wealth management

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active, indexing, low cost, robo-advisor, wealth management, WealthTech

High-quality Low-cost, Active Index investing

`Jack` Bogle passed away this past January. No matter what investment camp you belong to, he has undoubtedly impacted investment thinking, products, and services.

Last summer, Victor Hagahni and James White – Victor is the Founder and CIO of Elm Partners, and James is Elm’s CEO – wrote an article Is Vanguard More Rolls Royce, or Hyundai? that highlights an investment world particularity:

With most products and services – cars, doctors, food etc – better quality normally goes hand-in-hand with a higher price. Not so with investing.

They even quoted Bill McNabb, former CEO of the Vanguard Group saying:

`The whole cost argument from an investment perspective is counter-intuitive.` 

Listening to Bill McNabb`s short interview[1] at the 2019 Academic and Practitioner Symposium on Mutual Funds and ETFs, he makes a very important point that is not well understood.

Over the past ten years, we have transformed the investment management space into

A low-cost product space

It is NOT a transformation into

A passive beats active space

The growth of robo-advisory (apologies for the umbrella term) is Not about passive over active. Robo-advisory is about the widespread use of low-cost products. We live in a world that it is becoming more difficult to imagine high-cost investment products.

One of the best examples of low cost, active and passive management, is Elm Partners. 12bps, tax harvesting, portfolio construction based on economic fundamentals and other liquid risk premia in addition to equity market Beta.

Listen to Victor Hagahni and James White discuss with me their approach which is for accredited investors only. Their offering includes less than half a dozen investment programs and the possibility of SMAs. Elm Partners does not aim to do everything for everybody. Low cost and transparency, are paramount for their business.



You can also follow their quarterly reporting on Seeking Alpha, here. You can follow their thoughtful research here. You can savor Victor`s TEDx Talk Where are all the Billionaires? & Why should We Care?: where he uses the puzzle of the missing billionaires to help us understand why most investors fail to capture the returns offered by the market. This actually leads into the main reasoning for Elm Partners investment strategy, the so-called “Active Index Investing.”

[1] Former Chairman and CEO of Vanguard, Bill McNabb Discusses the Future of the Investment Industry from the 2019 Academic and Practitioner Symposium on Mutual Funds and ETFs. Presented by UVA Darden and the Investment Company Institute. https://www.youtube.com/watch?v=Z8UQvkKbFZo

Book one hour with Efi – Ask me anything (AMA) for 0.10BTC – [email protected]

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email

AI, health, wealth management, WealthTech

Food and Finance blurring through technology

As technology blurs business lines and `forces` incumbents to get rid of silos, Wealth Management & Capital Markets become broader.

Wealth Management & Capital Markets are being re-imagined as we speak.

Stay with me in this transformation.

My vision of Wealth Management is a holistic service that surely includes the future of Food and how we eat.  We didn`t touch on this topic with Paolo Sironi, when we discussed the principles of the Theory of Financial Market Transparency (FMT) in `Sustainable Banking Innovation`. Limited (and irreversible) time constraints were the reason that I didn`t raise the issue, which otherwise would be a very suitable topic to discuss with the Italian thought leader @thespironi.

My belief is that Food, Finance, and Fun are essential domains to our health and wealth. So, we will soon add to budgeting, borrowing, insurance, investing, trading, all sorts of others non-conventional `assets` and services.

Vivek Gopalakrishnan, head of brand & communications Wealth Mgt at BNP Paribas in South East Asia,  shared a Reimagine food infographic about What and How we will be eating.

reimagine food

Source: DECODING THE FUTURE OF FOOD

The way I see the broadening of wealth management with Food is through AI algorithms that we will eventually trust, as we become convinced that they know us better than we know ourselves. Once this cultural shift happens, then food AI advisory will become ubiquitous. We will entrust the mathematics, the algorithms to advise us on Diversification, risk management, and investing around food.

All this will be 100% linked to our customized insurance policies naturally. It will also affect our risk appetite in financial investing as science will put us in more control of our life expectancy and Immortality will become in. Audrey de Grey, the renowned biomedical gerontologist, wants to increase human longevity to the point that death could become a thing of the past. Medical technology could soon be able to prevent us from falling sick. Yuval Noah Harari, also talks about the `Last Days of Death` in Homo Deus.

Even if this doesn’t happen in the next 50yrs, food AI advisory will happen and the best way will be to integrate these services with the advisory of today`s conventional assets in wealth management. My US dollars, my Canadian dollars, my euros, my Swiss francs[1], and my food consumption, risk management, diversification; all in one place.

