At times the asset management industry seems undecided on how to view technology. New methods of data analysis allow for more precise investing, while new digital platforms for trading and engagement with customers have broadened the market reach of firms. Yet concerns persist about the advance of technology and the reliance of millenials on digital tools to the point of possibly rendering traditional asset management firms and advisors obsolete.
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At what point does technological innovation pose a credible threat to the wealth advisory business?
It depends on the market. At the truly high-net-worth end, there's always going to be a role for a relationship manager. So in that sense, technology should be an enabler rather than a disruptor. Of course, it could be a disruptor in the sense that some firms use it better than others, and they will disrupt the market. If you go further down the market, I think there is scope for technology to start to replace the advisor, in many cases. Two tailwinds to that process: one is that there are always people, even at the high end of the market, who would prefer not to talk to an advisor. They genuinely want to do it themselves. And they are looking for some mechanism that would enable them to do that in an informed way, with the right information in front of them. On the other hand, there are people who are never going to be comfortable with that approach, but I suspect that proportion will shrink over time, because we're going to have the millennial generation moving forward, and people are becoming more in favor of using technology, and more comfortable with technology. My feeling is that there still is a way to go to genuinely disrupt the industry, because it is such a complex thing. Not just to figure out what is the right answer for someone's financial decision making process across their entire wealth, but having figured out the right answer, to make them comfortable with that complexity and those decisions. I think we're getting closer to the first of those - but the marrying of that with a genuine user interface that makes people comfortable enough to do all of that online, and put their hard-earned dollars at stake: that's a different matter than sharing my information with Facebook. I'm actually handing over the money I've earned to be managed. People have a bigger barrier to that, I think.
Do you think technology provides the answer on how to reach millenials and understand their investment behavior?
I think it helps, but I don't think it's the full answer. In my mind it's questionable whether even millenials want to have every human interaction replaced. In fact we have some data that indicates that in many cases they don't. They still see, even perhaps more strongly than the preceding generation, the need for a human interface. The millennial generation is increasingly used to seeing technology as an enabler, or a simplifier, or a tool to assist alongside advice, and I think they will be increasingly comfortable with that. So I don't think technology is the answer, but it's certainly part of the answer.
How do you perceive the relationship between the asset management industry and this type of technology? Are they embracing it, or do they fear it?
There are some early adopters, who are actively exploring it. Here I'm speaking about the use of technology to improve professional investment decision making. And there are some for whom this is still news. In particular I'm talking about the marriage between technology and behavioral science: how do we use technology to improve decisions? Even the early adopters, though, are not that far down the line yet. There's a sense that no one has cracked it yet, because historically technology and behavioral science have not been bedfellows - technology is often designed by people who are technically able, who are very sophisticated, but don't get why other people don't see the answer the way they do. Behavioral people are often much more soft and fluffy who don't come with the natural way of looking at things through an algorithm. The marriage of those two perspectives is still coming.
What's the next step?
For me, the next step is to marry enhanced understanding of how people make decisions in a data-driven way. I think this has to be learning by doing. We have to start building prototypes that will get us closer to that. But it is a marriage of empirical understanding of what people are doing with data, a behavioral understanding of how they make decisions, and trying to build those two into technology that is explicitly for the purpose of improving decision making. I think we are already seeing in the robo advisor space people going down that route. In the mass market space, we're seeing some asset managers go down that route internally. Although we know a lot more than we did, we still don't know enough to do it fully. There will be a lot of experimentation in the next couple of years.
