Next Gen Wealth Management Architecture..(3/3)

The previous two posts have covered the business & strategic need for Wealth Management IT applications to reimagine themselves to support their clients. How is this to be accomplished and what does a candidate architectural design pattern look like? What are the key enterprise wide IT concerns? This third & final post (3/3) tackles these questions. An additional following post will return our focus to the business end when we focus on strategic recommendations to industry CXO’s.

The Four Key Business Tenets – 

How well a WM firm harness technology determines it’s overall competitive advantage. When advisors can get seamless access to a variety of data, it can help them in manifold ways. For example it helps them make better decisions for their clients as well as make productive use of the day by having the right client data at their fingertips with the push of a button or by means of an intuitive user interface. Similarly, greater access to their portfolios gives clients an more engaging and unified experience.

So, to recap the four strategic goals that WM firms need to operate towards – 

  1. Increase Client Loyalty by Digitizing Client Interactions –  WM Clients who use services like Uber, Zillow, Amazon etc in their daily lives are now very vocal in demanding a seamless experience across all of the WM services using digital channels.  The vast majority of  WM applications still lag the innovation cycle, are archaic & are still separately managed. The net issue with this is that the client is faced with distinct user experiences ranging from client onboarding to servicing to transaction management. There is a crying need for IT infrastructure modernization ranging across the industry from Cloud Computing to Big Data to microservices to agile cultures promoting techniques such as a DevOps approach to building out these architectures. Such applications need to provide anticipatory or predictive capabilities at scale while understand the specific customers lifestyles, financial needs & behavioral preferences. 
  2. Generate Optimal Client Experiences –  In most existing WM systems, siloed functions have led to brittle data architectures operating on custom built legacy applications. This problem is firstly compounded by inflexible core banking systems and secondly exacerbated by a gross lack of standardization in application stacks underlying ancillary capabilities. These factors inhibit deployment flexibility across a range of platforms thus leading to extremely high IT costs and technical debut. The consequence is that these inhibit client facing applications from using data in a manner that constantly & positively impacts the client experience. There is clearly a need to provide an integrated digital experience across a global customer base. And then to offer more intelligent functions based on existing data assets. Current players do possess a huge first mover advantage as they offer highly established financial products across their large (and largely loyal & sticky) customer bases, a wide networks of physical locations, rich troves of data that pertain to customer accounts & demographic information. However, it is not enough to just possess the data. They must be able to drive change through legacy thinking and infrastructures as things change around the entire industry as it struggles to adapt to a major new segment – the millenials – who increasingly use mobile devices and demand more contextual services as well as a seamless and highly analytic driven & unified banking experience – akin to what they commonly experience via the internet – at web properties like Facebook, Amazon, Google or Yahoo etc
  3. Automate Back & Mid Office Processes Across the WM Value Chain – The needs to forge a closer banker/client experience is not just driving demand around data silos & streams themselves but also forcing players to move away from paper based models to more of a seamless, digital & highly automated model to rework a ton of existing back & front office processes – which is the weakest link in the chain. These processes range from risk data aggregation, supranational compliance (AML,KYC, CRS & FATCA), financial reporting across a range of global regions & Cyber Security. Can the Data architectures & the IT systems  that leverage them be created in such a way that they permit agility while constantly learning & optimizing their behaviors across national regulations, InfoSec & compliance requirements? Can every piece of actionable data be aggregated,secured, transformed and reported on in such a way that it’s quality across the entire lifecycle is guaranteed? 
  4. Tune existing business models based on client tastes and feedback – While Automation 1.0 focuses on digitizing processes, rules & workflow as stated above; Automation 2.0 implies strong predictive modeling capabilities working at large scale – systems that constantly learn and optimize products & services based on client needs & preferences. The clear ongoing theme in the WM space is constant innovation. Firms need to ask themselves if they are offering the right products that cater to an increasingly affluent yet dynamic clientele. This is the area where firms need to show that they can compete with the FinTechs (Wealthfront, Nutmeg, Fodor Bank et al) to attract younger customers.

Now that we have covered the business bases, what foundational technology choices comprise the satisfaction of the above? Lets examine that first at a higher level and then in more detail.

Ten Key Overall System Architecture Tenets – 

The design and architecture of a solution as large and complex as a WM enterprise is a multidimensional challenge. The below illustration catalogs the four foundational capabilities of such a system – Omnichannel, Mobile Native Experiences, Massive Data processing capabilities, Cloud Computing & Predictive Analytics – all operating at scale.

NextGen_WM

                            Illustration – Top Level Architectural Components 

Here are some of the key global design characteristics for a common architecture framework :

  • The Architecture shall support automated application delivery, configuration management & deployment
  • The Architecture shall support a high degree of data agility and data intelligence. The end goal being that that every customer click, discussion & preference shall drive an analytics infused interaction between the advisor and the client
  • The Architecture shall support algorithmic capabilities that enable the creation of new services like automated (or Robo) advisors
  • The Architecture shall support a very high degree of scale across many numbers of users, interactions & omni-channel transactions while working across global infrastructure
  • The Architecture shall support deployment across cost efficient platforms like a public or private cloud. In short, the design of the application shall not constrain the available deployment options – which may vary because of cost considerations. The infrastructure options supported shall range from virtual machines to docker based containers – whether running on a public cloud, private cloud or in a hybrid cloud
  • The Architecture shall support small, incremental changes to business services & data elements based on changing business requirements 
  • The Architecture shall support standardization across application stacks, toolsets for development & data technology to a high degree
  • The Architecture shall support the creation of a user interface that is highly visual and feature rich from a content standpoint when accessed across any device
  • The Architecture shall support an API based model to invoke any interaction – by a client or an advisor or a business partner
  • The Architecture shall support the development and deployment of an application that encourages a DevOps based approach
  • The Architecture shall support the easy creation of scalable business processes that natively emit business metrics from the time they’re instantiated to throughout their lifecycle

Given the above list of requirements – the application architecture that is a “best fit” is shown below.

