COGNIZANT INDUSTRY PERSPECTIVE: FROM ROBO-ADVISORY TO DIGITAL ADVISORY

Transcription

1 June 2016 COGNIZANT INDUSTRY PERSPECTIVE: FROM ROBO-ADVISORY TO DIGITAL ADVISORY Report by Cognizant Banking & Financial Services Strategic Cell

2 Wealth Managers are undeniably under pressure Client expectations and behavior have changed Technology capabilities are finally here (major advances including AI) Industry icons started to embrace & accelerate the pace of change Graphic Source: The Case for Change, Toward a New Frontier in Team Productivity, SEI, April

3 Robo-advisors, a low cost alternative to traditional investors, was initially touted as the next big thing in investing What? A robo-advisor is an online wealth management service that provides automated, algorithm-based portfolio management advice depending on attributes like investor s age, risk tolerance, etc. They charge a lower fee compared to traditional financial advisors (<0.5% vs. >1%), offer user-friendly tools, provide personalized advice based on big data mining and require minimal human interaction How? Users are asked to fill a questionnaire to know the amount, risk tolerance, goal & duration of investment Proprietary algorithms process these inputs to provide a tailored investment plan allowing the users the flexibility to adjust their goals and risk tolerance It can reconstruct the portfolio periodically in an automated way, i.e. rebalance it, to ensure that the investments stay in line with the asset allocation plan Differences? Unlike human advisors, robo-advisors only provide automated portfolio management and not services on taxes, retirement or estate planning Robo-advisors aim to attract customers with lower equity and can advise many people who are on the internet which an individual can not provide 3

4 Robo-advisors simply provide clients direct access to tools that were exclusively available to investment managers and advisors The primary disruption is the business model, not the capability or technology Robo Advisory Firm/ Services Financial Planning Account Aggregation Asset Allocation Individual Stocks Single-stock Diversification Automated Rebalancing Dividend Reinvestment Tax-loss Harvesting Free Portfolio Review Wealthfront Betterment Charles Schwab Personal Capital Future Advisor Learnvest WiseBanyan Sigfig Motif Investing Hedgeable Nutmeg Wealth Horizon Swanest MoneyFarm Vaamo InvestYourWay 4

5 Advisor Based Technology Based Automation Comparison of few Robo-advisors High Automation is the key to success for Wealthfront and Betterment. Adding other services and mixing non-robo advice is helping Personal Capital and Future Advisor. Low Investments Offerings Financial Planning Combination of Technology and Human is still white space, combine it with Networking and Alternative Investments Motif Investing etoro Lending Covestor Club Everbank Hello Wallet Wealthfront SigFig FutureAdvisor NestEgg Wealth Personal Capital Betterment Vanguard White Space Edelman Onliner Investment Financial Planning 5

6 Robo-advisors only partially address the myriad of issues associated with leveraging a client relationship once the account is established Business Objectives Business Strengths Key Differentiators Services Offered Customer Experience Service Quality Target Operating Model Customer Reach Customer Acquisition Advisor Acquisition AUM Retention AUM Growth International Expansion Brand Customer Segment(s) Investment Management Banking Services Financial Products Specialization Wealth Planning Intellectual Capital Customer Segment & Personas Customer needs served Outreach themes Services & Capabilities of each segment Behavioral Triggers for Customer Acquisition and Adoption Features Channels Business Outcomes Personalization Gamification Seamless transactions from KYC to Funding User friendly Portfolio Management and Reporting KPIs SLAs Front office changes and support Shared middle and back office services Data and Analytics driven operations 6

7 Cognizant believes that technology augmented human advisors will triumph over automation as robo-advisors evolve 1 Banks need to focus on the hybrid service model of machines and humans Good financial advice depends on things that robots can overlook, like intellectual capital and an understanding of nuance. The future will thus require a hybrid approach part human, part robot Investors aged 40 or under are independent, excel at leveraging technology s potential and are in search of financial mentors they can collaborate with, in order to make decisions differently Banks can combine the expertise of their financial advisors with the convenience and technology that the robo-advisors provide to capture the huge potential that lies with serving the millennial generation One of the value-adds that an advisor can provide to the self-directed robo-advisor solution is being able to manage the Behavior Gap in the event that markets become volatile 2 Supplement Human advisory services with robo-advisor technology Algorithm-based solutions may stay to solve finite and specific problems but would need the human touch to tackle the full breadth of complexity of a comprehensive financial plan Banks should outsource investment management to technology to focus on the value-add side of the business, creating a segmented service offering and targeting cost-conscious clients If banks can incorporate a competitive, differentiated digital robo-advisory solution among their product offerings, it has the potential to impact customer acquisition, brand recognition and profitability tremendously 7

