Wealth Management, ethics and compliance – Q & A

1. What is wealth management?
“The services provided by an institution (i.e. the wealth manager) in order to manage the personal finances of clients (ranging from mass affluent to ultrahigh-net-worth (UHNWIs)) in order to realize individual clients goals. These goals can be diverse and will differ by individual. The products and services required to realize these goals will also differ by individual client.”
Wealth management is one of the few segments of the financial services that to date, has been relatively unchanged by digital disruption.

2. According to some scholars, the Fintech value chain will dominate also the wealth management value chain ?
Go-to-market activities
Client onboarding
Investment advice and distribution
Automated transactional advice,
Guided advice (hybrid),
Goals based (advised),
Investment management
Account administration.
Ongoing relationship management.

3. According to some scholars, the Fintech value chain will dominate also the wealth management value chain.
The wealth management value chain is complex from beginning to end due to the nature of the participants and components that make up the wealth management ecosystem. These participants and components include the different wealth managers (both incumbents and new entrants), wealth management products and services, product providers, regulators and ultimately the multifaceted needs of the customers, including company ownership, remarriage (s), children and the associated responsibilities.

4. How wealth management companies of different size address the digitalization challenge?
Digitizing wealth management operations translates into offering superior services and rich experiences. This includes ensuring the confidentiality, integrity and availability of personal data and information. The challenge for WM firms is to deal with cyber security in a faster-changing environment than ever before.
Wealth managers and relationships with technology
To disrupt themselves, incumbent wealth managers need to collaborate with or acquire new entrants, or to build their own competitive alternative.
• Partnering
• Buying start-up
• Internal Innovation (or building)

5. How wealth management companies of different size address the digitalization challenge?
To disrupt themselves, incumbent wealth managers need to collaborate with or acquire new entrants, or to build their own competitive alternative.
Digitizing wealth management operations translates into offering superior services and rich experiences. This includes ensuring the confidentiality, integrity and availability of personal data and information. The challenge for WM firms is to deal with cyber security in a faster-changing environment than ever before.
Wealth managers and relationships with technology
Partnering
The ultimate form of collaboration is partnering between an established, sizeable player and a FinTech.
This would require investment from both sides and in some instances is being delivered through a joint-venture-like model. It could even be delivered to the market under a different brand. Partnering means an acknowledged mutual respect between the two partnering parties involved, with the aim being to deliver better outcomes to the end-client.
Buying
Alternatively, an established player can buy the capabilities of a FinTech and add or integrate them into its own business model. We have seen many examples of this strategy in action, particularly in the USA; for example, BlackRock’s acquisition of FutureAdvisor in 2015 and, more recently, UBS’s acquisition of SigFig.
Building
Many wealth managers are working to develop their own technology solutions or customizing an existing platform to meet their needs. Building brings a significant risk of lead-time to implement. It is unlikely that the incumbents will gain a first-mover advantage in bringing their own solution to the market.
They also run the significant risk of being too late to gain the benefits they foresaw when they started.
Increasingly, larger financial institutions are launching incubators or other targeted programs and inviting FinTechs to encourage more innovation and knowledge exchange. In some instances, the programs provide start-ups with financial backing, giving the supporting institution first-hand insight into potential partnerships or buying opportunities.

6. Essential digitalization in wealth management means digitalization of which services usually performed by the wealth manager?
The three trends that drive the digitalization in wealth management:
Heightened customer expectations are most certainly influencing business priorities.
Technology as an enabler for delivery, distribution and moving money. When you think of “digital”, while not wholly synonymous by definition, it is difficult to imagine “digital” without the complement of “technology”.
Focused attention on demographics. Why? Because this area spells “opportunity”.

7. Which are the general trends that characterize the development towards new operating models?
– Increasing regulation
-Increasing decentralization.
-Increasing industrialization

8. Which are the general trends that characterize the development towards new operating models?
– Increasing regulation. Many banks’ project portfolios are loaded with more than 50% of regulatory project costs. Examples are know- your-client (KYC), customer onboarding and automated execution of services.
– Increasing decentralization. Many banks have still not transformed their operating models from vertically integrated value chains to more flexible, disintegrated models that are present. Thus, banks still have a high degree of in-house “production”, which can reach up to 90% in Swiss private banks.
– Increasing industrialization. The four principles of industrialization are the cornerstones of future wealth management operations, and technology is a strong enabler for all of them. Omni-channel management, for example, is only possible if services are standardized across all channels.

