Our blog consists of original content exploring the latest technology and business trends within the financial industry.
At Kidbrooke, as we deliver software driving the mathematics behind sophisticated digital customer journeys, we actively work with compliance functions of financial institutions. We strive to reach swift turn-around times without compromising on rules and financial regulations. On this journey, we found four areas which help us and our clients optimize time-to-market and deliver reliable and responsible services.
Customising a product or service has always been an essential attribute of premium customer experiences. Nowadays, it is a powerful brand differentiator in the digital economy; the product suggestions from Amazon, movie recommendations from Netflix and playlist offerings from Spotify drive consumer loyalty and mould customer expectations. As wealth managers move their services online, they face similar demands for fast, user-friendly and individually tailored services.
Imagine yourself searching for information online. You see a list of results for your search query and click on the first option that seem relevant. Then you see an empty screen as you realize that loading this page will take time. Frustrating? We think so too. Slow response times take a toll on the user experience of any digital journey. Many visitors might not want to come back to using a slow service, and people tend to grow ever more impatient as technology develops. It is certain that a similarly sluggish digital wealth management journey would cause the same irritation and signal a lack of professionalism and attention to detail.
While the benefits of gamification could help wealth management companies to democratise investment management and empower retail investors by extending access to financial markets, it may also encourage users to trade more frequently that required and take higher risks. In an earlier post, we critiqued gamification in financial context and discussed the latest regulatory approach to these engagement techniques. In this article, we will delve into more responsible alternatives wealth managers can deploy to achieve long-term customer satisfaction and brand loyalty.
After the transformational impact of the pandemic and the looming revolution driven by artificial intelligence, there are few voices that doubt the need to update business models with scalable and efficient digital wealth tools. However, legacy IT architecture remains an issue that keeps many executives from future-proofing their businesses. Indeed, the ever-accelerating digital wealth transformation requires an adaptable IT architecture capable of accommodating both anticipated and unforeseen changes. Therefore, in this blog post we discuss both our and our customers’ experiences of building dynamic and reasonably priced IT architectures that can evolve with your business.
The past year has been witnessed to slow growth and the ongoing battle against inflation causing widespread layoffs, lean payrolls and difficulty in filling skilled positions. 2023 has already seen its first casualty. California lender Silicon Valley Bank collapsed after tech investors and startups set off a bank run. This became the second-largest bank failure in US history, after Washington Mutual in 2008. The threat of a global economic slowdown looms and businesses look for ways to thrive through the downturn. Certainly, the interplay of the factors put together will ultimately shape the story of economic growth for 2023. In wealth management, the implementation of generative AI tools, a rise in interest in embedded wealth and the consumer duty requirements are reshuffling wealth managers’ approaches to business.
As Europe grapples with inflation, financial institutions are tirelessly searching for new ways of improving their business models. Whether updating their services with digital channels, creating more financial products, or exploring untapped markets, the financial executives carry on balancing compliance and innovation in their work. If your organization is embarking on a bold expansion to new countries or updating their selection of investment products, it is critical to ensure that your financial analytics suite is attuned to your strategic roadmap. Today we sat down with Lars Larsson, partner and quantitative finance expert at Kidbrooke®, to better understand how financial organizations can leverage the granularity of modelling and a detailed approach to representation of taxes to support their complex expansion roadmaps.
Suppose your organization decided to leverage OutRank®, the financial forecasting API, in its digital and hybrid financial journeys. Where do you start and how do you ensure you get the most out of our analytics? We talked to Kidbrooke®’s Customer Success Team to shed some light on the onboarding and maintenance processes, the client requirements and internal expertise needed to ensure that our clients achieve their goals using our technology.
In the advisory world an insurance company holds a client’s assets on their books while an Independent Financial Advisor (IFA) supports the client with financial advice. From a regulatory perspective, the insurance company follows its own regulations, like Solvency 2, while the IFA follows regulations targeting financial advice. For a variety of reasons, sometimes a client gets separated from an IFA, hence losing access to an advisor for help with their financial planning. However, the client still has assets on the insurance company's balance sheet. When this happens, the client is referred to as an ‘orphan’.
Managing your savings is not what it used to be a few decades ago. Despite rising interest, it was far too intimidating to invest without having an in depth understanding of how financial markets operate. However, this took a turn when more financial services companies embraced the incorporation of gamification. Elements such as points, badges, and leaderboards were put into non-game contexts. Gamification has since been gaining traction after wealth managers saw an increase in engagement and motivation among users.
Kidbrooke®, a leading provider of financial analytics APIs, confirmed the signing of its newest client, HAYAH Insurance. Kidbrooke will be providing HAYAH Insurance with OutRank®, its financial simulation engine driving the ALM functionality for self-service goals-based investment journeys.
“One small step for man, one giant leap for mankind,” said astronaut Neil Armstrong when he walked on the moon. With regards to wealth technology, taking small steps can deliver big changes, and adopting a mindset of incremental improvement can deliver value over time. Being a provider of a portfolio management system (PMS) that powers wealth manage-ment firms requires a commitment to investing in wealth technology. Delivery needs to be better, faster, cheaper than the competition. So how can you escape this conundrum?
Global consultancy firm Bain & Company released a new study predicting that customer demand for wealth management services will double over the next eight years, growing to more than $500 billion by 2030. Moreover, with total global financial wealth in 2021 reaching $250tn, 12% of UK adults are using at least one investment app as of July 2021, proving that the industry is only to get stronger. But with inflation roaring again, will the explosion in retail investing built around bull markets take a hit? Let’s delve into what trends are shaping the industry.
Over the next decade, between 30 and 68 trillion dollars will be transferred by families to their children. In the UK alone, estimates are $15.4 million over the next decade, according to a Russell-Cooke study. Succession planning by wealthy families and family offices is a hot topic in those rarified circles. But for many affluent families, wealth planning has not been priority. According to a report by Russell Investments, only 26% of families have a full strategy on wealth transfer, and once the transfer occurs, 90% of the heirs change advisors. In some countries, such as Switzerland, strict laws prohibiting advisors from contacting the heirs of a deceased client can eliminate communication. Sadly, 70% of families lose control of their assets after the transfer.