WM_Arch

                   Illustration – Target State Architecture for Digital Wealth Management 

Lets examine each of the tiers starting from the lowest –

Infrastructure Tier –

Cloud Computing across it’s three main delivery models (IaaS, PaaS & SaaS) is largely a mainstream endeavor in financial services and no longer an esoteric adventure only for brave innovators. A range of institutions are either deploying or testing cloud-based solutions that span the full range of cloud delivery models. These capabilities include –

IaaS (infrastructure-as-a-service) to provision compute, network & storage, PaaS (platform-as-a-service) to develop applications & exposing their business services as  SaaS (software-as-a-service) via APIs.

Choosing Cloud based infrastructure – whether that is secure public cloud  (Amazon AWS or Microsoft Azure) or an internal private cloud (OpenStack etc) or even a hybrid approach is a safe and sound bet for WM applications. Business innovation and transformation are best enabled by a cloud based infrastructure.

Data Tier – 

While banking data tiers are usually composed of different technologies like RDBMS, EDW (Enterprise Data Warehouses), CMS (Content Management Systems) & Big Data etc. My recommendation for the target state is largely dominated by a Big Data Platform powered by Hadoop. Given the focus of the digital Wealth Manager to leverage algorithmic asset management and providing predictive analytics to create tailored & managed portfolios for their clients – Hadoop is a natural fit as it is fast emerging as the platform of choice for analytic applications.  

Financial services in general and Wealth Management specifically deal with manifold data types ranging from Customer Account data, Transaction Data, Wire Data, Trade Data, Customer Relationship Management (CRM), General Ledger and other systems supporting core banking functions. When one factors in social media feeds, mobile clients & other non traditional data types, the challenge is   

The reasons for choosing  Hadoop as the dominant technology in the data tier are the below – 

  1. Hadoop’s ability to ingest and work with all the above kinds of data & more (using the schema on read method) has been proven at massive scale. Operational data stores are being built on Hadoop at a fraction of the cost & effort involved with older types of data technology (RDBMS & EDW)
  2. The ability to perform multiple types of processing on a given data set. This processing varies across batch, streaming, in memory and realtime which greatly opens up the ability to create, test & deploy closed loop analytics quicker than ever before
  3. The DAS (Direct Attached Storage) model that Hadoop provides fits neatly in with the horizontal scale out model that the services, UX and business process tier leverage. This keeps cuts Capital Expenditure  to a bare minimum.
  4. The ability to retain data for long periods of time thus providing WM applications with predictive models that can reason on historical data
  5. Hadoop provides the ability to run a massive volumes of models in a very short amount of time helps with modeling automation
  6. Due to it’s parallel processing nature, Hadoop can run calculations (pricing, risk, portfolio, reporting etc) in minutes versus the hours it took using older technology
  7. Hadoop has to work with existing data investments and to augment them with data ingestion & transformation leaving EDW’s to perform complex analytics that they excel at – a huge bonus.

Services Tier –

The overall goals of the services tier are to help design, develop,modify and deploy business components in such a way that overall WM application delivery follows a continuous delivery/deployment (CI/CD) paradigm.Given that WM Platforms are some of the most complex financial applications out there, this also has the ancillary benefit of leaving different teams – digital channels, client on boarding, bill pay, transaction management & mid/back office teams to develop and update their components largely independent of other teams. Thus a large monolithic WM enterprise platform is decomposed into its constituent services which are loosely coupled and each is focused on one independent & autonomous business task only. The word ‘task’ here referring to a business capability that has tangible business value.

A highly scalable, open source & industry leading platform as a service (PaaS) like Red Hat’s OpenShift is recommended as the way of building out and hosting this tier.  Microservices have moved from the webscale world to fast becoming the standard for building mission critical applications in many industries. Leveraging a PaaS such as OpenShift provides a way to help cut the “technical debt” that has plagued both developers and IT Ops. OpenShift provides the right level of abstraction to encapsulate microservices via it’s native support for Docker Containers. This also has the concomitant advantage of standardizing application stacks, streamlining deployment pipelines thus leading the charge to a DevOps style of building applications. 

Further I recommend that service designer take the approach that their micro services can be deployed in a SaaS application format going forward – which usually implies taking an API based approach.

Now, the services tier has the following global responsibilities – 

  1. Promote a SOA style of application development
  2. Support component endpoint invocation via standards based REST APIs
  3. Promote a cloud, OS & ,development language agnostic style of application development
  4. Promote Horizontal scaling and resilience

 

Predictive Analytics & Business Process Tier – 

Though segments of the banking industry have historically been early adopters of analytics, the wealth management space has largely been a laggard. However, the large datasets that are prevalent in WM as well as the need to drive customer interaction & journeys, risk & compliance reporting, detecting fraud etc calls for a strategic relook at this space. 

