AlgoMe Consulting innovation article

Authors

Luuk Jacobs

Luuk Jacobs

Partner

The many faces of innovation – opportunity and threat

Posted by Luuk Jacobs on 21st December 2020

What is innovation? The Cambridge dictionary defines it as “the use of a new idea or method”, or “something new or different introduced” while Wikipedia explains it as “production or adoption, assimilation, and exploitation of a value-added novelty in economic and social spheres; renewal and enlargement of products, services, and markets; development of new methods of production; and the establishment of new management systems. It is both a process and an outcome”.

The discourse about innovation in the Wealth and Asset Management industry, especially now, is much more about the implementation of digital and technology; be it blockchain or a new platform to trade investments or do your banking. On a more practical level, it is about the use video conferencing (Zoom, Blue Jeans) or business discussion platforms (Teams, Slack). Although these technologies have entered, or even taken over, our current business lives most or all of them have been around for a while. One might even argue that our global industry already had an infrastructure that supported the associated travel and people being connected in multiple locations, thus making it more resilient than others but not necessarily as innovative.

Is accepting and embracing these technologies during Covid-19 therefore an innovation of technology or more one of innovation of the people working with these technologies, and thus more of innovative management styles?

With lockdown likely to continue in multiple shapes and forms until we reach safe levels of vaccination in 2021, we believe we will see the emergence of innovation beyond engagement.

Personalisation

An area of innovation could be in mass personalisation to meet personal desired outcomes. Aperio (bought in 2020 by Blackrock) is an early example of how customising tax-optimised index equity separately managed accounts (SMAs) reflects each client’s unique risk, tax, and personal values preferences. Where SMAs have been the exclusive foray of institutional investor and Ultra High Net Worth Individuals (UHNWI), the customised and bespoke management could, helped by technology, enter the world of individuals. It could for example manage not just your personal pension or standalone investment portfolio but more broadly aligned with life events around house purchase, parenting, education, taking a year out for travel and upskilling.

With ESG being currently left, right and centre, when it comes to making investment decisions, innovation could bring the involvement to a more personalised level in which investors could choose to opt in to certain pre-defined proxy-voting policies. Within this the investor could move from currently being very much a transactor to becoming a subscriber.

Self-Management

We already have become, through self-management, our own bankers and travel agents. Will we also become our own investment manager, and can Asset and Wealth managers make their clients more self sufficient?

A move to “investor self-sufficiency” and “subscriber model” has for the banking and the travel industry not happened overnight and neither will this be for the Asset and Wealth management industry.

Some specific challenges will be around parts of the value chain that need to come together and better align. For example the distribution of funds needs to be streamlined through the implementation of new generation of infrastructure, creating the new foundation for all intermediaries in the supply chain and enabling a more direct connection between investor and investment manager. Some initiatives like FundsDLT[1] aim to address this with distributed technologies / blockchain.

Data and regulation

Data management needs to move from knowing what the elements of it are and where it is stored, to understanding the information it holds through sophisticated analytic engines and therefore creating these bespoke, personalised investment products for investors. Typically, this is adding value by turning data into actionable insight and tangible information.

Regulation will be a key factor as we see with the (liability for) suitability of products now being defined through standard questionnaires (for non-professional investors) and moving to profiling of investors through available data interpretation.

Innovation as opportunity and threat

As highlighted in our recent podcast on innovation, a key factor in being a successful innovator is setting the right values and culture within a company as a whole and not just for a small group of innovators in a “garage”. Innovation needs to be embraced at the top level and become instrumental to strategy.

The Covid-19 crisis in this sense might have been a blessing for the industry, with the discussion around innovation being propelled from not just implementing technology but innovation in economic and social engagement, personal driven outcome products and services, overhaul of the value chain and new (business and investment) management philosophies and systems.

There is plenty of opportunity. The stakes are high as development and implementation of the right strategy have never been as challenging; the different faces and areas of innovation need to be aligned and the interdependencies well understood.

If the opportunity is not embraced, the industry will be facing the threat of competition. This could come from outside players like GAFA[2] or new entrants as we have seen with many other industries, disruptive innovation changes everything.

 

 

[1] FundsDLT is a Luxembourg-based company seeking to streamline a range of fund distribution activities by using blockchain to automate and mutualise processes in a secure manner (www.fundsdlt.net)

[2] Google, Amazon, Facebook and Apple