At Kidbrooke, as we deliver software driving the mathematics behind sophisticated digital customer journeys, we actively work with compliance functions of financial institutions. We strive to reach swift turn-around times without compromising on rules and financial regulations. On this journey, we found four areas which help us and our clients optimize time-to-market and deliver reliable and responsible services.
Remembering her Majesty the Queen of the United Kingdom, Elizabeth the II, she often said that her public appearances were important because “I must be seen to be believed.” How can wealth managers help clients visualize their financial plans? Using technology to simulate different scenarios, provide analytics and keep clients engaged is one way to proceed.
As European energy prices break new records, many consumers wake up to a significantly altered financial outlook. This change occurs through multiple factors. First, the increase in household outgoings makes living costs less manageable. Second, as central banks strike an increasingly hawkish tone to keep inflation expectations from spiralling out of control, rising interest rates make it more difficult for borrowers to service their mortgages.
It has been a few years since digital transformation appeared on the priority list of the financial industry executives. While the evolutionary process of tapping into the latest technology is continuous, the pandemic has accelerated it dramatically. Even the most conservative branches, such as wealth management, now contemplates transforming their businesses into more digitalised operations. Some financial advisors embrace innovation wholeheartedly, reaping all the benefits and facing all the risks of early adoption, while others take a more cautious strategy. OutRank® advocates an incremental, forecast-driven approach when building digital journeys for your customers or financial planners, regardless of where your competitors are in their digital transformation efforts. At Kidbrooke®, we provide Forecast, the module of OutRank®, which delivers predictive forecasting functionality applicable to various financial planning use cases and digital journey elements.
The rise of buy-now-pay-later unicorns such as Klarna and the dominance of payment solutions in the fintech agenda hint on the overarching embedded finance trend, the practice of incorporating financial services into other businesses in relevant contexts. Although the economic downturn poses significant challenges to the fintech industry, it is likely that we shall see more solutions within the embedded finance space. Today we focus on embedded wealth, another subsector of this industry.
Taking chances on new technology is not often a priority for human resource executives. They strive to achieve various objectives around recruitment, retention and productivity, but not on adopting innovation. However, achieving these objectives may be dramatically accelerated by the intelligent use of technology. Today's blog focuses on the best practices related to pension planning for employees, and how a cooperation between the corporate human resources and financial functions leads to your employees’ confidence in tomorrow.
Since the introduction of reliable self-service channels in the wealth management sector, some asset managers have been contemplating providing digital investment guidance and direct-to-investor models to obtain a low-cost distribution channel. This strategy has its merits in driving down the average cost per acquisition, but the key challenge is to nurture and retain long-term customers. Could digital channels match the teams of physical advisors in terms of quality ?
Modern technology has enabled self-service wealth management where end-customers can investigate, learn and make decisions about their financial situation. This marks the beginning of the democratization of the industry, where seamless guidance through the intricacies of personal finances is available for those who would not previously have the privilege of using the services of a financial advisor. However, combining technological advancements and the human-led service of a financial advisor in many cases leads to a better experience. This effect is achieved through empowering an expert with the tools that help them improve the quality and content of their work to levels previously unachievable. At Kidbrooke, we provide technology enabling financial advisors to build trust and truly future-proof their business models without losing the human connection. In this article, we describe two important elements of the customer experience that a hybrid model could add to any modern physical advisor’s arsenal:
New technology is often implemented by large companies to solve specific problems. Once the initial purpose has been achieved, the technology becomes part of the business as usual or “BAU” infrastructure. But instead of relegating a new functionality to the “new normal” category, it is useful to consider it as a catalyst for change – both in external, customer facing projects and in internal, IT development planning. Skandia, Sweden’s largest insurance company, implemented OutRank to offer customers a superior tool to better understand their pensions and investments. Working together with the Kidbrooke team, the Skandia executives saw the positive impact that a user-friendly customer interface had on sales as well as customer retention.
In March, Mike Winkelmann – the digital artist known as Beeple – took the art world by storm selling an NFT of his work at Christie’s for $69 million. According to the auction house, this sale positioned him among the most valuable living artists. Since this first-of-its-kind transaction, the interest in NFTs (non-fungible-tokens) specifically and digital assets in general has risen dramatically. The wealth management community has received the news with a degree of skepticism – there is a consensus that all things involving blockchain technology are too risky to consider. However, the accelerated digitalization of the economy, the continuous development of distributed ledger technology and the growing ecosystem of players in digital custody, exchange, venture capital signal that the digital assets are here to stay. In today’s blog, we discuss digital assets and their underlying value, the potential impact of the expansion of metaverse on this asset class as well as look into one of the main challenges when it comes to this type of assets – managing uncertainty.
Wealth managers often build customer journey islands when introducing a new service or feature. Opting instead for use case-agnostic technology that supports all components of the organization’s strategic roadmap can grant a financial institution the necessary flexibility to achieve a strategic freedom to innovate.
The race for financial institutions to go digital, digitise their legacy systems or be “digital first” shows no sign of letting up. Customers expect a seamless journey and internal stakeholders will only invest in technology that is robust, cost-effective, secure and extensible into the future. What does extensible mean? In the world of programming, it refers to a language, a system that can be changed by being extended or adding features. In other words, you don’t want to invest in technology that is static or fixed, because it will become obsolete. Can adopting APIs before you transform your entire technology infrastructure to a digital operation give you a competitive advantage?
Every quarter, we summarize the three most prominent trends in WealthTech and we are excited to share our latest summary with you today! In the forth quarter of 2021, we noted that successful wealth managers will make the most of advanced analytics. Second, that having an investment strategy with respect to digital assets will become critical in metaverse. And third, that leveraging technology to better engage with clients will likely pay off.
