Investment Management

It’s nearly 2019. We have every piece of information ever known to mankind at the swipe of a few buttons on our smartphones. Offices and homes are full of tech and gadgets. But how are those most traditional of British sectors, banking and investment finance, coping with the new Digital Age?


Let’s first look at Banking. Recently, a new type of bank has been emerging – one which is digitally advanced, agile and innovative. The changes are partly due to customer demand – if Amazon can dispatch and deliver goods within a matter of hours, why can’t banks do the same with a replacement debit card? It’s also, in part, due to new regulations, some of which may be about to change all over again depending on what happens under Brexit. 

Open Banking 

In the UK, Open Banking is being promoted by the UK’s Competition and Markets Authority (CMA). This will require banking data, with the customer’s permission, to be readily accessible to third parties. Already, a host of lean ‘fintech’ (‘financial technology’) companies are developing software and apps designed to provide a concierge service for all your nancial information and needs. The skills needed for these specialist start-ups mean that many fintech companies are recruiting from as far afield as Asia and Silicon Valley.

The UK fintech sector has 76,500 employees and last year attracted $1.8 billion of venture capital invested across 224 deals, according to a recent survey by WPI Economics.

The major retail banks know ntech companies can provide strategic new alliances. At the same time, the second Payment Services Directive (PSD2), a European directive designed to boost competition and the variety of products in the banking, credit cards, and payments space, is putting pressure on traditional retail banking business models.

So banking is changing to reflect an increasingly online world. From the small but inevitable changes such as physical branch closures and reduced operating hours, we’re seeing more and more of our nation’s banking being done online.

Eventually, as the last generation to no longer use the internet passes away, banking will likely become a purely online entity: so what then for the major cities like London? When an online bank can be physically situated anywhere in the world for its HQ, how will London compete and compare with other cities for those business locations?

Articial Intelligence (AI)

If banking is increasingly embracing its ‘digital self’ , then investment banking is already several steps beyond that with the advent and increasing use of AI models to manage client investment portfolios.

Can articial intelligence really be used in investment banking predictions and management? The resounding answer from within the industry itself is an emphatic ‘yes’ , with the clear indication being that, as the nancial services industry has changed so dramatically in recent years, if companies are not prepared to move with the times, they will be left behind.

But AI?  Articial Intelligence predicting, managing and implementing investment nance on a massive scale? It’s absolutely going to be the case, according to most industry insiders and observers. And according to studies, most clients believe it too. According to a report by Tenemos and Forbes Insights entitled ‘AI and the modern wealth manager’ , almost half of high-net-worth clients believe articial intelligence will "mostly replace" humans on portfolio management over the next five years, while 35% thought it would replace humans on investment advice and 29% believed client communication would be done by AI. 

If this does prove to be the case, in just five years the asset management industry as we know it could be unrecognisable. However, considering the technological and digital advances overall its unlikely to feel like anything other than a natural evolution of our ongoing technological advancement and drive towards greater efficiencies.

Why not trust a computer programme to accurately predict market trends etc? Properly programmed, computer software can produce any results possible – surely removing the possibility for human error from the occasion is only a good thing?

We are the children of the technological age. If any generation in human history was ever going to design and create software with such incredible capacity, it was always going to be us. As we move forwards into 2019 and beyond, digital and technological advances are going to continue to revolutionise these once traditional industries. The only question is whether they can do so at a pace that allows all of their consumers and clients to keep pace with their advances: after all, for a large proportion of our current population, there’s still no substitute for good old fashioned human interaction in all their financial dealings.

Managing that dichotomy of the old and the new is going to be one of these industries biggest challenges. Along the way, I suspect we’ll see revolutions in software and technology design that are not yet among us too – which will of course in turn influence technology and digital growth in other areas, and so the cycle continues.

By Seventy Financial Planning
 

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