In the last week, after initial waving potential issues with the Boeing 737 Max, the have now worldwide be grounded until more is known about the cause of the crash of 2 of those planes in 5 months. Investigations have shown that the path before crash of the 2 planes were very similar and that there are potential underlying issues with the technology of the plane. Some have quoted that the technology has become too complex and is even not understood by pilot. In the specific case of the Boeing 737 Max the technology/system prevents the aircraft from pointing upwards at too high an angle, where it could lose its lift. However, according to filings with the US Aviation Safety Reporting System, which pilots use to disclose information anonymously, it appeared to force the nose down. Not being a pilot I assume this can only be corrected by human intervention.
So bringing this situation back to the use of Fintech in Investment Management (and yes we can only loose money and not lives), do we understand well enough Robo Advice, AI, Blockchain to fully rely upon. Are they becoming our automatic pilots and who in the case of a nose dive can intervene ?
Think of a scenario of some kind of financial crisis and the impact on index funds. Would the technology used to manage these funds just spiral them to the bottom when prices are going down and investors start pulling money out ? Is the temporary closure of such funds the human intervention of the automatic pilot ?
I would be interested to know from specialists in the field @Christopher New, @Paul Smillie, @Simon Cornwell, @Christian Thomas, @Mark Holmes, @Angela Lloyd-Jones, @Andy Milner
Sharing an article co-written by my former colleague Lee Beck on the changing landscape in the distribution of funds in the United States, which we will see happening on this side of the pond, too: https://www.kuduinvestment.com/the-disruption-in-asset-management-distribution-a-qa-discussion-between-kudu-investment-management-and-envestnet/.
Lee suggests that successful strategic decisions in funds distribution will be formed on the basis of the granular business intelligence that technology now permits. Also, the time of one-size-fits-all marketing predicated on product differentiation is now over; instead, asset managers need to aim their marketing strategy at responding to the actual financial and budgeting needs of their end investors, and not on the intrensic features of the products/funds that are pushed on the market (e.g. rate of return, beta or alpha statistics ...). This requires a major shift in the mind and behaviour of asset management firms, which Lee reckons, calls for significant investment in learning and development in the industry ...
It's seems only a matter on time before one of the tech giants looks seriously at the Financial Services industry - a discussion that came up in our panel event as Cass the other week.
Here are the results of a survey that asked consumers how likely they were to take a current account from Amazon - the conclusion of the article being that Amazon is a threat to existing FinTechs more than the large incumbents:
An Amazon Checking Account Could Displace $100 Billion In Bank Deposits (But It Won't)
Consumers are more interested in a fee-based checking account (bundled with other services) from Amazon than a free checking account from the company.
Chris Skinner, an independent commentator on the financial markets once said, FinTech firms make faster horses but TechFin firms are working with airplanes. Perhaps one of the first technology companies to disrupt the investment management industry is AliBaba.
6 years on from its introduction, AliBaba's money market fund, Yue Bao is still the world's largest at approx $200bn under management (beating JP Morgan's similar fund).
In an age where data is an industry in itself, having a significant user base already which trusts your brand and the means to mine consumer data must surely be a strong starting point to disrupt the industry.
Will other tech giants like Amazon and Google follow suit this year? Perhaps a quicker way would be to acquire other fund managers.