When it comes to digital journeys, one characteristic defines quality beyond industrial specifics: speed. While rule-based apps or websites are relatively easy to keep lean and quick, the financial industry may be the area where the speed of underlying calculations could be an issue. Unlike e-commerce or media, the digital and physical solutions provided by the financial sector are riddled with computationally heavy models trying to grasp the uncertainty of real-world economies. The more granular and elaborate the underlying model is, the more realistic and accurate its results are. Does it mean that the financial institutions will have to compromise on quality to deliver fast solutions? Today we have spoken to Erik Brodin, an ex-McKinsey quant expert at Kidbrooke, who doesn’t believe a compromise is necessary.
The competition for wealth management firms to win with customers is constant and growing. What is driving this? Technology is the source of the problem, because it is driving down costs and fees while accelerating the commoditization of offerings. Technology is also the answer, because the intentional, intelligent application of technology can help wealth managers reinvent and differentiate themselves. Let’s focus on four themes embraced by leaders in wealth management: connectivity, trust, confidence, and action.
Every quarter, we summarize the three most prominent trends in WealthTech and we are excited to share our latest summary with you today! In the third quarter of 2021, we noted that it's increasingly important to acknowledge the environmental, social and governance aspects of companies' performance as the sustainability reporting matures. Second, accessing digital capabilities through partnerships is one of the most efficient ways for incumbent financial institutions to deliver competitive services to their customers. And third, customer engagement is one of the most important activities that a financial services firm can undertake. Not only does it build customer loyalty by developing relationships with customers, it will ensure they choose you over the competition.
It is often a good idea to start simple when embarking on a challenging implementation project. Financial institutions usually strive to build simple, intuitive solutions that their customers would easily understand. However, choosing simplicity in your digitalization strategy could lead to both good and bad outcomes. When designing OutRank, our financial simulation engine, we chose a more realistic scenario-based approach over the simplistic models based on Modern Portfolio Theory. Today we discuss one of the core functional units of OutRank in more detail, outlining the implications of its features on the resulting customer journeys.
The COP26 conference in Glasgow may be over, but the themes discussed there will continue to be topics of concern for people, especially in the context of long-term investments in company stocks and mutual funds. There are so many issues to be considered: the environmental, particularly the response to climate change; the social, how companies treat their employees, suppliers and customers; and governance, how companies manage themselves as responsible corporate entities. With all of these facets of ESG, the subject of sustainability can feel overwhelming, but it doesn’t have to be. With the right tools, financial advisors can help their customers easily understand the complexity of the sustainability issues and take action based on that knowledge.
The financial services industry is notorious for regulatory constraints slowing down innovation projects and putting downward pressure on the profit margins. However, these regulations are critical to building a healthy, reliable, and trustworthy financial system. Whether you represent an incumbent financial institution or a FinTech, it is essential to consider regulatory requirements while choosing a tool to shape your institution’s digital capabilities. At Kidbrooke, we have always been mindful of regulatory challenges faced by the industry: the idea of OutRank, our financial simulation engine, stems from MiFID II/IDD transparency regulations. Today we will examine which transparency factors make a difference when selecting financial analytics running digital and hybrid customer journeys.
Digital transformation of financial businesses has been one of the hottest topics for strategic discussions within the industry for several years now. However, these conversations rarely touch upon how decision-making models of underlying technology contribute to the eventual customer experiences. Therefore, while optimising the resources required to digitalise a financial journey, it could be tempting to select a tool with a very simple model at heart. Today, we examine how analytical tools' underlying model quality and granularity can affect the user experience and even the navigation through an institution's strategic roadmap.
Has your company decided to offer a digital investment journey to your customers? Making that decision will help attract and retain customers to your franchise. The next step is selecting a technology partner that can deliver on your business priorities and your IT requirements. Everyone is under pressure to “do more with less” and informed decision-making can help you achieve business, budget and IT goals. Let’s look at how important modularity and ease-of-use are in evaluating your technology options.
Once your team decides on building a new digital service or feature, it is always a good idea to avoid chasing short-term gains and think strategically. It is likely that after a successful pilot, you would like to tailor the functionality to suit customers' feedback. Furthermore, after a while, you might wish to expand your business to a different country and ensure that its digital core is compatible with local regulations, tax regimes and account structures on an ongoing basis. Finally, as you navigate your roadmap, you might want to complement your services with new use cases and expand your customer base. All these strategies require tremendous flexibility of the technology driving your digital and hybrid financial journeys. Today we examine the key technological factors ensuring the flexibility of digital financial services.
Customising a product or service has always been an essential attribute of premium customer experiences. Nowadays, it is a powerful brand differentiator in the digital economy; the product suggestions from Amazon, movie recommendations from Netflix and playlist offerings from Spotify drive consumer loyalty and mould customer expectations. As wealth managers move their services online, they face similar demands for fast, user-friendly and individually tailored services.
Imagine yourself searching for information online. You see a list of results for your search query and click on the first option that seem relevant. Then you see an empty screen as you realize that loading this page will take time. Frustrating? We think so too. Slow response times take a toll on the user experience of any digital journey. Many visitors might not want to come back to using a slow service, and people tend to grow ever more impatient as technology develops. It is certain that a similarly sluggish digital wealth management journey would cause the same irritation and signal a lack of professionalism and attention to detail.
Elvis Presley sang “A little less conversation, a little more action please” famously in the 1968 film Live a Little, Love a Little. But when it comes to customer engagement, a little more talk with customers can lead to beneficial actions. Customer engagement is one of the most important activities that a financial services firm can undertake so let's take a look at how you can maximise your customer relationships.
Kidbrooke is named as one of the world’s most innovative solution providers developing artificial intelligence (AI) and machine learning technologies to solve challenges or improve efficiency in financial services in FinTech Global's annual AIFinTech100 list – a list that highlights tech companies transforming the global financial industry by leveraging AI and machine learning.
