At the heart of the wealth management industry is the mission to deliver agreed investment outcomes subject to a client’s attitude to risk. Wealth managers’ investment processes and approaches to decision-making are a significant driver of the outcomes for millions of individual savers and retirement plans. While the wealth management industry continues to grow, it is experiencing enormous pressure from increasing regulatory requirements and a low environment for returns. While industry competition is fierce, there is also an increasing threat from low-cost robo-advice. To maintain and grow market share, wealth managers need to boost portfolio returns, adapt to regulatory requirements and generate cost and scale efficiencies in their investment processes. Recent innovation allows wealth managers to reduce costs, and become more efficient at generating portfolio returns with a disciplined, systematic process. Cutting-edge applications and tools enable wealth managers to capture a broader range of opportunities, more frequently to sustain long-term portfolio returns.

The industry needs to solve the problems of efficient data sourcing, processing and visualization to address portfolio opportunities and threats in real time to sustain portfolio performance. Best practice can now incorporate a data-driven investment approach with significant systematization of the analysis and decision-making process to drive portfolio returns, enhance communications and reduce business risk.

Systematization of Investment Decision-Making

Wealth managers need to systematize how their investment management teams exploit data, convert to actionable signals and visualize the global multi-asset opportunity set. The winners will be those investors who are able to effectively utilize multiple data sets to extract forward-looking information content that can be analysed within a robust, disciplined framework that generates frequent, high-quality portfolio ideas while taming risk.

Investment managers are currently drowning in ineffective data, leading to sub-optimal portfolio allocation. Decision-making is often predicated on “he-who-speaks-loudest” information from multiple data sources, formats, types and media processed inefficiently by multiple unconnected systems and human analysis. Sub-optimal data processing and evaluation of complex information mean that investment managers struggle to effectively convert noisy data into actionable signals and thus limit portfolio investment performance. Investment managers will need to actively consider data and processing as never before. They will have to address questions such as:

• What data sets are the most impactful for portfolio returns?
• Which data sets convey high-impact information content and which do not?
• How do they source effective data?
• Which data sets should be incorporated into their investment models?
• How do they process the data and convert it into reliable, effective signals?
• How to allocate their data and research budget?

Given these pressures, to be effective, wealth managers’ investment decision-making processes need to be re-imagined and re-engineered.

Technology solutions are now available for bespoke portfolio solutions for wealth managers to utilize best-of-breed data to drive a complete framework for global, multi-asset strategic and tactical asset allocation decision-making. This can provide a framework for wealth managers to industrialize their investment process to deliver high-quality, scalable client portfolio solutions more cost effectively.

Investment managers can access systematic, transparent, back-tested, verifiable signals to provide reliable inputs to enhance portfolio return. Wealth managers can generate significant operational efficiencies and improve the quality of investment decision-making.

Research and Data

The European Markets in Financial Instruments Directive II (MiFID II), the European Union legislative framework for investment intermediaries, takes effect from January 2018. Wealth managers will be subject to new constraints and heavy burdens to unbundle research and execution services. Wealth managers can no longer use execution fees in return for fees. Research for the benefit of client portfolios will now have to be paid for explicitly by the wealth management firm, or a charge levied on client portfolios. Wealth managers will be required to quantify research and data costs, and the value that they provide to the portfolio for the first time.

Best-in-class wealth managers can seize opportunities to gain efficiencies, reducing research and data costs through utilizing smart technology to innovate. Winners will be those who address the questions of how to effectively combine the explosive growth of new “big data” insights from “traditional” sources. AI and machine learning-derived sets are already impacting forecasting techniques and being incorporated into analysis. Wealth managers need efficient, cost-effective analytics in order to continue to deliver acceptable client returns while reducing their own costs.

Skill sets and tools to utilize big data efficiently will become one of the most important skills for wealth and investment management teams in an industry driven by the relentless amount of data delivered at an increasingly rapid pace.