9. What does it mean for a wealth manager to go omni-channel? Which of the options represent a channel thought which a wealth manager would interact with the clients?
The key to success is to address customers across multiple channels (i.e. to offer a real omni-channel service),
This is one of the biggest challenges wealth management operations are faced with: they must be able to serve different generations with different needs and also be able to serve heterogeneous needs within a generation
Omni-channel as the New Mantra.
Ex : online plateforme or contact a human advisor with mobile, PC/Tablet, phone…

10. What does it mean for a wealth manager to go omni-channel?
The key to success is to address customers across multiple channels (i.e. to offer a real omni-channel service)
This is one of the biggest challenges wealth management operations are faced with: they must be able to serve different generations with different needs and also be able to serve heterogeneous needs within a generation
Omni-channel as the New Mantra.
Example, the grandson would rather buy Asian stocks on an online platform over his iPad, whereas his traditional grandfather gives his advisor a call to buy some Dow Jones stocks.
On the other hand there is a growing percentage of older people, who have worked and saved money for retirement. In particular, in this age group the proportion of those accustomed to traditional human advisory cannot be overestimated. And many high-net-worth individual (HNWI) customers continue to rely on a high level of “human” support, with an advisor whom they can fully trust.

11. In class we discussed digital business models for wealth managers and how to have a successful business model for different generations, three different “triangles” (requirements) need to be satisfied to have a consistent business model, which are those?
Customer segments;
Products and pricing;
Business processes and IT.

12. In class we discussed digital business models for wealth managers and how to have a successful business model for different generations, three different “triangles” (requirements) need to be satisfied to have a consistent business model
Customer segments: Who is my customer and what is the value added I want to provide?
Products and pricing: What is my product and service offering across channels and customer segments? How can I operate profitably?
Business processes and IT: How can I build optimal processes? Which channels should be offered to satisfy the relevant customer segments?

13. To ensure a successful transformation process wealth managers need to show the following characteristics
Customer centricity;
Leadership;
Culture/employees;
Strategy;
Processes;
Technology;
Products/prices.

14. Which characteristics should wealth managers show to ensure their successful digital transformation process?
Customer centricity. The transformation process is geared to the needs of the customer segments which are to be served.
Leadership. Digital transformation requires full senior management backing.
Culture/employees. Wealth management providers need to establish an innovation culture, as well as foster change in the mindset of employees.
Strategy. Digitization needs to be the core element of a wealth management provider’s corporate strategy, rather than simply being seen as an additional sales channel.
Processes. The process landscape needs to be fully flexible and consistent across communication channels.
Technology. A flexible IT infrastructure as well as agile development methods are key to any digitization initiative.
Products/prices. Products/services, as well as respective pricing schemes, need to reflect individual customers’ consumption behaviour.

15. What does it mean to have personalization in the wealth management industry? Which of the options below represent the four pillars of personalization?
High-net-worth individuals (HNWIs) and ultra-high-net-worth individuals (UNWIs) are generally underwhelmed by their wealth managers’ digital offerings – including advisors’ ability to leverage their data to deliver better advice. Around two-thirds of clients would not recommend their current wealth manager and feel data is not being used to tailor advice. That is why the personalization of solutions and ways of presentation of them should meet following pillars.
The four pillars of digitalization:
Holistic data integration;
Open architecture and digital warehousing;
Flexible data visualization;
Hyper-personalization.

The four pillars of personalization:
-Dynamic client portals representing distinct branding,
apps and functionality based on user groups.
– HNWI client reports customized by user group
informational needs and wealth manager “service
level” (e.g. gold, platinum, etc.).
– Flexible reporting canvases, allowing advisors and even
HNWI clients to create and publish custom reports on
the fly.
– Tailored mobile apps to HNWI demographic – even more than one per wealth manager.

16. What does it mean to have personalization in the wealth management industry?
High-net-worth individuals (HNWIs) and ultra-high-net-worth individuals (UNWIs) are generally underwhelmed by their wealth managers’ digital offerings – including advisors’ ability to leverage their data to deliver better advice.
Individual means tailoring persona-driven digital experiences to clients so that the portal and apps “speak” directly to clients’ needs and wants. The digital experiences need to be matched to these personas. The result is large-scale personalization at low cost.