Techniques like Machine Learning, Data Science & AI feed into core business processes thus improving them. For instance, Machine Learning techniques support the creation of self improving algorithms which get better with data thus making accurate business predictions. Thus, the overarching goal of the analytics tier should be to support a higher degree of automation by working with the business process and the services tier. Predictive Analytics can be leveraged across the value chain of WM – ranging from new customer acquisition to customer journey to the back office. More recently these techniques have found increased rates of adoption with enterprise concerns from cyber security to telemetry data processing.

Though most large banks do have pockets of BPM implementations that are adding or beginning to add significant business value, an enterprise-wide re-look at the core revenue-producing activities is called for, as is a deeper examination of driving competitive advantage. BPM now has evolved into more than just pure process management. Meanwhile, other disciplines have been added to BPM — which has now become an umbrella term. These include business rules management, event processing, and business resource planning.

WM firms are fertile ground for business process automation, since most managers across their various lines of business are simply a collection of core and differentiated processes. Examples are private banking (with processes including onboarding customers, collecting deposits, conducting business via multiple channels, and compliance with regulatory mandates such as KYC and AML); investment banking (including straight-through-processing, trading platforms, prime brokerage, and compliance with regulation); payment services; and portfolio management (including modeling model portfolio positions and providing complete transparency across the end-to-end life cycle). The key takeaway is that driving automation can result not just in better business visibility and accountability on behalf of various actors. It can also drive revenue and contribute significantly to the bottom line.

A business process system should allow an IT analyst or customer or advisor to convey their business process by describing the steps that need to be executed in order to achieve the goal (and explain the order of those steps, typically using a flow chart). This greatly improves the visibility of business logic, resulting in higher-level and domain-specific representations (tailored to finance) that can be understood by business users and should be easier to monitor by management. Again , leveraging a PaaS such as OpenShift in conjunction with an industry leading open source BPMS (Business Process Management System) such as JBOSS BPMS provides an integrated BPM capability that can create cloud ready and horizontally scalable business processes.

User Experience Tier – 

The UX (User Experience) tier fronts humans – client. advisor, regulator, management and other business users across all touchpoints. An API tier is provided for partner applications and other non-human actors to interact with business service tier. 

The UX tier has the following global responsibilities  – 

  1. Provide a consistent user experience across all channels (mobile, eBanking, tablet etc) in a way that is a seamless and non-siloded view. The implication is that clients should be able to begin a business transaction in channel A and be able to continue them in channel B where it makes business sense.
  2. Understand client personas and integrate with the business & predictive analytic tier in such a way that the UX is deeply integrated with the overall information architecture
  3. Provide advanced visualization (wireframes, process control, social media collaboration) and cross partner authentication & single sign on
  4. The UX shall also be designed is such a manner that it’s design, development & ongoing enhancement follow an agile & DevOps method.

Putting it all together- 

How do all of the above foundational technologies (Big Data, UX,Cloud, BPM & Predictive Analytics) help encourage a virtuous cycle?

  1. WM Applications that are omnichannel, truly digital and thus highly engaging  have been proven to drive higher rates of customer interaction
  2. Higher and more long-lived  customer interactions (across channels) drives increased product uptake & increased revenue per client while constantly producing more valuable data
  3. Increased & relevant data volumes in turn help improve predictive capabilities of customer models as they can constantly be harnessed to drive higher insight and visibility into a range of areas – client tastes, product fit & business strategy
  4. These in turn provide valuable insights to drive improvements in products & services
  5. Rinse and Repeat – constantly optimize and learn on the go

This cycle needs to be accelerated helping the creation of a learning organization which can outlast competition by means of a culture of unafraid experimentation and innovation.

Summary

New Age technology platforms designed around the four key business needs  (Client experience, Advisor productivity, a highly Automated backoffice & a culture of constant innovation)  will create immense operational efficiency, better business models, increased relevance and ultimately drive revenues. These will separate the visionaries, leaders from the laggards in the years to come.

Big Data Drives Disruption In Wealth Management..(2/3)

The first post in this three part series brought to the fore critical strategic trends in the Wealth & Asset Management (WM) space – the most lucrative portion of Banking. This second post will describe an innovation framework for a forward looking WM institution.We will do this by means of concrete & granular use cases across the entire WM business lifecycle. The final post will cover technology architecture and business strategy recommendations for WM CXO’s.

Introduction:

The ability to sign up wealthy individuals & families; then retaining them over the years by offer those engaging, bespoke & contextual services will largely provide growth in the Wealth Management industry in 2016 and beyond. However,  WM as an industry sector has lagged other areas within banking from a technology & digitization standpoint.Multiple business forces ranging from increased regulatory & compliance demands, technology savvy customers and new Age FinTechs have led to firms slowly begin a makeover process.

