embedding education into platform designs. A company like Scalable Capital demonstrates the value in incentivizing customers to share their personal data and risk profiles in exchange for a contextual risk management model that automates portfolio management.
Scalable Capital leveraged the shortcomings of robo advisor and digital-only asset management products to offer better products and services. Because its products aimed to educate clients and ease their fears about financial and data safety, people became more willing to share their information for value-added services.
Create a digital ecosystem that takes advantage of public data sources. The European Union’s Revised Payment Service Directive (PSD2) went into effect at the start of the year. The directive allows third parties, including brokerage firms, to leverage a bank’s customer account information and payment services. This gives brokerage firms an opportunity to enhance services for existing customers and lower barriers to customer acquisition.
This directive also means that Facebook or Google can build financial services. While this may be perceived as a threat to financial services, these are the very companies best-equipped to disrupt the market back—by combining their brand-owned data with open application programming interfaces, mobile device data, and other available sources to create their own data mash-ups.
Proprietary data’s true potential will be realized when it can combine public and personal data to be a fully formed financial advisor for investors. Traditional asset managers must combine the two to create seamless, convenient investing experiences that engage and educate customers.
Jordanne Pavao is a product manager at Flybits, a cloud-based, context-as-a-service solution with offices in Toronto, Redwood City, Calif., London and Singapore.