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The Trading Mesh

Houston, We are Not Aware of a Problem

Tue, 07 Mar 2017 06:19:29 GMT           


This article originally appeared at Beyond B2B and is reproduced here with permission


By Simon Vincent


SAG_Twitter_MEME_Robots_and_Rockets_Feb17.jpgTo make robo-advisory work in your firm you need a digital culture, not a digital makeover.

The five-year-old boss I have at home (my son) wants to fly to the moon. I was told we were going to build a rocket ship. You do not argue with the boss. I took what we had and, based on what the boss wanted, we built “Rocket A.”


It has electrical components, a light, a “jet” and some controls. However, my boss asked that I plug it in, to make it fly.

At some point in the near future, I am going to be the bad guy and tell my boss that what we have is actually far from having the capabilities of “Rocket B’.”




A small consolation is that I am not alone. There are many buy-side technology teams out who have been pulled in by their bosses, and told they are going to build a “digital business.”

Based on what they have available and the demands of their boss, they have built (or are in the process of building) something that looks like it is a digital business.

Huw van Steenis, Global Head of Strategy at Schroders, recently wrote in a blog from Davos, “Harnessing data insights to solve investing problems is critical to maintaining an investing edge. As we agreed: ‘no man or woman can beat a machine, but no machine can beat a person with a machine.’”

Yet many businesses are struggling to get machines, or machines and humans, to work effectively together. This is often a result of a mismatch between demand and design. The importance of having a digital buy-side business to the boss is clear. By 2020 BI Intelligence forecasts (Fig 1) that US $8.1 trillion in assets under management will be handled by robo-advisors.

Fig 1:


That outstrips the growth rate and dollar value growth of AUM in exchange traded funds according to the most recent estimate by consultancy PWC (Fig2). Robo-advice and robo-enhanced decision making are not simple technologies.

They need a firm to push the right data out to clients and decision makers, on the basis that development of trading and investment ideas ahead of the competition gives the business an edge, so that the customer wins. Much like the passive/active investment trend, one can see the direction of travel with robo-advice and whoever gets going quickly could get the best cut of that business

Fig 2:


To deliver growth through enhanced decision-making, by taking your data and turning it into a valuable customer service requires fundamental change. Digitalizing the business means it becomes geared towards data gathering, analysis and use. Processes and operations must be redesigned to optimize the use of digital technology.

It is distinct from "digitizing," which means swapping the analogue technology for digital. That can make a business look like a digital business but it will not make it work like a digital business. At some point the boss will ask that the new “digital” business gets metaphorically “plugged in.” Then somebody has to be the bad guy. Teams can avoid this threat.

Get cultured

Assisted decision-making and robo-advice are founded on good data. A business must establish a strong data architecture in order to capture and channel that data at an enterprise level.

The fundamental difference between firms that digitalize their business and firms that digitize their business starts with a cultural change. If an asset manager is going to start using data as a service for its internal teams and as a service to customers, it has to rethink the way it organizes and distributes data.

Building an enterprise-level data architecture will require strategic support from the top of the firm and an understanding of the different direction the firm must take in its development of technology and product.

Being a digital-first, data-led firm will change the way that products are developed and delivered by enabling either the customer or an internal team member to utilize the data and automated machine learning or AI.

That will in turn change the firm’s capabilities and the way that business strategy can be developed. So the strategy and culture must turn towards digital to allow the rest of the firm to follow.

Look before you leap

The operational changes have to be clearly set out. When a firm does not clearly understand its own technology infrastructure, it cannot change it.

Fear of the unknown can paralyze the change process. Partial understanding can lead to change happening in isolated areas, which prevents a wholesale and even adoption of progress towards a digital business.

The starting point is to get process and technology mapped out clearly so that the impact of any change is understood. At that point, when the right changes are identified, the team can start looking at how changes can be made.

The mapping process has to work across several levels. These include process and technology which both help to establish the flow of data. Feeding information to the front office can only happen when data is being managed at a granular level, to ensure its quality and validity.

Good guys launch rockets

Getting your business to follow the rocketing trajectory that robo-advisory offers will take time. Any business can be made digital, but the change must be made deep down. The temptation to outsource change or allow a third party to control it, whether that be for cost or expertise purposes, could limit its effectiveness. Most businesses will need help but they must work closely to see that the result is not “Rocket A.”

Many asset managers are building enhanced decision making into their everyday processes. From robo-advice to enhanced business intelligence, getting a smarter digital operation puts them on track to grow as that business grows, making the best decisions for customers with measured, controlled information.

A stable decision-making process is also audit-able, repeatable and therefore more easily improved. That keeps your front line customer interactions at optimal performance as your business takes off.