So all of this begs the question – what do WM need to do to grow their client base and ultimately revenues? I contend that there are four strategic goals that firms need to operate across – 

  1. Increase Client Loyalty by Digitizing Client Interactions –  WM Clients who use services like Uber, Zillow, Amazon etc in their daily lives are now very vocal in demanding a seamless experience across all of the WM services using digital channels.  The vast majority of  WM applications still lag the innovation cycle, are archaic & are still separately managed. The net issue with this is that the client is faced with distinct user experiences ranging from client onboarding to servicing to transaction management. There is a crying need for IT infrastructure modernization ranging across the industry from Cloud Computing to Big Data to microservices to agile cultures promoting techniques such as a DevOps approach to building out these architectures. Such applications need to provide anticipatory or predictive capabilities at scale while understand the specific customers lifestyles, financial needs & behavioral preferences. 
  2. Generate Optimal Client Experiences –  In most existing WM systems, siloed functions have led to brittle data architectures operating on custom built legacy applications. This problem is firstly compounded by inflexible core banking systems and secondly exacerbated by a gross lack of standardization in application stacks underlying ancillary capabilities. These factors inhibit deployment flexibility across a range of platforms thus leading to extremely high IT costs and technical debut. The consequence is that these inhibit client facing applications from using data in a manner that constantly & positively impacts the client experience. There is clearly a need to provide an integrated digital experience across a global customer base. And then to offer more intelligent functions based on existing data assets. Current players do possess a huge first mover advantage as they offer highly established financial products across their large (and largely loyal & sticky) customer bases, a wide networks of physical locations, rich troves of data that pertain to customer accounts & demographic information. However, it is not enough to just possess the data. They must be able to drive change through legacy thinking and infrastructures as things change around the entire industry as it struggles to adapt to a major new segment – the millenials – who increasingly use mobile devices and demand more contextual services as well as a seamless and highly analytic driven & unified banking experience – akin to what they commonly experience via the internet – at web properties like Facebook, Amazon, Google or Yahoo etc
  3. Automate Back & Mid Office Processes Across the WM Value Chain – The needs to forge a closer banker/client experience is not just driving demand around data silos & streams themselves but also forcing players to move away from paper based models to more of a seamless, digital & highly automated model to rework a ton of existing back & front office processes – which is the weakest link in the chain. These processes range from risk data aggregation, supranational compliance (AML,KYC, CRS & FATCA), financial reporting across a range of global regions & Cyber Security. Can the Data architectures & the IT systems  that leverage them be created in such a way that they permit agility while constantly learning & optimizing their behaviors across national regulations, InfoSec & compliance requirements? Can every piece of actionable data be aggregated,secured, transformed and reported on in such a way that it’s quality across the entire lifecycle is guaranteed? 
  4. Tune existing business models based on client tastes and feedback – While Automation 1.0 focuses on digitizing processes, rules & workflow as stated above; Automation 2.0 implies strong predictive modeling capabilities working at large scale – systems that constantly learn and optimize products & services based on client needs & preferences. The clear ongoing theme in the WM space is constant innovation. Firms need to ask themselves if they are offering the right products that cater to an increasingly affluent yet dynamic clientele. This is the area where firms need to show that they can compete with the FinTechs (Wealthfront, Nutmeg, Fodor Bank et al) to attract younger customers.

Having set the stage for the capabilities that need to be added or augmented, let us examine what the WM firm of the future can look like.

WM_NewAge

                            Illustration – Technology Driven Wealth Management

Improve the Client Experience

The ability of the clients to view their holistic portfolio, banking,bill pay data & advisor interactions in one intuitive user interface is a must have. All this information needs to be available across multiple channels of banking & across all accounts the client owns with multiple FIs (Financial Institutions). Further, pulling in data from relevant social media properties like Twitter, Facebook etc can help clients gauge the popularity of certain products across their networks thus helping them make targeted, real-time, decisions that increase market share. Easy access to investment advice, portfolio analytics and DIY (Do it Yourself) “what if” scenarios based on the client’s investment profile, past financial behavior & family commitments are highly desirable and encourage client loyalty.

Help the Advisor –

On the other side of the coin, most  WM advisors lack a comprehensive view of their customers. This is due to legacy IT reasons due to which their interactions with clients across multiple channels takes up a lot of their work time but also results in limited collaboration within the bank when servicing client needs.

Other “must have” capabilities –

  • Predicting Customer Attrition & Churn across both a single client as well as over a n advisor’s entire client base
  • Portfolio Rebalancing & risk modeling across multiple dimensions
  • Single View of Customer Segments across multiple product offerings
  • Basket Analysis based on criteria like investment preferences, asset allocation etc – i.e “what products are typically purchased in tandem”
  • Run in place analytics on customer lifetime value (CLV) and yield per customer
  • Suggest Next Best Action for a given client and across a pool of managed clients
  • Provide multiple levels of dashboards ranging from the Descriptive (Business Intelligence) to the Prescriptive (business simulation as well as optimization)

Digitize Business Processes –

Since a high degree of WM technology still lives in the legacy age, it should not be a surprise that a lot of backend processes result in client dissatisfaction as well as an inability to provide lean & efficient operations. Strategic investments in Business Process Management (BPM) systems, Big Data architectures & processing techniques, Digital Signature systems & augmenting tactical document management systems can result in a high degree of digitization. This leads to seamless business interoperability, efficient client operations and an ability to turn around compliance information quickly & more efficiently over to regulatory authorities.

Invest In Technology to Drive the Business –

Strategic deployment of technology assets will be the differentiator in the WM business going forward. The technology investments that WM firms need to make are in three broad areas – Big Data & Predictive Analytics, Cloud Computing & in a DevOps based approach to building out these capabilities.

Big Data & Hadoop provide the foundation to an intelligent approach to unifying data (ingesting, mining & linking micro feeds with existing core banking data) and then fostering  a deep analytical approach based on predictive analytics and machine learning.

So what kind of new age business capabilities can WM firms build on a Big Data & Advanced Analytics based foundation?