8 Banks can adopt robo-advisor capability through one of three ways Develop in-house solution Partner with an existing robo-advisor Acquire a robo-advisor Traditional advisors are looking to develop in-house robo-advisory solutions for existing and new customers Advantages: Low-cost alternative and flexibility to offer varying functionality Disadvantages: Risk of channel cannibalization Partnering with an existing roboadvisor involves lower costs and limited organizational changes Advantages: Process automation, cost reduction and attracting new customers Disadvantages: Limited flexibility, over dependence and conflicting objectives The market is well positioned for consolidation and will see increased focus as it further matures Advantages: Accelerated channel to some markets for firms lagging behind Disadvantages: Valuations may be inflated, unforeseen integration challenges and operating costs Develop Partner Acquire Source: Deloitte Robo-Advisors: Capitalizing on a growing opportunity 8

9 G e n e r a t e R e v e n u e However, this evolution will drive the need for significant improvements in the ability of organizations to create new value propositions Customization of information presentation to cater to client learning style Clients contacted via the best channel at the best time More robust simulation capabilities provided to reinforce understanding Hyper-focused and timely delivery of advice and information based on behavioral analytics addressing nuances in client decision making criteria Validation and reinforcement of existing and new investment strategies based on experiences of peers and influencers Impact Relevance Quality of Service Pricing Effectiveness Customization of service levels creates opportunities to establish, maintain, and deepen trust that can overcome temporary performance shortdfalls Advisors able to make connects at the moments that matter - the times that will most favorably influence client perceptions of service quality Individually customize pricing models and targeted fee reductions will advisors more attractive to the mass affluent and a younger generation of HNWIs Measures such as value-based pricing of advisory fees, and performance fees will enable unique pricing models suited to customer segments R e d u c e c o s t s Customer empowerment means more than self service; includes access to platform enabled ecosystems that allow rapid and affordable inclusion of new capabilities Cost of Service Front, middle and back office processes selectively digitized to minimize cost of delivering new experiences, products, and services 9

10 G e n e r a t e R e v e n u e Representative Use Cases Traditional text-based information delivery complemented by audio, graphs, video, and interactive dashboards Clients provided with a life event simulator that assess potential impacts of significant positive/negative scenarios Clients provided news and analysis related to correlation risks unique to their portfolio Clients provided comparison to performance of portfolios of individuals that they would consider peers or influencers Impact Relevance Quality of Service Pricing Effectiveness Clients are provided the ability to explicitly specify frequency, channels, triggers, formats for communications Advisor calendar scheduling aided and optimized by intellegent process automation that serves as virtual personal assistant. The VPA provides both recommendations and rationale Advisors provide ala carte pricing for advisory services ranging from simple allocation advice (e.g. robo-advisor enabled at 30 basis points) to complete wealth management (personal financial management, retirement planning, estate, insurance, etc.) R e d u c e c o s t s Clients provided simple interface for integrating planning and analysis tools (e.g. third party social investing apps used to trigger buy/sell actions) Cost of Service Document gathering simplified through combination of technology (workflow enabled DAM)and Uber-like personal assistant services 10

11 APPENDIX ADDITIONAL DIGITAL ADVISORY USE CASES 11

12 Facilitating discovery of new opportunities P2P social deal making Objective: Provide access to unique investment opportunities by facilitating introductions and collaborations between individuals with similar interests, investment objectives, and risk profiles Concept: Provides graphs showing grouping different types of investment opportunities, level of participation. Highlights where likeminded clients tend to be concentrating their focus Idea validation Objective: Reduce time/effort required for UHNW clients to explore and determine viability of their investment ideas Concept: Implement, interactive, AI driven dialogue to facilitate concept definition and then extract and synthesize relevant research Customized/tailored research based on investment style and financial data Objective: Provide information in a manner that is more relevant, impactful, and useful Concept: Embed learning strategies into interfaces to assess how clients absorb and use information. (e.g. implementing goal based s opposed to subject based search capability) Comment: Machine learning is only applicable here if the number of interactions for a particular client are enough to extract statistically significant patterns. If not, a more proactive, diagnostic approach is required. These findings can be submitted to ML techniques to see if there are patterns that emerge across a larger population. 12