Every quarter, we summarize the three most prominent trends in WealthTech in a short video. At the same time, we know that some of you might prefer to have our summary in a text format! Therefore, we share the transcript for your convenience as well. In the second quarter of 2021, we noted more customers become comfortable with the idea of AI managing their funds. Additionally, there is a growing demand for holistic platforms allowing wealth management customers to access their overall financial health information. Third, although hybrid solutions gain even more prominence, poor digital experiences may cost financial planners their customer's loyalty, and therefore attention to detail is as critical as ever.
How can banks and insurers support people, with no training in portfolio theory, to develop confidence in managing their investments? How can they make these journeys scalable? With the right tools, it’s not only possible, but also empowering.
Planning for a long-term goal, such as retiring in a sunny climate, can be combined with deliberate steps you are taking for practical projects like buying a house, starting a business or saving for your child’s education. Visualising how your savings and investment choices will succeed in different economic scenarios can help guide decision-making. Understanding the tax treatment of different asset classes and pension schemes is important. Insurance options to protect against business interruption and income loss can be evaluated. There are tools available, but most are limited to one area of financial life, such as your pension, your mortgage or your insurance coverage, and few have the ability to see the big picture as well as identify individual risk preferences.
We are thrilled to be shortlisted for this year’s Pitch360 competition by Innovate Finance in the WealthTech category! And at this point, your vote can make all the difference in us making it to the finals! Please vote for us here, and feel free to watch our short pre-recorded pitch - it will take less than a minute of your time!
Every quarter, we summarize the most important trends in WealthTech in a video summary. However, we know that some of you might prefer to have it in a text format! Therefore, we share its transcript for your convenience as well. In the first quarter of 2021, we identified the three most prominent trends in our emerging field. First of all, the pandemic served as a catalyst for advisory services and the accompanying experience becoming the wealth management industry’s core value proposition. Secondly, as advisory relations and inheritance transition from the older generation to the younger, the industry must be ready for the tectonic shifts concerning customer demands. Third, we see a rise in demand for hybrid solutions, where wealth managers leverage financial analytics to optimise the quality, administrative side and timeliness of the asset allocations.
Now that the world is emerging from the Covid 19 pandemic, people will be making decisions on their lifestyle choices, careers, housing, education and eventual retirement. A year of working from home, for those who are not key workers, has led some individuals to contemplate a new kind of life, with better work-life balance, among other objectives. Pundits have published articles about “the future of work” and related topics. Yet these decisions must be made in the context of holistic financial planning so that the rewards, risks and tradeoffs can be fully understood. The ability to see complex financial scenarios including the “known unknowns” is usually the subject of actuaries and portfolio managers; ordinary people and the financial professionals who advise them need tools to understand their finances quickly and simply.
Kidbrooke, a leading provider of financial analytics APIs, confirmed today that they are making their range of holistic financial planning and analytics solutions available to additiv customers on both their Software-as-a-Service and Embedded Finance models. The collaboration with additiv, a leading SaaS and Embedded Finance provider to the wealth management industry, enables their customers’ clients to utilize a user-friendly and scalable financial simulation engine, to meet the growing demand for seamless financial decision-support. Kidbrooke’s solutions, powered by the OutRank API, are now available with additiv’s Hybrid Wealth Manager and assisted Wealth Robo Advisor products on their enterprise-ready Software-as-a-Service (SaaS) model. Additionally, the solutions will also be available on additiv’s Banking-as-a-Service (BaaS) model to support the increasing need for financial services to easily be embedded into consumer platforms.
A mortgage may be the most tangible way many of us deal with financial risk on a day-to-day or more accurately month-to-month basis. The risk of interest rate rises and the effect they can have on mortgage obligations can be acute unless they are considered properly and meaningfully. Also, most of us buy the property based on the axiom that prices will drift upwards inexorably. Over the long term, this is probably true. However short to medium term fluctuations can have disastrous implications, for example, if your risk analysis does not prepare you properly for unforeseen events like the global pandemic. Again, few tools available on the market offer an all-encompassing ‘holistic’ framework that can contextualise how we can make such decisions to lead to optimal outcomes but let us try to imagine how such a tool could look.
Today we have spoken to Fredrik Davéus, the founder and the CEO of Kidbrooke, about his experience of leading digital transformation in several prominent financial institutions in the Nordics. Fredrik walked us through the initial requirements to meet before starting a project, the components of financial analytics to look out for and how a standardised implementation process might look like.
The digitalisation process in finance is rarely linear and intuitive, therefore, it might be challenging to find a tool that best suits one’s vision. While there are not (yet) any established criteria to consider when building cutting-edge analytical capabilities within digital financial planning, we have identified a few that we frequently use to secure efficient product development on a day-to-day basis. From model quality and granularity to transparency, we believe these elements to be beneficial when one is planning their digitalisation journey.
For British people age 55+ with a defined contribution pension, being able to access the first 25% of your savings tax-free can be liberating. They can control how they spend the remainder with an income drawdown scheme. Annuities are no longer the only option. Regular payments can be taken from a pension fund and taxed as income. It is also possible to take the entire amount as cash and be taxed at the appropriate nominal tax rate. People who have assumed that an employer’s pension scheme or a financial planner will take care of their finances now wish to manage their own money. However, what they really need to do is manage three kinds of risk: market risk, longevity risk and inflation risk. Given the three types of risk that retirees need to manage, how can technology empower people to manage their pension assets in a strategic, systematic and safe way? A financial tool grounded in transparency of assumptions is the way forward.
Every quarter, we summarize the most important trends in WealthTech in a video summary. However, we are very mindful that some of you might prefer to have the text at hand! Therefore, we share its transcript for your convenience as well. In the fourth quarter 2020, we identified three trends that were most prominent in our emerging field. First of all, open banking technology has inspired many wealth managers to think about their offerings creatively and review the customer journeys that they were providing at the time. Secondly, we have seen an increased adoption and visibility of sustainable finance within the wealth management communities. Third, we noted that the pandemic has become a catalyst for more social media use among wealth managers.