  • New Client Acquisition by creating client profiles and helping develop targeted leads across a population of individuals
  • Instrument and understand Risk at multiple levels (customer churn, client risk etc) in real time
  • Advanced Portfolio Analytics
  • Performance Management Metrics for the business across client segments, advisors and specific geographies
  • Better Client Advice based on portfolio optimization which takes client life journey details into account as opposed to static age based rebalancing
  • Promoting client’s ability to self service their accounts thus reducing load on advisors for mundane tasks
  • The biggest (and perhaps the most famous) capability is providing Robo Advisor functionality with advanced visualization capabilities. One of the goals here is to compete with Fintechs which are automating their customer account servicing using an automated approach.
  • Help with Compliance and other reporting functions

Big Data and Hadoop seems to be emerging as the platform of choice for many reasons – ability to handle any kind of data at scale, cost, techniques like deep learning need a lot of computing power which Hadoop can provide via paralleization, integration with SAS/Python and R. A high degree of data preprocessing could be done via Advanced MapReduce techniques.Finally, additive to all of this is an agile infrastructure based on cloud computing principles which calls out for a microservice based approach to building out software architectures, mobile platforms that accelerate customers abilities to bank from anywhere. DevOps dictates an increased focus on automation from a business process to software system delivery  and encourages a culture that encourages risk taking & a “fail fast” approach.

The final post in this series will cover a high level technology architecture and then specific recommendations to WM CXO’s.

The State of Global Wealth Management..(1/3)

The Wealth Management segment is a potential high growth business for any financial institution.  It is the highest customer touch segment of banking and is fosteres on long term and extremely lucrative advisory relationships. It is also the segment which is the most ripe for disruption due to a clear shift in client preferences & expectations for their financial future. This three part series explores the industry & trends in the first post, business use cases mapped to technology & architecture in the next and discuss disruptive themes & strategies in the final post. 

“If you (Wealth Advisors) continue to work the way you have been, you may not be in business in five years” – Industry leader Joe Duran @ the TD Ameritrade wealth advisor conference – 2015

Introduction to Wealth Management – 

There is no one universally accepted definition of Wealth Management as it broadly refers to an aggregation of financial services.  These include financial advisory,  personal investment management, financial advisory, and planning disciplines directly for the benefit of high-net-worth (HNWI) clients. But Wealth Management has also become a highly popular branding term that advisors of many different kinds increasingly adopt. Thus this term now refers to a wide range of possible functions and business models.

Trends related to shifting client demographics, evolving expectations from HNW clients regarding their needs (including driving social impact), technology, and disruptive competition are converging. New challenges & paradigms are afoot in the wealth management space but on the other side of the coin – so is a lot of opportunity.

A wealth manager is a specialized financial advisor who helps a client construct an entire investment portfolio and advises on how to prepare for present and future financial needs. The investment portion of wealth management normally entails both asset allocation of a whole portfolio as well as the selection of individual investments. The planning function of wealth management often incorporates tax planning around the investment portfolio as well as estate planning for individuals as well as family estates.

There is no trade certification for a wealth manager. Several titles are commonly used like – advisors, family office representatives and private bankers etc. Most of these professionals are certified CFPs, CPAs and MBAs as well. Legal professionals are also sometimes seen augmenting their legal expertise with these certifications.

State of Global Wealth Management – 

Private Banking services are delivered to high net worth individuals (HNWI). These are the wealthiest clients that demand the highest levels of service, customized product offerings than are provided to regular clients. Typically wealth management is typically a subsidiary of a larger investment or retail banking conglomerate. Private banking also includes other services like estate planning, tax planning etc as we will see in a few paragraphs.

The World Wealth Report for 2015 was published jointly by Royal Bank of Scotland (RBS) and CapGemini [1].

Highlights from the report –

  1. Nearly 1 million people in the world attained millionaire status in 2014
  2. The collective investible assets of the world’s High Net Worth Individuals (HNWI) totaled $56 trillion
  3. By 2017, the total assets under management for Global HNWIs will rise beyond $70 trillion
  4. Asia Pacific has the world’s highest number of millionaires with both India and China posting the highest rates of growth respectively
  5. Asia Pacific also led the world in the increase in HNWI assets at 8.5%. North America was a close second at 8.3%. Both regions surpassed their five year growth rates for high net worth wealth
  6. Equities were the most preferred investment vehicle for the global HNWI with Cash deposits, real estate and other alternative investments forming the rest
  7. The HNWI population is also highly credit friendly

Asia Pacific is gradually becoming the financial center of the world – a fact that has not gone unnoticed among the banking community.  Thus Banks need to as a general rule get more global and focused on the non traditional markets (North America and Western Europe).  

The report also makes the point that despite the rich getting richer, global growth this year was more modest compered to previous years with a slowdown of 50% in the production of new HNWIs. This slower pace of growth now means that firms need to move to a more relationship centric model – specifically among highly coveted segment –  younger investors. The report stresses that currently wealth managers are not able to serve the different needs of HNW clients under the age of 45 from both a mindset, business offering and technology capability standpoint.