13 Improving and simplifying the decision making process Psychometric analysis based investment suggestions/ options Objective: Structure and present recommendations in a way that fits with a client s unique behavioral traits as they relate to investing Concept: This is a variant of Customized Research. This idea focuses on the generation of specific recommendations as opposed to packaging and delivery of research. Learning strategies and analytics are required to identify potential differences between an individual s self-described level of investment discipline and risk tolerance versus their actual behavior Alternative investment options through social closed group Objective: Provide insights into alternative investment opportunities being pursued by peers and influencers Concept: Similar to P2P Social Deal Making Comment: Whereas the idea on the previous page is about matching clients so that they can jointly create an investment opportunity this suggestion focuses more on identifying opportunities to piggyback on existing investment opportunities Comparison of various investment products (funds, etc.) Objective: Automate detailed comparison of actively managed funds with similar objectives Concept: Fund comparison go beyond tradition fund performance metrics to include deeper analysis of the differences in the underlying composition of the funds and identification of drivers that led to differences in overall performance. Education sessions Objective: Increase client understanding and confidence in advisor recommendations Concept: Based on investor sophistication provide just in time education modules relevant to the decisions it is anticipated they need to make in the next 6 to 12 months. Incorporates strategies for determining optimum learning styles of individual clients Comment: Cognizant has a digital learning platform (CasKade TM ) that could be applicable here. 13

14 Simplify and improve client ability to actively manage assets (1) Goal based performance tracking /glide path using interactive interface Objective: Enable clients to more easily assess impacts of more complex scenarios (e.g. starting a business, divorce, major illness) Concept: Pre-configured dashboards used allowing clients to see advisor point of view and see impact of changes to underlying assumptions Comment: In order for this to be truly interesting it would have to include a more robust simulation capability (e.g. life event impacts). Otherwise it is a glorified Excel spreadsheet. Cash flow analysis for life style management Objective: Enable clients to balance near term needs/wants with long term objectives Concept: Provide more sophisticated version of tools provided to retail and mass affluent markets incorporating more comprehensive use of investment, financing, and tax optimization strategies available to individuals at their level. Comment: Basically PFM for the wealthy. Wow factor would have to come from quality of recommendations/workarounds proposed to balance immediate wants with longer term objectives. Presentation of recommendations would be enhanced by capabilities envisioned in Customized Research and Psychometric driven recommendations 14

15 Simplify and improve client ability to actively manage assets (2) Committed cash management tool Objective: Maximize clients ability to optimize access and allocation of cash and liquid assets that may be required to cover private investments (e.g. capital calls) Concept: Establish a utility that connects to, and operates independently from, custodian books and records that helps UHNW investors project, manage and optimize returns on cash holdings that are otherwise committed to private investments. Benefits include: On the investment holdings side, this utility would aggregate all relevant LP information and optimize cash required to minimized cash exposure, or to balance cash calls with cash disbursements. On the social investing side, this utility could form the basis of an invitation-only investor community where opportunities are shared, introductions are made, co-investor deals are arranged, etc. On the cash holdings side, this utility would identify the best Institutional Money Fund options for short term investment. On the books & records side, this utility would also feed into custodian books and records to improve performance reporting functions 15

16 APPENDIX MAPPING OF COGNIZANT INVESTMENTS TO THE DIGITAL AGE 16

17 Key priorities driving Cognizant investments to enable digital transformation Industry Priorities Customer Experience Analytics & Insight Processing Efficiency & Integrity Delivery Agility Digital Works Domain Consulting Journey Analytics/ Data Science IPA Blockchain API Management, DevOps Digital Distribution Digital Marketplace Product Evolution Advanced Analytics Digital Disruption Direct and material business and IT impact Significantly increases potential for innovation Simplifies and accelerates execution Potential contribution 17

18 About Cognizant Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process services, dedicated to helping the world's leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 100 development and delivery centers worldwide and approximately 255,800 employees as of September 30, 2016, Cognizant is a member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing and fastest growing companies in the world. Visit us online at or follow us on Twitter: Cognizant. Banking & Financial Services Strategic Cell Report, July 2016 For more information, please contact: Anne TAUDIN, Marketing France Anne.Taudin@cognizant.com