While complex concepts might be comprehensible to professional investors, retail consumers require a tailored communication to ensure the understanding of it. Some topics were covered by Deloitte Consulting, but the most important is the client experience application. Clients tend to be less satisfied than what asset managers perceive. However, by adopting user-friendly, cost-effective technology, asset managers could master attracting and retaining customers, as well as close the gap between reality and customer service level perception. To achieve this, there are three customer interaction phases to be considered. In the acquisition phase, a company must have a clear strategic position with a visible USP, such as a scenario calculator API fulfilling the usability requirement. The next step is building a relationship with the acquired customer. In the case of Kidbrooke, we offer a resilient, stable, and secure way for asset managers to display multiple scenarios, such as pension planning and liquidity forecasting. In the final phase, where clients are investing and using the application to create a positive customer experience, the relationship can be improved by using data analytics to enhance customer experience through various dimensions.
Although there are multiple different factors contributing to the continuous evolution of roles within the corporate financial departments, we believe that technological innovation is likely to manifest itself both as a catalyst and as a response to other exogenous triggers. Therefore, the skill set of tomorrow’s financial department employee is likely to combine expertise in finance, economics, statistics and computer science. Despite the rise of artificial intelligence, we do not think that technology would replace human labour in the short-to-medium term. However, it is very likely to expand the breadth of human capabilities and efficiency by unparalleled availability of high-quality data-driven decision-support.
Let’s look at one area of banking: customer journeys in retail (and private) banking. This is an arena where all six challenges can be observed and addressed. Many customers have multiple relationships with their bank, but these are distributed over different platforms and devices. A customer may go to a website to look at bank accounts, another for their mortgage, an app for investments and a portal for an automotive or business loan. However, there is no tool in which the customer can see his or her total net worth. The disjointed way customers experience their banking journey reflects the legacy systems upon which banks were developed.
One challenge faced by insurance salespeople is the inability to activate millions of sometimes dormant customer accounts because they lack the tools to engage with customers. Companies can now quickly onboard new tools, often provided as APIs, to enhance customer engagement. Hosting a calculation tool that allows customers to see their financial position in a simple, realistic, granular and holistic manner provides two distinct advantages: to attract new customers and retain existing customers to your franchise.
Amidst the strategic decisions and the fears of a mysterious AI stealing the jobs of financial advisors, we believe one important detail remains overlooked. Do we properly understand the machines that are to automate an essential part of our value chain or that may become an alternative to our human operators?
Regardless of your level of professionalism as an investor, having access to relevant news with different perspectives on your assets is valuable. However, although useful for some, the high volume of the accessible news can be exhausting for non-professional investors. That is why we decided to discuss the way of delivering news in a concise and intuitive manner. Rather than having a large set of news titles summarizing your portfolio, it can be neatly compressed by using natural language processing. To explain, NLP is used to model human language and transform spoken words into written text, translate languages, answer questions and even generate synthetic text pieces. Using technological progress as a tool to increase the value for the client isn’t necessary insignificant as it indeed serves a purpose of delivering information in a way which engages the end user.
Social distancing has pressured wealth managers and credit providers to accelerate the digitalisation of their workflows. Our blog post focuses on how they could choose to do that. First, by developing the IT infrastructure on their own, companies aren’t choosing the “be all and end all” approach, as the strategic direction remains in the hands of the firm. Second, as nascent firms drive innovation, it can be difficult for in-house teams to build competitive technology consistently. That is why outsourcing is another potential option. Third, while both building in-house and full outsourcing have their perks, another strategy displays linking the two together and introducing APIs as a solution – an approach favoured by many incumbent financial organisations. Such a process is allowing the infrastructure provider to build world-class tech while letting the business serve its clients with optimal solutions.
Modern cloud computing, which in absolute timespan is still very young, has become a pretty much ubiquitous facet in our lives. Most of us now store a majority of our personal data on numerable cloud servers operated by huge companies who are now household brands. Any remaining confusion in nomenclature and etymology doesn’t reside with the young. For those of us old enough to remember floppy disks, we can still get confused by terminology. Here we look into the history and future of cloud computing.
We shouldn’t be surprised that Fintech firms are pioneering the current wave of mass digital adoption. Account management, payments and identity verification are just three areas where digital technology has and continues to augment products. In the past decade, much of the innovation has decoupled from the mainstream. Firms in hubs such as Stockholm and London have been at the forefront of pioneering fresh ideas and translating them into new consumer-centric tools. Now, as the industry matures, mainstream Tech firms are looking to add their heft into the mix: Will they overpower the relative minnows swimming in the Fintech waters, or will their efforts sink without a trace?
We think Cyborgs will win out in the battle for the hearts and minds of the next generation of wealth customers. Human advisors will be empowered, not replaced by AI fuelled solutions. Consumers will welcome a new generation of services which more holistically meet their demands from financial services. In the end, the robots may take their revenge but until then we should expect tech to continue to be a catalyst for positive change in finance in the years to come.
Few would have predicted a few months ago that 2020 would prove to be such a seismic event, notwithstanding that it’s US election year. Decisions made now will reverberate for years, if not decades to come. We will stay in our lane here and look at how FinTech can support better outcomes as we come out the other side.
Several months into the COVID-19 outbreak, it would be foolish not to expect significant and lasting change to both our economies and our societies in general. What does this all mean for our retirement plans? Make sure to check out our latest blog on the impact of the pandemic on peoples' well-being at retirement.
Economic Scenario Generators (ESGs) are fundamental to the analysis of ALM problems. Oversimplifying, they are software tools that facilitate simulated analysis of economic variables and risk factors. 6 months ago, no one in the West could have predicted what we are now experiencing. Nonetheless, we are truly now in un-navigated economic territory globally. Stress-testing and scenario analysis comes in a variety of formats and styles. Many are formulated by benchmarking variability on previous events and crises. None of these would have offered any forewarning of the impending magnitude of Covid-19. Specific predictions vary and are challenging to make, but we can be confident in seeing a record single quarter decline in global GDP. ESGs are not crystal balls and would not, ceteris paribus, have provided any direct mitigation to these challenges. However, as we prepare to make our first tentative steps into the ‘new normal’ we must surely re-evaluate the role that enhanced analytics can provide for asset allocators.