The broad areas of Wealth Management

WM_Areas

                     Illustration: The components of Wealth Management Business

As depicted above, full service Wealth Management firms broadly provide services in the following areas –

  1. Investment Advisory – A wealth manager is personal financial advisor who helps a client construct an investment portfolio that helps clients prepare for life changes based on their respective risk appetites & time horizons. The financial instruments invested in range from the mundane – equities, bonds etc to the arcane – hedging derivatives etc
  2. Retirement Planning – Retirement planning is a obvious function of a client’s personal financial journey. From a HNWI standpoint, there is a need to provide complex retirement services while balancing taxes, income needs & estate prevention etc
  3. Estate Planning Services – A key function of wealth management is to help clients pass on their assets via inheritance. The wealth managers helps construct wills that leverage trusts and forms of insurance etc to help facilitate smooth inheritance
  4. Tax Planning – Wealth managers help clients manage their wealth in such a manner that tax impacts are reduced from a taxation (e.g IRS in the US) perspective. As the pools of wealth increase, even small rates of taxation can have a magnified impact either way. The ability to achieve the right mix of investments from a tax perspective is a key capability 
  5. Full Service Investment Banking – For sophisticated institutional clients, the ability to offer a raft of investment banking services is an extremely attractive capability
  6. Insurance Management – A wealth manager needs to be well versed in the kinds of insurance purchased by their HNWI clients so that the appropriate hedging services could be put in place
  7. Institutional Investments– Some wealth managers cater to institutional investors like pension funds, hedge funds etc and offer them a variety of backoffice functions

It is to be noted that the Wealth Manager is not necessarily an expert in all of these areas but rather works well with the different areas of an investment firm from a planning, tax and legal perspective to ensure that their clients are able to accomplish the best outcomes from a life standpoint.

Client Preferences and Trends –

There are clear changing preferences on behalf of the HNWI clientele –

  1. While older clients gave strong satisfaction scores to their existing wealth managers, the younger clientele’s needs were largely being missed by the wealth management community
  2. Regulatory, cost pressures are rising which are leading to commodification of services
  3. Innovative automation and usage techniques of data assets among new entrants aka the FinTechs are leading to the rise of Roboadvisor services which have already begun disrupting existing players in a massive manner in certain HNWI segments [2]
  4. A need to offer holistic financial services tailored to the behavioral needs of the HNWI investors

Technology Trends – 

The ability to sign up new accounts and to offer them services spanning the above areas provides growth in the WM business. There has been a perception that WM as a sub sector has lagged other areas within banking from a technology & digitization standpoint. As with wider Banking organizations, the WM business has been under significant pressure from the perspective of technology and the astounding pace of innovation seen over the last few years from a Cloud, Big Data & Open source standpoint.

  1. The Need for the Digitized Wealth Office– The younger HNWI clients (defined as under 45) use mobile technology as a way of interacting with their advisors. They are very comfortable & demand a seamless experience across all of the above services using digital channels. This has been a huge issue for established players as their core technology is still years behind providing a Web 2.0 like experience.  The vast majority of applications are still separately managed with distinct user experiences ranging from client onboarding to servicing to transaction management. There is a crying need for IT infrastructure modernization ranging across the industry from Cloud Computing to Big Data to microservices to agile cultures promoting techniques such as a DevOps approach.
  2. The need for Open & Smart Data Architectures – Siloed functions have led to siloed data architectures operating on custom built legacy applications. All of which inhibit the applications from using data in a manner that constantly & positively impacts the client experience. There is clearly a need to have an integrated digital experience across regional and global  and to do more with existing data assets. Current players do possess a huge first mover advantage as they offer highly established financial products across their large (and largely loyal & sticky) customer bases, a wide networks of physical locations, rich troves of data that pertain to customer accounts & demographic information. However, it is not enough to just possess the data. They must be able to drive change through legacy thinking and infrastructures as things change around the entire industry as it struggles to adapt to a major new segment – millenial customers – who increasingly use mobile devices and demand more contextual services as well as a seamless and highly analytic driven & unified banking experience – akin to what the consumers commonly experience via the internet – at web properties like Facebook, Amazon, Google or Yahoo etc
  3. Demands for increased Automation – The needs to forge a closer banker/client experience is not just driving demand around data silos & streams themselves but also forcing players to move away from paper based models to more of a seamless, digital & highly automated model to rework a ton of existing back & front office processes – which is the weakest link in the chain. While Automation 1.0 focuses on digitizing processes, rules & workflow; Automation 2.0 implies strong predictive modeling capabilities working at large scale – systems that constantly learn and optimize products & services based on client needs & preferences.
  4. The need to Rightsize or even Change existing business models based on client tastes and feedback – The clear ongoing theme in the WM space is constant innovation. Firms need to ask themselves if they are offering the right products that cater to an increasingly affluent yet dynamic clientele ? Case in point [2].

Conclusion
The next post in this three part series will focus on the business lifecycle of Wealth Management. We will begin by describing granular use cases across the entire lifecycle from a business standpoint. We will then examine the pivotal role of Big Data enabled architectures along with a new age reference architecture.

In the third & final post in this series, we will round off the discussion with an examination of strategic business recommendations for WM firms. Recommendations which I will believe will drive immense business benefits by delivering innovative offerings & ultimately a superior customer experience.

References – 

[1] World Wealth Report 2015 – https://www.worldwealthreport.com/
[2] “The Rich are already using Roboadvisors and that scares the banks” – http://www.bloomberg.com/news/articles/2016-02-05/the-rich-are-already-using-robo-advisers-and-that-scares-banks

How the Blockchain will lead disruption across industry..(5/5)

The first four blogposts in this series have covered the business foundations and the technology behind both Bitcoin and it’s core technology platform – Blockchain.This final post will bring it all together and will cover business models that will either be created or upended as part of this potentially immense disruption.