In the US, the USDA issues a monthly report on what food should cost families nationwide, presented in four different priced plans: thrifty, low cost, moderate cost, and liberal. Food costs, as a % of income, have been declining dramatically in the US (not the case in emerging markets). Whether food costs are 10% or 40% of household incomes, the point is there is a huge opportunity to manage `what and how I eat`, and just looking at the food budget which misses the entire opportunity.

My vision is that there is no distinction between PFM, robo advisors, private banking for HNW and health. Our wealth and health have to be managed in one place. Ideally, lets deploy blockchain technology to manage our data in a `personal locker` fashion and then let’s outsource the processing and the insights from this data to the best algorithms that act in our interest and advise us on what to eat, what to buy, how to diversify, how to rebalance, what risks match our goals etc. Whether it is food or money.

Tokenization can also unlock value in this context by creating communities linked by incentives built-in the tokens, that share similar food habits and or financial goals.

Blockchain can protect us from the data monopoly slavery and enable us to unlock value.

Fintech can empower us as asset owners of these new values.

[1] These are my personal actual holdings since I have lived in each of these currency places and still hold accounts. Still looking for an aggregator to view and manage all these on a single dashboard. Fintech is not done.

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

advisors, Machine Learning, Morgan Stanley, robo-advisor, wealth management, WealthTech

Machine Learning for RIA loyalty and customer engagement; by Morgan Stanley

 

loaylty

Wealth management and AI is a natural combination. Standalone Fintechs, innovation labs of incumbents and of financial services IT providers, are all somehow working on this (3 types). There is another war of talent going on this area too. All three types of Financial services providers are looking for Data scientists and competing with all other industries (commerce, life sciences, and manufacturing). The market is tagging experienced conventional quants as AI experts. Public companies (mainly banks) are competing for tech branding.

I realized that I have not written about Morgan Stanley as much as Goldman or JP Morgan. Of course, this is not deliberate. I am well aware of the heads on competition between which of course is accentuated from business media. Look at the headlines during this reporting season and you will undoubtedly get a sense of this short-term pressure that public markets and the quarterly cycles, inflict.

What caught my attention this time about Morgan Stanley, was the release of the new version of the so-called “Next Best Action” system to the 16,000 RIA of MS. This system has been around for several years but as a rule-based system suggesting investment options for advisors and their clients. A system that every single bank with a wealth management offering has and that we all as clients wonder which is “best” (as if that is the right question in the first place since none of these rule-based systems could be customized).

Morgan Stanley’s “Next Best Action” is using Machine Learning to support advisors in increasing engagement. The success of this tool will be measured by its effectiveness to enhance the dialogue with the client whether it is through in-person meetings, phone calls or pure digital channels.

Like me, most of us are sick and tired of emails with pdf attachments of several analysts covering Alibaba (that I care about accumulating) and not knowing how to make sense of that. All of us, are realizing that only because of KYC stringent requirements, advisors look to incorporate our life events and goals into an investment proposal. Morgan Stanley’s “Next Best Action” system is using ML to advise clients on what to consider based on life events. For example, a client had a child with a certain illness, the system could recommend the best local hospitals, schools, and financial strategies for dealing with the illness. The system monitors and learns from the reaction of the client to the “Recommendations” and based on the client responses, improves the quality of ideas each day.

In a way, the system thinks for the advisor on a daily basis and presents relevant information and continuously improved recommendations. The advisor has a choice and can send customized emails and texts to clients. The system in a few seconds finds the clients’ asset allocation, tax situation, preferences, and values.

The system is empowering the advisor and this is where the potential of widespread adaptation lies. Never forget that tech adoption is always more of a cultural issue rather than a technical one. In machine learning, the more the system is used the better the next best actions are.

If the community of the 16,000 Morgan Stanley advisors make the “Next Best Action” their ally, then MS will have an edge and a loyal army taking care of their clients.

This is not about disintermediation. ML can build loyalty for the intermediaries servicing clients and at the same time offer continuously better advice to end clients.

This not some version of robo-advisory focused on best on-boarding and low fee execution. It is enhancing a hybrid wealth management offering in a way that offers a cutting-edge (value) to those using Morgan Stanley as a platform provider (i.e. the advisors) and the end clients.

Morgan Stanley has established its tech center in Montreal – Montreal Technology Centre. It has grown to 1200 tech employees focused on innovation in low-latency and electronic trading, cloud engineering, cybersecurity, AI/machine learning, and end-user technologies.

Barron’s reports that it took MS about 6yrs to develop the “Next Best Action”. The main KPI is customer engagement.  The other five variables monitored are: cash flow, brokerage business volume, new advice clients, the level of banking business, and account attrition.

Morgan Stanley draws from million conversations to build its AI

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.