A multitude of factors can drive paradigm change. Technological innovation, improved methods and changes in demand are all common instigators of change. While all the latter means would be described as evolutionary, the impact of Covid-19 is revolutionising how we live and interact. Out of necessity, we are now deeply engaged with digital services that we hadn’t even heard of a few weeks ago. This digital awakening creates highly fertile ground for the next paradigm in wealth and financial advice. While the first wave of robo-advisory solutions aimed at promoting greater inclusion, the next wave will focus on digitally transforming the products serving traditional channels.
The financial sector continues to evolve at a rapid pace. As the digital-native generation Z open their first bank accounts and cloud-native offerings rise amidst the COVID-19 pandemic, financial institutions feel an increasing pressure to adapt to new customer demands. Although it is fair to claim that online banking services are widely available in western countries, wealth management services remain a privilege for the most fortunate. However, it has become more apparent that these services have a fair chance of being next in line to experience a dramatic transformation. In this blog entry, we discuss how recent technological advancements could result in significant changes to digitalised customer journeys in wealth management.
In recent weeks, we’ve witnessed a dramatic change in routines for most industries globally. This has revealed a brand-new factor to business continuity – the flexibility to conduct business remotely. Despite lockdowns, the financial sector has continued providing services to consumers and businesses, supporting distressed economies and adjusting to the rapidly changing demands of their customers. A series of webinars, hosted online by Innovate Finance this year, has revealed several emerging trends within the space. One of the most intriguing tendencies is the forced shift towards digital services among consumers and SMEs. Financial technology has become instrumental for supporting people in their daily economic decisions, affording providers of digital offerings an unprecedented opportunity to deliver and build trust. We believe, therefore, that this change is likely to have a lasting impact on the industry in the aftermath of the pandemic.
Those of us working in financial services are tasked with trying to quantify the impact the pandemic is having on the global economy. If for the purpose of this analysis alone, we selectively classify the outbreak as a financial crisis, we see a familiar pattern of behaviour: A flight to safety away from risky assets has certainly been evident in the past 6 or so weeks. Bonds, the dollar and (to some degree) gold have all benefited from the market volatility. The global financial crisis of 2008-9 is a relatively recent reminder of the last time we witnessed similar moves in asset prices. Therefore, it is absolutely reasonable to look for a correlation between that crisis and where we might head in the coming months and years.
Should we classify the impending pandemic recession as genuinely unprecedented? Global outbreaks of infectious disease have devasted humanity historically, but so far in the past that many could claim this outbreak is indeed unparalleled. The last pandemic of comparable scale took place more than a hundred years ago when the Spanish flu outbreak disrupted Europe in the immediate aftermath of the First World War. Although it’s clear that the world was very different at that time, it is valuable to examine the implications of this pandemic recession. To do so, we summarize the research by Karlsson M. et al, (2014) which provides an excellent description of the context and a thorough analysis of the economic implications of the Spanish Flu outbreak in Sweden in the early twentieth century.
The fourth quarter of 2019 was marked by an increased interest in B2B business models among the FinTech robo advisors. Although the shift from B2C to B2B has been in the headlines a few months before, the last three months yielded more concrete examples of how new players tailor their business models to cater to other companies, rather than consumers. Meanwhile, the debate on whether the process of financial advice would be entirely digital or contain hybrid elements continued as well - with many British players robo advisors adding human capabilities to the scope of their services. Finally, in the context of digitalised offerings, it becomes harder for the regulator to tell the difference between financial advice and guidance - and therefore it becomes essential to review the definitions of the services to optimise the consumer protection accordingly.
Over the years, numerous studies have shown how complex investment strategies fail to outperform simple asset allocation methods. Other studies emphasise the amount of sheer luck that goes into the favourable performance of the investment strategies; it has been repeatedly shown that in many instances, an attempt to deviate from the market portfolio has odds no better than a coin flip. These findings seem to point towards one cold fact - the optimal portfolio weights are impossible to find. Or are they?
During September, we distinguished three trends gaining prominence in the financial industry's innovation landscape. The first one explores the tendency of the WealthTech FinTechs moving towards B2B business models aimed at the DIY investment platform providers with established customer bases. The second trend concerns the definition of the appropriate customer base for B2C robo-advisors. While many automated financial advice providers still target millennials, the generations approach was widely criticised at the recent Robo Investing conference, with many delegates favouring adjusting the offerings to life situations experienced by the consumers regardless of their generation. The third theme of the month concerned the rising importance of explainability in automated decision-making, already reflected in Article 22 of the GDPR. Such a requirement may hinder the providers of digital services from using some of the machine learning methods without appropriate validation frameworks.
Through September 10-11th, Kidbrooke Advisory attended the Robo Investing 2019 Event in London. Existing for over two years, the event has become an excellent platform for knowledge sharing and communication between numerous FinTechs, banks, consultancies and other players of the emerging industry, all across the world. Today we are summarising the core trends and themes discussed at the event. The main topics led the overall direction of the robo-advice offerings as well as tips and tricks on achieving more customer engagement.
In August, we distinguished three themes gaining momentum in the financial industry's innovation landscape. The first one concerns the positioning of the robo-advice on the Gartner hype cycle, from the peak of inflated expectations to the trough of disillusionment. The second trend explores the meaning of sustainability in the provision of financial advice. Finally, looking into the potential flaws of the machine learning-driven models sums up the third theme of the August press on the financial industry's innovation.