Though Bitcoin the currency has had the lion’s share of media and public interest over the past few years, it is no longer a point of contention to say that Blockchain technology platform is the more valuable invention & one that will drive industry wide change. In the last post, we discussed how Blockchain can be leveraged as a design pattern to create digitally native & truly distributed applications.

Will there be one Blockchain to conquer them all? Not at all, the kind or flavor of blockchain will be dictated by the business need. One could have a public blockchain used by Government or a private blockchain/ sidechain used by a globally distributed organization/holding company or even vertical blockchains – run by a given industry like Banking & financial services, Retail, Manufacturing. IoT, Healthcare or Govt .

To be sure, the current state of Blockchain still has a high degree of technology challenges (throughput, latency, overall size of the blockchain, lack of developer friendly APIs, multiple forks etc) that must be overcome before it becomes mainstream but all open source technologies eventually get there especially from a throughput, latency & performance standpoint.

However, the obvious commercial success players of Red Hat, Hortonworks & Pivotal Labs across sectors as diverse as operating systems, middleware, workflow engines, the full data stack & cloud computing only bears this out. Mature, stable and feature rich open source technologies outlast commercial & proprietary platforms from an adoption standpoint. Blockchain and it’s growing ecosystem are no different.

At a minimum any application developed using the blockchain as a foundation will have the below inherent technology abilities –

  • Support massive (read global) scale  of deployment – well above and beyond what we term “Big Data”. Any app built on a Blockchain API will inherently be deployable & distributable at massive massive scale
  • Highest degree of trust and security due to cryptography thus eliminating the need for trusted third parties, intermediaries, hierarchies and unnecessary regulatory regimes
  • The ability to provide transparent access to individuals or applications with the right permissions by using a simple (digital) private key
  • Support complete programmability of any artifact (e.g a contract, a deed, a financial instrument, a medication record etc) stored in it
  • Provide complete audit-ability in terms of ownership and access tracking

BC_Evolution

Illustration: Blockchain as the foundation for gradual disruption across Verticals

Given the capabilities shown in the above diagram, the true promise of Blockchain would be to be serve as the seamless economic layer that would be the underlying infrastructure for a whole layer of usecases across industry sectors.

When development in 2.0 streams matures with projects like Ethereum (and even Ripple) enabling developers to create manner kind of application or script (e.g digital currency, fileserving, messaging etc) in away that it can natively  run on a blockchain-like infrastructure. Ethereum , for one, deserves a huge mention as they’re essentially providing digital currency capabilities with smart contracts baked in from the get go.

Established players like Banks are not sitting still. They’ve begun forming consortiums like R3 and also have begun investing into players like Chain who are applying an enterprise model to Blockchain.

To enumerate some of these innovation led blockchain usecases –

FSI, Retail & Insurance – The financial industry is built on a system intermediaries across the spectrum, ranging from Clearing Houses to Payment Processor Networks. Intermediaries  facilitate trust and also to make overall communication secure. However, eliminating or reducing the usage of third parties can save hundreds of billions of dollars every year while facilitating real time interactions e.g. settlements – which is virtually unheard of.

  • Institutional (macro) digital payments,
  • Consumer (micro) & retail payments
  • Eliminate or simplify Capital Markets across the spectrum. E.g financial trading brokering & near real time settlement & clearing in all manners of instruments – equities, fixed income, derivatives etc;  (which the DTCC paper is referring to)
  • Vastly simplify the signing & authentication of digital documents by turning them into smart contracts s e.g. Financial contracts
  • Vastly simplify Chain of Custody & Asset tracking
  • Trade Clearing & Settlement (eliminate the middleman as well as settlement time with current system of paper certificates)
  • Automatic applications and claims management
  • Shrinking the insurance industry value chain across P&C,Life & Health
  • Eliminate the escrow system in mortgage banking. Blockchain will change the face of Mortgage banking which is a significant percentage of any Financial supermarket. Eg JP Morgan, BofA etc
  • Drive the digital transformation by automating and digitizing entire processes e.g home buying
  • Radically simplify Compliance challenges – KYC(Know Your Customer), BSA (Bank Secrecy Act), Fraud & Risk Data Consortiums layered on Blockchain
  • Blockchain oriented applications & data architectures as a way of enhancing well understood usecases around AML, Risk (esp Credit Risk etc), Digital Banking etc – futuristic.
  • The fraud detection space is a no brainer for blockchain.

HealthcareA global patient record system as well as population health management systems can save millions of lives every year while removing a lot of systemic inefficiency that plagues healthcare and life sciences across a spectrum of usecases.

  • Creating Blockchain based EMR’s that span local and regional jurisdictions
  • Anonymize EMR data and feed it into druge discovery and clinical trial processes
  • Speeded up drug discovery & drug trials right from identification of populations to enabling individuals to volunteer for trails
  • Population Health Management within national and local jurisdictions
  • Making the healthcare delivery and pharma sectors much more efficient. e.g Improving availability of medicine supply chains
  • Assessing global diseases outbreak in seconds across the planet..creating a realtime understanding of illness across the globe
  • Improving genome sequencing
  • As a whole, improve preventive medicine

TelecomThe Telecom industry suffers from extreme customer dissatisfaction due to the amount of time taken to provision new services as well as with delays in providing instantly available and highly responsive applications.

