This publication interviewed the chief technology officer of Stonehage Fleming, who said that the firm is excited by the prospects of AI.
The chief technology officer at multi-family office Stonehage Fleming says the firm is optimistic about how Artificial Intelligence technologies can improve its business. But he does not see the firm competing with fintechs.
AI is a growing area of advancement in the wealth management arena. WealthBriefing’s 2017 report, “Applying Artificial Intelligence in Wealth Management: Compelling Use Cases Across The Client Life Cycle”, found that 54 per cent of wealth management firms are already investing in the technology, and a further 23 per cent are investigating the possibilities of AI. However, in the same report, it found that 53 per cent did not see AI as a great way to improve risk and investment management, whereas 43 per cent said that they saw the positives of the technology.
Getting technology right in the wealth sector is the biggest issue, and this publication interviewed Nicholas Bernard, CFO at Stonehage Fleming, to discuss how the firm is planning to exploit the world of tech.
“If you look at the big themes, they are robo-advisory, crypto currencies, artificial intelligence and blockchain technologies,” Bernard said. “I think AI is the technology we are most excited about. For us robo [technology] represents automation that has been around for some time.”
“We have questions around crypto-currencies and whether they are currencies or just crypto-tokens. I think you need to have access to the crypto market to build some exposure but I think placing big bets at this point is not the right thing to do,” he continued.
“With regards to blockchain, I think we will find successful companies that come out of that space, but it’s a bit like the dot.com era. At the moment everybody thinks the new technology will replace everything but in the end, there will be a correction. We will find that relevant technologies emerge subsequently. AI excites us, but I think you really need to understand what AI offers and, more importantly, what it does not offer. We see it as an augmentation of what we do, rather than a replacement. It’s more than just the automation of commoditised decisions or actions. We think we can use AI to improve our decision making,” Bernard said.
Optimism about the impact of technology seems to be the norm in the wealth sector. For example, PricewaterhouseCoopers’ 2017 report, “Sink or Swim: Why wealth management can’t afford to miss the digital wave”, found that 42 per cent were mostly optimistic, and 27 per cent were very optimistic about the use of technology. Time and effort is being spent into making technology a success in this sector – an EY report in 2016 found that between 2013 and 2016 IT budgets for wealth managers in Europe rose 67 per cent.
Not a fintech
Bernard also talked about the price of tech and how Stonehage Fleming is not considering becoming a fintech firm.
“There is a price to pay if you want to compete,” said Bernard. “If you are not allocating a significant portion of your turnover to continuous redevelopment of your offering, clients will shift. That does place pressure on margins but I think you have got to continuously focus on improving efficiency. Tech changes also offer opportunities to offer novel solutions. What we have found is that if we continuously focus on serving our clients well, the margin seems to take care of itself.”
“We are not trying to beat fintech companies. It takes a significant amount of capital to set up a fintech company and many of them will not survive. Our approach is to scan the market and to find quality people and teams that excel at executing tech platforms. We are aiming to partner with those firms to bring those features and capabilities to our client base,” he continued.
“In some instances, it might be a bit like Apple, Microsoft or Google in that once a technology becomes mature the big players simply absorb the capabilities. Choosing the right core platforms to operate on is thus very important for us. We don’t see ourselves acquiring tech companies. Our focus is on partnering with the right firms and focusing on tightly integrating their capabilities into our DNA,” Bernard said.
Implementing technology is costly, and many firms may even consider outsourcing their tech output. This publication interviewed SEI UK director Kevin Russell, who said that wealth managers with in-house technology services aren't so common because regulatory costs have forced their hand to outsource.
But this does not seem to have affected Stonehage Fleming’s technological advances, as Bernard discussed what the firm has done in the last few months.
“Regulation has only played a minor role in how we are transforming our technology operations,” said Bernard. “We are stripping everything. We started with our core infrastructure and refreshed our data centres, networks and security perimeter. We have just replaced our core wealth management system and we are consolidating all our investment systems. At the same time, we are upgrading our internet and mobile offerings to benefit from these changes. The significant difference is that in the past, we had traditional systems on the one side and internet systems on the other. We are now moulding these systems into a single design because you cannot expect to create a good end user experiences if it is not integrated into a single stack. Many of the biometric-login systems we use these days help to facilitate the adoption of new systems. You should be very careful of how you implement those. You can’t reduce security for the sake of convenience, it must be secure and convenient, and that’s the challenge.”
Wealth managers and family offices have been gradually moving to improve their tech output for clients, especially for those from the next generation. The great wealth transfer will see a reported $30 trillion handed to the next population segment in North America alone over the next decade. The clients of tomorrow want technology to help manage their financial needs.
One cannot mention Millennials without talking about their demand for technology. According to a recent study by Deloitte on Millennials, defined as those aged between 18 and 34, 80 per cent of them own a smartphone. Furthermore, at least half of Millennials want to use one for their financial planning, according to Legg Mason, the asset management house.
Stonehage Fleming’s Bernard discussed how the firm is taking its time with the introduction of technology, not just launching a solution for the sake of it.
“It’s all about context, not technology,” said Bernard. “It’s about what we do and how we express that through technology. We are in a unique position because of how we serve our clients. We are solution providers rather than product pushers, and consequently the environment and interaction that we can provide is different than a pure product firm. It is customised to the client. Unlike a normal app with a commodity experience, with us what clients will experience is customised based on what is relevant to them.”
“Meeting client requirements is challenging because of the diversity of the families themselves. That diversity is reflected in what they hold and what they do, and consequently it is very difficult to narrow your feature set down,” he said.
“Given the width of the requirements, it is also hard to achieve sufficient depth in all areas. We are balancing our investment to provide significant coverage as well as depth of functions and features where it adds the most value to our clients. In addition, we are focusing on how we digitally interact with our client through new channels. A lot of what we do will not change, but how we do it needs to evolve,” he added.