17. Wealth manager needs to have their cyber resilience strategy, why?
• a data breach is not a matter of “if” but a matter of “when”, and
• people (i.e. “the human element”) are the weakest link in the cyber security chain.

18. Why wealth manager needs to have their cyber resilience strategy?
Companies must have cyber resilience strategy
In it the firm takes into consideration that:
• a data breach is not a matter of “if” but a matter of “when”, and
• people (i.e. “the human element”) are the weakest link in the cyber security chain.

19. Why cyber security is important?
The confidentiality, integrity and availability of personal data and information.

20. Why cyber security is important?
Digitizing wealth management operations translates into offering superior services and rich experiences. This includes ensuring the confidentiality, integrity and availability of personal data and information. The challenge for WM firms is to deal with cyber security in a faster-changing environment than ever before.

21. In digitalization of financial industry, we distinguish three phases
Heightened customer : expectations are most certainly influencing business priorities /
Technology, as an enabler for delivery, distribution and moving money. When you think of “digital” while not wholly synonymous by definition, it is difficult to imagine “digital” without the complement of technology /
Demographics, why? because this area spells “opportunity” (p35 or 77)

22. In terms of use of technology, we distinguish three types of clients
digital deniers (client has a personal advisor and doesn’t use any virtual banking channels) ; hybrid clients, the client has a personal advisor but alos uses virtual banking channels for services related to wealth management and gisital (the clients has not persoal advisor and more than half of his wealth is with an online bank) (p88)

23. We discussed about 4 steps usually performed by the wealth manager
4 steps performed by a wealth manager :
– understanding the client’s situation
– defining suitable investment strategy
– recommending suitable investments
– controlling and monitoring the client’s wealth portfolio.
The challenge to digitize WM operations : client profiling (p93), automates the selection of investment strategy (p94) calculating a risk measure of the portfolio.

24. MiFID2 (the Markets in Financial Instruments Directive) requires that wealth manager :
TRUE, MIFID2 designed to ensure that the wealth manager proves that investments recommended are suitable for the client; therefore, firms have no choice but to implement repeatable processes and record evidence.

25. PSD2 requires that wealth manager
FALSE; PSD2 is a new regulation concerning the payment process and not the investment advising.

26. Which of the options present types of hybrid advisor
Digital advisor + scalable advisor + high touch advisor. p.171/172/173

27. We move to the era of social selling;
steps for social selling : identifing the target (targeted prospecting) -> more personal engagement -> offering a custom-made value proposition(bespoke proposal) -> impressing in meeting and closing deals -> more personal engagement (nurturing and retention)

28. Describe briefly the steps in social selling
firstly, identifying the target by identifying the ideal target people and opportunities and by doing so I mean narrow targeting, ex: millenials who created company in tech or cybersecurity, wealth of 5 to 10millions. Once this is done, we move on to the personal engagement with the prospect by creating engagement toward him by building a value relationship, it can be sending him interesting and relevant content (ex: inviting for seminars). The third step is offering him tailored-made proposition, demonstrate and present your proposition. This step we will be able to shortlist prospect in 2 categories : interested right now or interested but not ready yet to commit. and with the first one we will be able to move on to the next step and with the second we will back to personnal relationship for a long-term relation. Now the fourth step is the win-win proposal to the client, because nothing is better than a win-win deal with someone. Continue into the personnal engagement with him, his company and his personal news/achievements. the invitations to seminars seen in the 2nd step can re-happen here. The last but not the least, we need to keep this client and its client lifetime value, and by doing so we have to nurture the relation ex: personal message and attention. The prospect is now a client, and by delivering him a good service his client value will increase. (p136)

29. What should wealth managers know, so to give can give what we called “sleep-tight
to give a « sleep-tight » advice: know and understand the investor / identify mismatches and examine alternative strategies / know the products / explain the risks/ and obtain informed consent. (p103)

30. Three elements of gamification, applied in the wealth management industry are?
the 3 elements of the gamification to attract customers are : autonomy (controlling one own pace and path through the game) mastery (getting better over time through practicing and applied learning) and purpose (aiming at a well-defined goal) (p105)

31. The different segments where AI can help in the value chain?
– Asset management industry (back office and daily tasks)
– Distribution spaces
– Product management front
– Onboarding and Profiling
– Portfolio Construction and Management
– Communication and Reporting