Imagine – wealth managers access the most insightful data providers through a single integrated application, where data is converted into fully transparent, back-tested, market predictive signals. These forward-looking signals drive performance and provide a source of competitive advantage (see Figures 1 and 2).

The analytical platform incorporates curated, best-of-breed data content, including AI, machine learning and social media, across all information categories that wealth managers would consider when assessing tactical market opportunities, such as capital flows, liquidity flows, inflation and economic activity globally.

Investors are able to evaluate and rank data sets quickly and effectively with clear, high-impact visualization and analyse which data sets are most impactful on asset classes, markets and sectors (see Figure 3).

Imagine – wealth managers consume bespoke, tailored, impactful data curated to reflect their in-house investment approach, philosophy and requirements, to maximize the likelihood of meeting their customer portfolio objectives.

The result – a significant reduction in wealth managers’ research and data subscription costs. Tools to evaluate with precision which data is adding to investment decision-making and contributing to portfolio returns. This functionality will enable wealth managers to discharge the upcoming MiFID research budget account requirement and demonstrate the value of the data providers in the research budget. They will have access to a rigorous and disciplined process while reducing human behavioural bias in the investment process.

Imagine – innovation delivered through a transparent, bespoke asset allocation framework across strategic and tactical asset allocation processes which enable investment managers to “connect the dots”. Investment managers can capture and harvest regular, high-quality portfolio opportunities.

Investment Technology and Communications

Wealth management is inherently a people business. Internal teams and external advisors interact to form investment views and client advisors communicate with clients to develop and maintain relationships. Technology can enhance the quality and outcomes of these communication processes. Wealth managers typically make investment decisions slowly, while market opportunities occur rapidly. This can result in sub-optimal performance. If wealth managers can speed up investment decision-making, they can participate in more portfolio opportunities.

Imagine – investment decision makers at wealth management firms have access to curated, bespoke, high-quality data and analytics transformed into transparent, actionable, forward-looking signals. Decision makers being able to access the global opportunity set across asset classes, strategic and tactical frameworks in a single user interface driven by impactful data.

Investment decision makers and investment committees can build conviction for portfolio allocations armed with robust, complete analytics, with clear visualizations driven by data. The committee can spend more time discussing strategic and high-impact portfolio issues and implementation rather than collating projections and debating differing theoretical assumptions.

The impact – a huge saving in time and higher-quality communications, all leading to higher-quality, transparent and defensible decision-making.

Imagine – client advisors access real-time client portfolio content tailored to predetermined client suitability. Powerful visualization with scenario analysis and portfolio upgrade suggestions to address potential threats can be accessed from face-to-face meetings, tablet or mobile. The quality of client interactions can be significantly enhanced by real-time access to client portfolio information, house model portfolios and recommendations based on a forward-looking library of content and analytical tools driven by data.

Risk Reduction

Recent regulatory reprimands against wealth management firms for “unsuitable” advice by the UK regulator can be avoided by incorporating bespoke systematic “suitability” rules into the investment decision-making process.

Imagine – client advisors access data-driven, opinion-free, strategic and tactical investment recommendations that can only be allocated to clients if they are “suitable” for the particular account holder according to pre-assigned criteria. The client advisor can never inadvertently allocate a client portfolio to a transaction that is “unsuitable”. The advisor can manage their book of clients more effectively, knowing that they can both meet suitability requirements and increase the number of clients covered and the quality of input.

Wealth managers substantially reduce their risk of censure and reputational damage with a solution that is highly scalable. Wealth managers can utilize technology to be able to demonstrate accountability ex-post for client recommendations through data-driven, verifiable investment decision-making. Decision-making will be demonstrably defensible and transparent.

In conclusion, in a world of increased regulation and competition, wealth managers can boost portfolio returns and business profitability with data-driven tools that systemize and industrialize their investment decision-making processes. Systematized data-driven processes enhance and streamline communication, while minimizing risks from inappropriate client advice.