Currently, machine learning algorithms are steadily gaining prominence in multiple different sectors of the financial industry. The use cases include chatbots assisting the customers with small inquiries, valuation of financial instruments, option hedging, marketing and many other tasks which were traditionally performed by human employees. Although it sounds exciting that artificial intelligence takes over huge volumes of challenging human work, it would be irresponsible not to wonder how credible and accurate these systems are. Therefore, in this blog entry, we explore the flaws and opportunities of machine learning algorithms using machine vision solutions as an example.
This June, we analysed three topics that gain prominence in the context of rapidly digitalising financial industry. As widely known, the machine learning solutions become more widespread in addressing the operational and compliance issues within banks and insurers. However, we highlight that the interpretability of such models is as relevant as their performance. Moreover, in the context of maturing robo-advisory offerings, we see that the common strategy is to focus on the space of clients which are underserved by traditional financial advisors. Finally, we look into the process of building trust by the emerging challenger banks, which may threaten the positions of the centuries-old incumbents in the industry of tomorrow.
Managing implementation projects becomes more difficult as their technical complexity progresses. The challenges faced by project managers may include the lack of technical expertise required in quality assessment and staffing activities, failure to address the communicative issues or letting go of the underperforming project staff. This article suggests eight powerful tips for leading convoluted IT implementation projects, which would protect the workflow from the common pitfalls and help you reach your goals.
The introduction of automated financial advice services did not go successfully for some of the large and reputable wealth managers. As some of the industry players cease their robo advice offerings, we explore the reasons why big banks struggled to tap into the customers' demands. Meanwhile, machine learning solutions continue to expand to various business functions throughout the increasingly digitalising economies. However, little attention is paid towards the quality and the transparency of the decision-making powered by these "black boxes". Finally, in the world of accelerating personalisation standards, it is crucial to expand the innovation efforts beyond the interfaces and use the technological capabilities to improve the actual offerings.
We are delighted to present our analysis of the top April trends within the financial industry! This month we identified the growing need for risk expertise among the asset managers striving to provide truly sustainable financial advice. Moreover, we see that a different set of factors determines the competition among the digital offerings in asset management compared to the traditional financial advisory services. Additionally, we firmly believe that it is crucial for the financial institutions to measure and prepare for the impact of the looming -IBOR transition early on, and come up with an appropriate action plan to minimise the adverse PnL effects.
The Swedish Financial Supervisory Authority (FI) releases a yearly consumer protection report featuring customer security highlights in the Swedish financial industry. As in the previous years, the main risks related to customer security relate to mortgages and loans. The interest payments can potentially threaten the economies of the individuals in case of the economic downturn or the increase in interest rates. Another threat that is amplifying in the context of the digitalising society relates to customer data protection. The FI calls for more advanced security systems that would protect the consumer at all stages of a payment transaction. The improvement of these solutions is especially relevant in the context of increased instances of financial fraud. Finally, FI announces that the protection of the wealth management customers and the enforcement of the MiFID II requirements regarding third-party inducements becomes a vital area of the regulators' future work.
We've selected the most relevant global news within the fields of automated financial advice, data intelligence and balance sheet risk this March. The rise of the robo-advisors concern the brokers, although many see this development as a helpful complement to the traditional wealth management business, stressing the regulatory burden as well as IT legacy systems' challenges. Meanwhile, Brexit leads to a spike in risk-aversion among the customers of Do-It-Yourself investment platforms. On the balance sheet risk side, the experts stress the importance of timely preparations to IFRS 17, FRTB and the transition from LIBOR. The machine learning tools are put to use in fraud detection in the banking industry context, and the Positive-Incentive ESG-based Loans gain prominence among the banks and corporations.
We are excited to present our news selection for February 2019! Although anticipated to be a conventional means of providing investment advice in the longer term, automated financial advice is still an emerging subsector in the global wealth management industry. Some sources anticipate that the expansion and specialisation of such services would bring the developing digital advice providers to their maturity, while the early adopters evaluate the lessons learnt from the implementation of robo-advisers. Meanwhile, the large banks do not rush to engage in the FRTB implementation projects before the local regulators come up with the final version of the new rules. At the data intelligence side, the data scientists deploy artificial intelligence to assess the ESG practices of companies.
Last week Kidbrooke Advisory participated in the Stockholm FinTech Week 2019! More specifically, we had a chance to attend the events within the following areas: FinTech & Market leadership collaboration, RegTech, InsurTech, Sustainability and Impact Tech and finally Regulation & Nordic Collaboration. The discussions centred on the best practices in building cooperative relationships between the emerging industry participants and the traditional financial institutions, the role of the regulations and the regulators in a changing industry, the rising awareness of climate change as well as the potential of the cutting-edge technology adopted by the market participants.
We have gathered the most exciting news in the areas of financial technology and regulatory changes this month. The latest revision of the FRTB framework receives mixed reviews from the industry. The automated financial advice providers around the globe expand to accommodate the demand from new types of customers - from large banks and insurers to self-employed entrepreneurs. The UK's Financial Conduct Authority changes its focus from the charges and costs aspects of MiFID II to implementing new rules around product governance and research within the scope of the same framework. The rapidly evolving AI technology is anticipated to change the accounting profession as it exists presently.
We've summarised the most exciting news in the areas of automated investment advice and balance sheet risk. The large participants of wealth management industry explore the automated financial offerings, driven by the anticipations of double-digit growth of that market until 2023. The opportunities of automation have been contemplated by the UK's DIY investment facilitators and mortgage providers this month. Furthermore, in December the Basel committee published the report analysing and comparing the banks' cyber risk practices; the potential AI applications to accounting are being explored by the experts and the FRTB framework going live may be postponed.
We've selected the most intriguing news from the domains of automated financial advice and balance sheet risk. The biggest global financial institutions carry on expanding their offerings with robo-advisors, while some of the established automated investment advice providers launch an option to pursue sustainable investments or compliment the digital experience with "human touch". Meanwhile, the industry continues to discover new applications of AI - for instance, modelling illiquid assets as a means of preparing to upcoming FRTB directive, or reducing the time spent on populating tax return forms.