32. How did Me Direct bank differentiate from the competitors?
Me Direct Bank differentiates itself from its competitors by offering the first open architecture platform for model portfolios and online wealth management. It is the most transparent platform for investing in mutual funds. Me Direct Bank has collaborated with the largest and most reputable firms such as Mornigstar and Instinet in order to gain credibility, reliability and thus gain consumer confidence by offering quality products and independent advice.
In addition, the company has strived to provide a good online experience (experience, interface and user platform) in order to maintain a competitive edge.
Finally, it launched the online platform to the public with a wide range of products and services that have not been offered online in Belgium (and Europe): innovative savings products; online wealth management in three options: a managed pension plan, « monitoring and advice » and, a full discretionary management service; a platform execution service for funds, ETFs, equities and bonds; and execution only of thematic model fund portfolios.

33. Moneymeets.com operated in which country?
The platform is specialized in German market.

34. SharingAlpha checks history of advisors and their track record
TRUE

35. What can wealth managers and advisors do on the SharingAlpha platform?
– Start building a track record, be successful and have a competitive advantage
– Start building a track record and constantly improve until they are successful
Or do nothing. Its rather risky to do nothing.

36. In class we discussed about different types of new wealth management services would emerge, if we see wealth management as a platform, which are those?
– Digital client onboarding process
– Dynamic Risk Profiling Using Big Data Technology
– Open API Approach
– Increasing Demand for Post-Investment Tools

37. Some examples of AI-powered wealth management products include?
– “AI-Smart”-Beta ETFs
– AI-Driven Sector (ETF) rotation strategies
– Autonomous, pure AI hedge funds and reinforcement learning
– Plurality of uncorrelated AI and alternative data-driven strategies
– AI-Powered investment vehicles
– Partially Versus Purely AI-Driven Investing
– AI and Deep Learning: Adaptable and Self-Learning Capital Markets Modelling and Forecasting

38. Some examples of AI-powered wealth management products include?
– “AI-Smart”-Beta ETFs
– AI-Driven Sector (ETF) rotation strategies
– Autonomous, pure AI hedge funds and reinforcement learning
– Plurality of uncorrelated AI and alternative data-driven strategies
– AI-Powered investment vehicles
– Partially Versus Purely AI-Driven Investing
– AI and Deep Learning: Adaptable and Self-Learning Capital Markets Modelling and Forecasting

39. Which of the companies below have the biggest dominance in the China wealth market?
– BAIDU
– ALIBABA (ALIPAY)
-TENCENT (WECHAT)

40. Who from the countries below in Latin America has privatized pension funds?
Chili, Mexique

41. Japan’s Biggest challenge in terms on wealth management company regulation ?
Wealth management providers should inevitably establish digital technologies in their performance spectrum. In doing so, the key to success is to address customers across multiple channels (i.e. to offer a real omni-channel service)
This is one of the biggest challenges wealth management operations are faced with: they must be able to serve different generations with different needs and also be able to serve heterogeneous needs within a generation

Japan’s demographic development is a major challenge, 127 million inhabitans at the moment and to drop to 99 milion by 2060

Japan’s old-age dependency ratio stood at 26.7% in 2015, which is far above the global average of 8.3%, and is expected to increase to 39.9% in 2060.

Eventually, a single elderly adult will be taken care of by only 1.3 individuals in the labour-productive age

42. Who controls over 10% of wealth in Turkey ?
Ultra-high-net-worth individuals (UHNWIs), controlling almost 10% of the total wealth in the country

43. Some of the reasons why we have regulation in the wealth management segment is because of ?
Regulators’ responses to technological developments in the financial services industry derive from a number of often-competing principles and objectives.
– Consumer protection
– Privacy
– Data security
– Anti-Money Laundering
– Anti-Terrorism Financing
– Cybersecurity
– Tax evasion
– Promoting Innovation
– Access to Finance
– Fair lending
– Job creation
The internet has brought an transparency into this sector.
The technical progress in general in the past 10 years is an enabler of change in the wealth management industry too.
Technology leads and has led to social changes. If a user has access to information from a neutral source (i.e. independent from a product provider), he will use this information to challenge institutions, their data quality, their recommendations, etc.

