I talked recently with Steen Jensen, managing director, Temenos Europe. I started by asking him if he agreed that big data and advanced analytics are on the verge of transforming the wealth management industry, with new ways of engaging clients, managing client relationships and manage risks? Are these threats being seized as opportunities within the wealth management sector?
Jensen said: “It is clear that data analytics, being far more accessible nowadays, is a key to get the personalised service that the tech industry is requesting. Before, it was based on the individual. And people tended to depend on the same company – they would be responsible for you for several years. That has now been taken over by a more industrialised approach, which is more cost efficient, and provides a far more detailed level of information about the individual so that they can provide not just more information, but actionable personalised information.
Advanced data analytics is not new to financial services, but cutting-edge deployments that enable deeper understanding of complex global markets and investments at a level beyond human capability have been largely confined to hedge funds and niche players. That is changing: two thirds (67%) of global executives who featured in the Temenos Forbes Wealth Management Report (to be published soon) see segmenting and personalising service as highly important, and a quarter see it as important (Figure 7). Our report says that eighty-six percent of wealth managers in Latin America say analytics is highly important, versus 51% in Europe. The reason for this disparity, says Steen is that the European market is a more mature.
Jensen said: “That’s the only difference I can find, so it’s very difficult to say what this disparity hides. Even for pure retail clients, they are offered a securities account in most banks in Europe – but that is nothing to do with private wealth or anything. That is their traditional way of placing their savings.
Question – Insights gained through AI are going to be essential. What characteristics does he think will define the next-generation European wealthtech provider?
Jensen: “Our global report tells us that: ‘In just one year, the value seen by wealth managers in AI technologies has increased. Less than seven in 10 saw AI as important in data analysis and forecasting in 2018, but now more than 80% see its value.’ The report also highlights this discrepancy: ‘Over 50% of executives in the Middle East/Africa think that financial guidance might change as a result of AI, compared with 45% overall.’
Jensen said: “I think AI and robot advisors have increasingly come to market over the last three years. Besides, I think the industry must continue with that roll out. With Temenos’ acquisition of LogicalGlue, Explainable AI (XAI) comes more to the fore, because that makes it possible for AI to learn from human beings behaviour, not just ‘learn’ like a machine. With AI’s deployment in private wealth, relationship managers will be in a better position to explain complex new positions to the client about what’s happening and why it’s happening. So I think the fact that Temenos is the first to invest in this area, from a supplier point of view, will bring concrete benefits. And we can take advantage of being the first! It’s also clear that with the cost pressures on the industry, this is a main differentiator for those who understand the significance of AI and what it can bring to high net worth individuals. AI can keep an eye on currency fluctuations and warn of weak funds or worrying fund fluctuations – and it learns as it goes along. These are only a tiny fraction of the value AI will eventually add.”
Personalisation, active portfolio management and taking the AI Train
Question – In Europe, clients look as if they primarily want more active portfolio management and more personalisation of their needs– do you agree?
Jensen: “Yes, I think it’s absolutely correct that the mass affluent segment has started to demand almost the same service as the high-end ultra-high-net worth individuals. And the younger generation, of mass affluents will become tomorrow’s high-net-worth individuals. So portfolio management for the mass affluent is more than just producing a quarterly statement – they are expecting more and more and will become even more discerning. So it is that whole process of interaction that needs to take place to serve the full gamut of the mass affluent audience.”
“I was in contact with a bank last week, which has just started a process of optimisation as part of MFIDII. This helps you to be classified within a certain model. So, they create several models, and they think that this classification means they have provided a personalised service. But you’re still a part of a group, a part of a segment, but it is far more granular than before. If you have between €1 to €5m you are in one group, and the next group is those worth between €5 to €10M and so forth. And the way that they use the data is also different. To put you into those segments and offer what is a personalised service is very different from what has been done before. So that’s tying into more detailed use of the data analytics.”
“Increased personalisation of products will be critical. In the mass affluent sector clients have very specific demands and very specific ways of interacting with banks. So for me, the personalised service is where AI can add real value. Personalised services are a lot more than products, it involves products but it is product relationships with the human touch.
“So for me, the personalised service is where AI can add real value. Personalised services are a lot more than products, it involves products but it is product relationships with the human touch.”Steen Jensen, Managing Director, Temenos Europe
“I think we’ve only seen the start of this process of personalisation. The affluent sector will become more and more demanding. And wealth managers, using AI as it develops and learns, will be able to offer more and more personalised services at a level we cannot imagine today. These more personalised services will come to the mass-affluent market with a delay of a couple of years or so. I think that wealth managers need to jump on the train now and start exploiting the possibilities of AI. Because it will continue. The catch up will never happen if they are not on the train.”
Flexibility and Speed to Market
“And then, as I said, the risk side is about flexible products, and time to market. Therefore, these two elements are often difficult to manage together, because the flexible products in many banks today come with legacy technology so they cannot spin up new products or services quickly enough. Therefore, I think it’s key that a bank’s structure and architecture is so flexible that they can very, very easily and very quickly bring those new products to market.
“And I think one of the aspects will be the risk element for the mass affluent, because whereas the high net worth individuals can afford a certain risk, that is not necessarily the case for the mass affluent who may not want to take the same risks. So they will potentially, structure products with some warrants, or hedges that will secure the product better. So that will be part of that offering as well, in my view, but I do not see that rolled out yet across the mass affluent market.”