The financial sector has to get with the technology programme
WAY back in the 70s, a Kodak engineer named Steve Sasson invented the world's first digital-still camera. Kodak executives, afraid that the technology would cannibalise the company's photographic film business and wanting to maintain the status quo, mothballed his project. By the 2000s, Kodak was fighting for its life in the digital camera revolution. In 2012, it was forced to file for bankruptcy.
It was a similar story for Nokia. Once regarded as an unassailable force, the mobile phone maker was brought to its knees by new technologies - Apple's iPhone and Google's Android - that the company chose to disregard.
The business world is filled with stories of companies that have failed to embrace innovation and adapt in the face of new technology, only to fall by the wayside like Kodak and Nokia - or worse, become extinct.
The new "upstart" brands of today, enabled by advances in technology, have completely transformed customer expectations. Consumers today have come to expect, if not demand, greater choices, tailored customer experiences, speed, efficiency and transparency in their transactions.
However, in the financial sector, we see banks and institutions that are often criticised for being lumbering behemoths, inefficient, opaque, seemingly interested only in the wealthy elite - and are hardly awe-inspiring icons of customer service at that.
Add to this the negative perception that many have of these institutions due to corporate malfeasance that have resulted in global financial crashes and Wolf of Wall Street-style tales of chicanery, and one can understand the dissatisfaction that consumers have for this sector.
At the same time, many banks and financial institutions have failed to address the needs of a changing market. For example, Asia's expanding middle class has given rise to a mass-affluent segment which is poorly catered for in the industry.
It is an important target market that is too big for retail investment, but too small for private banking, yet the industry has neglected to deliver tailored products that speak to this audience. Too often, their products speak only to a segment of people - not to unique individuals with specific goals and preferences.
The traditional wealth-advisor model has also failed to keep pace with the times. Investors today are more sceptical of authority than previous generations. They are more likely to seek opinions and views from multiple sources of advice simultaneously, including but not restricted to experts and financial advisors, and often start with people like friends and colleagues. Investors today are comfortable with accessing advice anywhere and at any time, through multiple channels and devices.
Consumers are also demanding far greater transparency and efficiency when it comes to fees. They no longer want to pay huge sums to the middleman and expect greater returns for the fees they pay.
THE RISE OF ROBO ADVISORS
These changing consumer needs are helping to fuel the rise of robo advisors - software-driven digital platforms that use advanced algorithms to provide customised financial plans and asset allocations with little or no human intervention.
Such advisors also help investors find relevant research within an ever-growing universe of studies, interviews and market commentaries. Some firms have also pioneered tools and methodologies that generate real-time trade and investment recommendations tailored to individual investors' history and preferences.
Once the models and algorithms have been built and tested, investing and trading tools can be made available to customers with minimal human intervention, emphasising the shift from human-based, person-to-person advice to science-based, model-driven advice. Robo advisors are growing in appeal with today's consumers and are democratising wealth management.
A recent report by PricewaterhouseCoopers says that robo advisors could grow their assets under management (AUM - a key metric which shows income for the company) by more than US$800 billion in the next five years as they continue to plough investors' money into electronically-traded funds (ETFs). Global management consulting firm A.T. Kearney estimates that the digital advice market could surpass US$1 trillion by 2020, a 68 per cent rise over current levels.
The other technological advancement that is starting to transform the sector is big data and the use of analytics, which makes it possible to capture, sieve through and analyse vast amounts of data - complex datasets that can consist of billions to trillions of records of millions of people, all from multiple sources - data that would otherwise be difficult, if not impossible, to process using traditional applications or tools.
The finance sector is behind the curve in terms of levering big data and analytics, but the good news is that it is poised to make rapid progress in the next several years. This will enable the industry to build more descriptive and predictive analytics that combine internal and external, structured and unstructured data, to create more complete and insightful client profiles - which will in turn enable them to comprehensively understand and offer tailored products matching the needs of consumers.
So while the sector is not there yet, it is at least on the right track. The big challenge for the banking and financial sector is unlearning, that is, forgetting everything it knows and to look at the new mass-affluent consumer and work backwards, embracing advances in technology and curating tailored, digital-first products for an audience that has long been ignored.
It is imperative that the sector does so - or it will share the fate of the Kodaks and Nokias of the world.
Charlie O'Flaherty is partner and head of Digital Strategy at Crossbridge Capital Asia, a global wealth-management company. He was instrumental in the launch of CONNECT, Singapore's first and largest robo-advisory platform.