We selected the most prominent news from the wealth management industry and balance sheet risk domain. Although the doubts are still there, more banks expand their product lines with digital financial advice offerings as the fees for traditional financial advice services gradually diminish. Meanwhile, the implementation of MiFID II still raises questions in the industry, especially in regard to research cost allocation. The ESMA has updated its Q&A to ensure a common interpretation of the imposed MiFID II and MiFIR directives. The challenges in regard to implementation of FRTB spark more discussion in the industry, while cyber risks and cloud technologies are being discussed by EBA in their new regulatory framework.
We have gathered the most exciting highlights from the digital advice innovation landscape as well as the latest news related to balance sheet risk. Overall, the news indicates positive ground for the growth of automatic financial advisers although the industry has been surprised by the large player's withdrawal from the emerging digital advice offering. On the balance sheet risk side, cyber risk is gaining prominence as an operational risk, while the IFRS 17 is increasingly viewed as a catalyst for business model innovation for the insurers. Additionally, the use of machine learning is penetrating accounting industry, though it is not expected to cause disruption in terms of massive unemployment.
Drastic changes in regulations governing the wealth management industry promise to alter the way these businesses operate. While the regulators are dedicated to make the private banking industry more transparent, stable, reliable and customer-centric, the industry is challenged to look for innovative solutions to keep the margins at sustainable levels. A half-day conference organized by Kidbrooke Advisory, Ortec Finance and Microsoft that took place in Stockholm on April, 19th 2018 featured a panel discussion among the most prominent wealth management industry professionals. The industry leaders shared their vision of the current challenges within the sector as well as their opinions on the future of automated financial advisories.
The minimal criterion of success is an absence of failure. However, when it comes to information security breaches, it is safe to claim that this criterion is far from being met. A few prominent scandals in recent years demonstrate the scope and impact of such risks on the financial industry, influencing the EIOPA to include a cyber security questionnaire in its Cyber Risk Assessment Package. Gauging cyber risk is a challenging endeavour, marked by the sensitive character of the underlying data and a lack of established academic research within the field. However, Kidbrooke Advisory has formulated its take on the cyber risk assessment.
Corporate sustainability and responsibility has historically been regarded as a controversial topic both among the academic world and practicing professionals. As early as in 1970, the free market advocate Milton Friedman put forward a view that any sustainability-related actions are likely to destroy shareholder value. Nowadays, the reality of rapid depletion of resources as well as accelerating global warming drives the regulators to promote an opposite view of the sustainability impact on enterprise value.
In the wake of rapid technological advancements and looming regulatory challenges, large players of the British financial industry turn to innovation as a tool to preserve the margins high and keep the customers satisfied. However, the extent to which the multinational giants commit to letting their new offerings cannibalize their traditional businesses varies dramatically.
Today, there are many flawed corporate bond pricing models. However, there is also a novel credit-spread approach that can simulate index prices and accurately capture probability of default, enabling better risk management and regulatory compliance.
MiFID II creates a downward pressure on the conventional investment companies’ margins and influences them to either turn to ETFs as a low-cost solution or take on a full-scale digital transformation of the business. However, there are some pitfalls on the ETF direction side.
The main objective of this article is to overview the well-known capital asset pricing model which is widely applied by financial analysts. Moreover, we discuss the crucial notions uCapital asset pricing model (CAPM) is a classical method in finance and economy that states the relationship between the risk and expected return. It is based on the fact that every investment's expected pays-off depends on the level of risk taking on. More precisely, the return of a portfolio consists of two components of time value of money and an extra rate (usually called risk premium) to compensate exposing excess risk.sed in the calculations of this model.
With the rapid adoption of artificial intelligence in the financial sector, banks are looking towards machine learning to stay regulatory compliant.
In a recent interesting post on the Bank Underground a blog where Bank of England staff can share their views James Barker, David Bholat and Ryland Thomas write about the past, present and future of central bank balance sheets.
The insufficiency of financial data is a recurring problem with respect to estimation of statistical quantities and risk measures of historical return series. Risk managers, however, can use so-called rolling window analysis to meet this challenge.
ESMA has published a Consultation Paper on the Money Market Funds Regulation (MMFR). The paper represents a first stage in the development of technical advice in regards to liquidity requirements and credit quality requirements for assets received through reverse repurchase agreements, technical advice on credit quality assessment, technical standards for reporting and guidelines on the stress tests performed within the MMFR framework.
ESMA has published a Consultation Paper on the Money Market Funds Regulation (MMFR). The paper represents a first stage in the development of technical advice in regards to liquidity requirements and credit quality requirements for assets received through reverse repurchase agreements, technical advice on credit quality assessment, technical standards for reporting and guidelines on the stress tests performed within the MMFR framework.
It is well known that the behaviour of volatility can be characterised by two components, one slowly varying long run component and a strongly mean-reverting short run component, but how do they differ in their impact on the macroeconomy?
One of the key components of the KIID is the Synthetic Risk and Reward Indicator which is used in the process of identifying funds' risk and reward disclosure. Whilst its relationship to risk is trivial, its connection to return might not be as trivial. In order to study this relationship, we have analysed return data over 5 years from a large number of Swedish mutual funds with varying SRRI levels.
In a recent speech by the Managing Director of the Monetary Authority of Singapore (MAS), Mr Ravi Menon discusses, among other topics, his view on FinTech and the regulatory future the industry faces. Below we summarize some of the key points Mr Menon presented.
We present some technical concepts regarding different valuation structures both from a financial point of view and a mathematical perspective.
In this note, we explain Libor Market Model for interest rate. Furthermore, we go through the calibration of LMM conforming to Solvency II.
Stochastic Volatility Jump Diffusion (SVJD) is a type of model commonly used for equity returns that includes both stochastic volatility and jumps.
When specifying your next risk model for asset returns there are a number of properties, or stylized facts, to keep in mind.