44. Which of the below factors impact the wealth management company regulation ?
Regulatory Agency Authority
Applicable Laws & regulations
Licensure & Registration Requirements
Permitted Activities
Compliance Requirements
Disclosure Requirements

Regulation has also helped to kickstart the robo-advice movement. Data is the oil of the future.
Accessing the right kind of data for these non-financial players has been proven difficult and expensive in the past.
Brands are even more important.

45. Three different approaches to regulation are ?
Active approaches to regulation, UK;
Passive, national regulators do not play at active role and react after, Germany;
Restrictive risk averse and preventive, USA

46. What is regTech ?
RegTech broadly means technologies that facilitate the delivery of regulatory requirements.
Governments are beginning to work with companies to identify ways to support the adoption of new technologies to facilitate the delivery of regulatory requirements.
RegTech can reduce a client’s regulatory and compliance costs, automate the certain compliance tasks and reduce risks.

47. What is regTech ?
RegTech broadly means technologies that facilitate the delivery of regulatory requirements.
Governments are beginning to work with companies to identify ways to support the adoption of new technologies to facilitate the delivery of regulatory requirements.
RegTech can reduce a client’s regulatory and compliance costs, automate the certain compliance tasks and reduce risks.

48. RegTech broadly means technologies that facilitate the delivery of regulatory requirements
True

49. RegTech can reduce a client’s regulatory and compliance costs, automate the certain compliance tasks and reduce risks.
True

50. Digital Currencies have been used to pay for criminal activities
True

51. What is InvestTech?
– “Robo Adviser” for investments – automated wealth
managers offering financial advice
– Based on KYC information, they offer tailor-made investment solutions, typically based on mutual funds / ETFs
– More sophisticated models are being deployed using artificial intelligence
– Typically, a license is required to provide these services

52. What is InvestTech?
“Robo Adviser” for investments – automated wealth managers offering financial advice
Based on KYC information, they offer tailor-made investment solutions, typically based on mutual funds / ETFs
More sophisticated models are being deployed using artificial intelligence
Typically, a license is required to provide these services

53. Each Statement of Investment Principles (SIPs) must cover the types of investment, and the balance between investments, risk, return and realisations
True

54. To following two considerations need to be included to fund’s SIP:
-The extent (if at all) to which social, environmental or ethical considerations are taken into account by trustees in the selection, retention, and realisation of investments;
– The policy (if any) directing the exercise of the rights (including voting rights) attaching to Investments

55. Blockchain can help rationalize mid- and back-office processes in the wealth management industry
True

56. In class we said that in future the expectations are that wealth management will become more modular, that is the wealth managers will take different client’s needs, which needs did we speak about?
– Time horizon
-The financial objective connected to the goal: minimum acceptable and optimal target
– Available capital: initial capital, periodic in/outflows, and the debt to service the objective
– Prioritization among other goals (i.e. implement a holistic approach, considering pension plans, succession, long life cycle and insurance coverage).

57. In class we said that in future the expectations are that wealth management will become more modular, that is the wealth managers will take different client’s needs, which needs did we speak about?
The needs/important goals we talked about are :
– Time horizon
– The financial objective connected to the goal: minimum acceptable and optimal target
– Available capital: initial capital, periodic in/outflows, and the debt to service the objective
– Prioritization among other goals (i.e. implement a holistic approach, considering pension plans, succession, long life cycle and insurance coverage).

58. Financial crises are cyclical or secular events.
True

59. Which of the statements below best describes the term financial singularity?
The financial singularity is described by some economists as a theoretical moment in the future when most investment and economic decisions in the world (or even all of them) will be made by superintelligent machines rather than humans, financial organizations or investment experts. If human fallibility is removed from the markets, and asset prices reflect real value, then a utopian period of super-efficient markets will become a reality as a result.

60. Some of the benefits of using blockchain technology for wealth management include ?
• blockchain records are secure and reliable;
• blocks are immutable and this prevents hacking;
• it discards the need for a third party or central party to validate transactions.

Thanks a lot to the « Team Go Get’em ! » for this amazing work !
Q&A based on Barberis, J., & Chishti, S. (2018). « WealthTech Book: The
FinTech Handbook for Investors, Entrepreneurs and Finance
« 

A propos de Didier Durand 121 Articles
Expert en Gestion internationale de Patrimoine et Solutions de Sécurité privée.

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