Advanced analytics

Advanced analytics: Data-driven decision making

Investment management is poised to become even more driven by advances in technology in the near future, as digital innovations play a greater role than ever before. Leading investment management firms are combining big data/advanced analytics along with AI and machine learning to achieve two objectives:

(1) provide insights and analysis for investment selection to generate alpha, and
(2) improve cost effectiveness by leveraging expensive human analyst resources with scalable technology.

As investment management and other financial services firms align their business to become digital, it is important for companies to also consider a data-driven approach to decision making. For example, regulators’ expectations for transparency with regard to how decisions are made has compelled financial services firms to move away from instinctive decision making. The good news is that the increased use of technology is changing the quantity, quality, speed, and complexity of data available to various stakeholders. The plethora of data allows companies to make more informed decisions and may also change decision-making criteria. As a result, unlike in the past, financial services firms now have more granular information about customer preferences, behaviors, and feedback.

Using analytics software along with other technologies, investment management firms can help segment customers into high-opportunity and low-opportunity, high-risk and low-risk categories, which can improve their overall customer experience approach. Low-opportunity/risk customers can be treated with a lighter touch, while high-opportunity/risk clients can get enhanced services with more frequent touchpoints and reviews of their accounts. To make the whole experience and process more beneficial and efficient, the analytics team, the sales team, and the research team need to be collaborative and connected.

Armed with these advanced digital and analytics capabilities that deliver targeted insights and address a multitude of investment variables with precision and speed, forward-thinking investment management firms can gain a significant information advantage over competitors who rely mainly on traditional data sources and analytical practices. The firms that embrace advanced analytics for data-driven decision making quickly and strategically will be in the best position to deliver superior returns to investors.

Robo advice and digital distribution

Robo advice and digital distribution: Capitalizing on a growing opportunity

The investment management industry is entering a period of significant disruption, with robo advice and digital transformation at the heart of this disruption. Digital, automated advice will likely become a standard expectation for the mass-affluent and mass-market segments. But big data and advanced analytics have the potential to dramatically expand the scope of robo advice, incorporating financial planning into broader retirement, health, and wellbeing, and enabling quasi institutional research, which could then impact all investor segments. All investment management firms should take notice.

Being digital is significantly different from the traditional way of doing things in investment management and other financial services firms. Financial services firms’ legacy cultural attributes include a protracted response to change, siloed work style, hierarchical organizational structure, and a cautious, regulation-determined risk appetite, among other behaviors. On the other hand, digital behaviors create the environment that enables firms to do business digitally. For these ‘wanna be’ digital organizations, they should understand and focus on five main characteristics: agility, collaboration, distributed organizational structure, bold risk appetite, and customer centricity. A solid understanding of these attributes can better prepare financial services firms for a digital disruption.

But perhaps the key digital disruptor is robo advisors, online investment management services that provide automated, portfolio management advice. Ever increasing and complex fiduciary standards and regulations should drive the adoption of robo advisers. And improvements in computing power are making robo advisers more viable for both retail and institutional investors. In addition, some cutting-edge robo adviser firms could emerge with AI-supported investment decisions and asset allocation algorithms in the near future.

These disruptive digital innovations will create pressures for the investment management industry by empowering individuals and evolving the investment management landscape via the following changes:

Accessibility - Automation will extend sophisticated investment management services to mass affluent and mass market customers.

Transparency and control - Customers will gain greater visibility into their financials and how their money is invested and will be able to make adjustments to their financials more readily as more investment management options become available.

Convenience - Customer interaction and service delivery will increasingly take place on demand via online and mobile channels.

Personalized - Mass affluent and mass market customers will benefit from more customized and individualized services and advice.

Cost-effective - The cost of wealth advice and investment management services will shrink as lean, disruptive new entrants spur competition in the market.

Traditional investment management firms and wealth managers will see waning advantages of scale. More processes will become automated, more people will use virtual channels, and new entrants will continue to make use of low-cost infrastructures. The results will be less profit for traditional investment managers, and intensified competition among traditional players in more specialized segments or services.

Blockchain

Blockchain: the trust machine

Blockchain is rewiring our transaction fabrics and platforms across industries by enabling citizens, consumers, corporations, governments and regulators to transfer value in real time without the need for trusted third parties.

Blockchain technology is emerging as a business focus for companies in several industries, including financial services, consumer products, manufacturing, healthcare, and life sciences. However, the pace of technology deployment, referring to actual blockchain projects that companies intend to implement or have already implemented, varies as institutions face a number of considerations:

Where and when to play - Which areas of the business should leverage blockchain? What are the use cases to focus on? Is there a first–mover advantage?

How will we win - How will we be distinct from competitors (fintechs, startups, blockchain vendors)? What is our go-to-market strategy?

What capabilities do we need - What specific capabilities are required (people, process, technology)? Which capabilities are enterprise-wide vs. use case?

How do we organize and integrate - How should we integrate blockchain with legacy applications and our existing environment? Which internal functions, vendors, and consortiums should we collaborate with to ensure impact and benefits are maximized?

Deloitte can help you analyze the impact to your organization, identify the best use cases, assess their viability and feasibility, design and develop prototypes, and build market ready solutions. Our globally connected team of experienced practitioners will work with you to educate your teams, broaden your understanding, and develop the right blockchain capabilities for your company.

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