  • Enabling easy discovery and signup of telco services. e.g cellphone contracts
  • Simplified service provisioning
  • Easier monetization of digital services and applications
  • Simplify all manner of financial billing
  • Reduce delays in customer on boarding, preference detection and network provisioning

Travel & EntertainmentThe Travel industry is perceived to have a very low degree of transparency with regard to prices and availability of bookings. It is also built upon a system of reward points that keep customers loyal. Both these areas are highly inefficient and are areas of lock-in for customers. The entertainment industry on the other hand relies on intermediaries like iTunes and Cable companies leading to heartburn among artists. The Blockchain model provides freedom of choice to both artistes and consumers.

  • Move rewards to an online system of Bitcoin-like rewards and tracking
  • With strong digital IP tracking – completely replace the current recording industry by enabling groups of artists to register, self publish & collect payment on their creations
  • Migrating Physical asset keys to the BC – Hotel keys, Auto rental records etc
  • Signing & authentication of digital documents by using smart tokens e.g. Contracts
  • Enable embedding of smart contracts in actual physical objects. E.g Lock access to a credit card if the user defaults on the account etc
  • Instant and on demand access to entertainment
  • Easy flight bookings
  • Connected airports and hotels

GovernmentSimplified record keeping for government can save tens of billions of dollars in corruption in the developing world and can lead to better services for the global population.

  • Serve as the authoritative registry for all kinds of record keeping & attestations – births, deaths, marriages, property deeds etc; hugely eliminate corruption in developing countries
  • All manner of notary services
  • Enable banking services for underbanked populations
  • Eliminate some of the current pain in the current electoral process with e-Voting
  • Improve the effectiveness of charity..everything in the blockchain is auditable and it is tamper proof

IoT 

Blockchain and IoT are a marriage made in heaven. Facilitate the entire lifecycle of IoT applications. E.g A private blockchain for connected car that will enable secure and realtime interactions ranging from device registration, user authentication, smart contracts to exchange services among one another and location info to track safety

Manufacturing – The manufacturing industry is moving to a virtual world across the lifecycle, ranging from product development to production as systems become more interactive and intelligent. The blockchain can serve as a plant level, regional level and global supply chain level ledger that will dramatically cut costs and drive more efficient just in time (JIT) processes.

  • Improve operational efficiency by improving visibility into core processes
  • Improving value chains themselves by applying advanced analytics onto data inside manufacturing specific blockchains
  • Match supply and demand across organizations
  • Enable better usage of plant capacity
  • Drive liquid marketplaces

The list of use cases goes on.

The Blockchain opportunity for Technology vendors

Where it gets very interesting is in marrying all these capabilities to a Big Data stack. At about 30 GB[1], the current Blockchain is too small for a massively scalable HDFS (Hadoop Distributed File System) like deployment but it is very conceivable that It could grow based on business and technology requirements for increased capabilities. Case in point is the famous debate on increasing the block size as away to dramatically scale the throughput  to match a commercial payment network like VISA’s.

It is very conceivable that in a few years, some of the blockchain variants could rise to Petabyte scale thus spurring interest from players in the Big Data, Application Development and Cloud Computing space .

The other two massive areas of opportunity in my view are creating distributed apps (DApps) that are blockchain & cloud native but written using Hadoop semantics (Storm, Spark etc);

The other area is of course Data Science & Predictive Analytics across all of the above areas.

IT and Management strategy in the face of Blockchain Disruption –

The creation of smart services on a Blockchain-like infrastructure will further depend on the vertical industries that these products serve as well as requirements for the platforms that host them. There is an increased need to watch innovation very closely as it can rapidly put established organizations out of business very soon. The list of such technologies is long… Cloud Computing, Big Data, Mobility, IoT, 3D printing etc.

For a recent list, please see my previous post on Gartner’s top tech trends for 2016 – http://www.vamsitalkstech.com/?p=1244

Blockchain as a platform for innovation is more akin to Big Data than Cloud. How so? In that it essentially changes not just infrastructure (like with Cloud) but also the very nature of the business services themselves – as with Big Data.

My recommendation for industry practitioners would be to follow the below rough process ,which is common to every two speed IT process focused on reaping business benefits from strategic technologies. The definition of ‘strategic’ as in an emerging technology trend that will impact Iong term business thus influencing plans & budgets.

  1. Examine existing business usecases or pain points that could benefit from a decentralized model. These could services being offered by startups or other players unencumbered by legacy investments
  2. Develop architectural and business expertise in this space by developing small prototypes
  3. Begin targeted proof of concepts that are incremental in nature and are intended to offer capabilities to early adopter customers
  4. Partner with commercial vendors in this space; also keep regulators informed of your intentions and get their buy in
  5. Put plans in place to gradually operationalize and mass market these capabilities

As blockchain projects leave the labs and move slowly into proof of concepts and ultimately into production systems, it behooves industry players to look into the technology to a) offer disruptive services in their vertical b) augment existing applications.

Blockchain has the potential to change any industry & the way it does business. Enterprise CXO’s need to look to apply it as a tool in any business venture where data, transparency of business dealings & security are key.

References

[1] “The Blockchain Economy” – Melanie Swann – O’Reilly Press
[2] https://bitcoin.org/en/developer-reference
[3]”Mastering Bitcoin” – Andreas Antonopoulus – O’Reilly Press
[4] https://en.wikipedia.org/wiki/Block_chain_(database)