Key takeaways from FundForum 2016

Earlier this week, over 2000 global investment and wealth managers came together at the annual Fund Forum in Berlin to discuss the main trends affecting the industry. Although the scope of the discussions was broad, there were a number of topics which were at the heart of many of the debates and conversations throughout the 3-day event.Here are our top 5: 

Robo-advisors and technology

Tom Brown, Global Head of Investment Management at KPMG, segmented the issue of technology and digital disruption in the asset management industry into three main areas: customer experience, operational efficiency and the use of technology to manage money.

Robo-advisors – online wealth management platforms that provide automated portfolio management advice without the use of human financial planners – are perhaps the industry’s best example of all three points rolled into one. While the technology is still relatively new, use of robo-advisors has been growing exponentially, especially amongst the younger generation, which today prefers to view and manage its pension savings using a mobile app rather than going into a bank branch.

A number of traditional asset managers have equity stakes in robo-advisory platforms, aiming to strike a balance between traditional and technology-based approaches under the umbrella of an established, credible brand name. Others argue that artificial intelligence and machine learning will eventually lead to the demise of the fund manager entirely, the argument being that machines can do what humans can do but better. Consumer behaviour will adapt to the new environment as it always has done when presented with innovative leaps forward such as self-service checkouts, online interactions and soon, driverless cars.

Blockchain

In October last year The Economist devoted their cover story to Blockchain: “The trust machine: how the technology behind bitcoin could change the world”. In simple terms Blockchain is a digital, trusted, public ledger that everyone can inspect, but which no single user controls. It keeps track of transactions continuously, for example ownership of a diamond, rare painting, or piece of land.

The asset management industry continues to debate the potential applications of this technology, which started out by powering Bitcoin. In a panel moderated by Lawrence Wintermeyer, CEO of Innovate Finance, ideas ranged from Blockchain’s applicability in areas such as post-trade environment, collateral and liquidity management, regulatory reporting, and the handling of know-your-client (KYC) and anti-money laundering (AML) data. In each instance success will require close collaboration amongst the various parties involved.

Brexit and Trump

Mohamed El-Erian, Chief Economic Advisor at Allianz, addressed some of the shifts that are giving rise to the anti-establishment movements seen in many developed countries today.

“The common element throughout all these things,” he explained, “is that the advanced world has lost the ability to grow in a fair and inclusive manner, and when that ability is lost and people lose confidence, things start going wrong.”

El-Erian stressed that global growth to unlikely to be consistent and stable any time soon, thus the risk of non-normal distribution of events affecting the markets is always an issue. Secondly, he highlighted central banks’ inability to rein in financial volatility, which remains as frequent and unpredictable as ever.

The discussion centred on the fact that investment managers should try to adopt new framework about how they think about risk, and acknowledge that market events in both developed and emerging markets no longer follow a normal distribution curve.

Is ‘data’ the new gold?

A number of panels focused on the industry’s ability to understand and utilise the unprecedented amounts of data that are generated by each one of us in the digital world.

“By 9 o’clock each morning we have already created more data than mankind created from the beginning of time to the year 2000” said Andreas Weigend, former Chief Science Officer at Amazon.

“Because of the signals you send through sensors, microphones, GPS, gyroscopes and cameras, your phone knows almost everything about you: where you are walking and even how you are walking – it probably knows more about you than know yourself”.

Crunching and refining data such as these enables the industry to improve and tailor its products a lot more to client needs.

Costs and Transparency

The new European MiFID rules are due to take effect in early 2018 and will require funds to give more information on costs in their fund factsheets.

EU and UK regulators are demanding fairer and more transparent fees from fund managers in a bid to ensure greater transparency and accountability to investor clients. As discussed in previous blogs, as part of this process they are also assessing which costs should be borne by the asset manager and which can be passed on to the end client through management fees and commissions.

The new regulatory environment is forcing asset managers to rethink a number of elements of the traditional business model, such as how they consume and pay for investment research.

With technological innovation comes regulatory oversight. Those able to react quickest to the dual challenges of new regulations and market unpredictability are most likely to succeed.

Conference website

Full agenda

The Economist: The Fintech Revolution

This week’s special report in The Economist on Financial Technology (or Fintech) talks about the new wave of ideas changing traditional finance, from payments to wealth management, crowd funding and digital currencies. Fintech start-ups continue to attract record investment year-on-year from the venture capital community, and many are long past the experimental phase. The report also discusses the uncertain and evolving relationship between fintech and traditional banks.

As we have pointed out in some of our previous posts, despite the fact that many of the most relevant trends in this space are still nascent or emerging, there is huge potential for them to impact the asset management industry and subsequently our world of investor relations.

For those fairly new to the subject, you may find our basic Fintech Dictionary useful in explaining some basic concepts and definitions.

A few points from the Economist report in particular caught our attention:

  • Although the amount of assets managed by automated wealth managers (so-called ‘robo-advisors’) doubles every few months or so, the global total is still only around $20bn, compared to roughly $17tr for traditional managers. The argument in favour of robo-advisors, which mainly utilise indexing strategies while staying clear of mutual funds and individual stocks, is that they can use algorithms to provide sound investment advice for a fraction of the price of a real life advisor. The majority of the take-up so far has been from clients under 35 with an average account size of less than $100,000. It is interesting to note that Schoders, Goldman Sachs, Vanguard, Schwab and JP Morgan Chase have all either made direct investments in robo-advisory platforms or are planning to launch their own.
  • The electronic ledger ‘Blockchain’ is the technology behind the digital currency Bitcoin. Blockchain offers a decentralised, public account of all Bitcoin transactions. Enthusiasts believe its application in the financial markets may be much broader; in theory the technology could be applied across a wide range of applications, such as the issuance and trading of securities. Unsurprisingly, a number of large financial institutions, as well as exchanges, have taken steps to explore this further.
  • Providing financial services to millions of customers, especially to those in populous emerging markets in Asia and Africa who previously had no access to them, is another area that fintech looks to address. While only 25% of people in Africa have access to a bank account, over 80% have a mobile telephone. Taking advantage of this gap is M-pesa, a Kenyan phone based payments scheme now used by three quarters of adults in the country. As these concepts evolve it is fascinating to think about the possibilities and applications for providing credit, retirement and investment solutions to millions almost overnight.

We will continue look at some of these ideas in more depth over the summer.