june 2016 cognizant industry perspective: … industry perspective: from robo-advisory to digital...

COGNIZANT INDUSTRY PERSPECTIVE:

FROM ROBO-ADVISORY TO DIGITAL ADVISORY

Report by Cognizant Banking & Financial Services Strategic Cell

June 2016

© Cognizant 2016, all rights reserved.

2

Wealth Managers are undeniably under pressure…

Client expectations and

behavior have changed

Technology capabilities

are finally here

(major advances

including AI)

Industry icons started to

embrace & accelerate

the pace of change

Graphic Source: “The Case for Change, Toward a New

Frontier in Team Productivity”, SEI, April 2016


3

Robo-advisors, a low cost alternative to traditional investors, was initially touted as

the “next big thing” in investing

• A robo-advisor is an online wealth management service that provides automated, algorithm-based

portfolio management advice depending on attributes like investor’s age, risk tolerance, etc.

• They charge a lower fee compared to traditional financial advisors (<0.5% vs. >1%), offer user-friendly

tools, provide personalized advice based on big data mining and require minimal human interaction

What?

How? • Users are asked to fill a questionnaire to know the amount, risk tolerance, goal & duration of investment

• Proprietary algorithms process these inputs to provide a tailored investment plan allowing the users the

flexibility to adjust their goals and risk tolerance

• It can reconstruct the portfolio periodically in an automated way, i.e. rebalance it, to ensure that the

investments stay in line with the asset allocation plan

• Unlike human advisors, robo-advisors only provide automated portfolio management and not services

on taxes, retirement or estate planning

• Robo-advisors aim to attract customers with lower equity and can advise many people who are on the

internet which an individual can not provide

Differences?


4

Robo-advisors simply provide clients direct access to tools that were exclusively

available to investment managers and advisors…

Robo Advisory Firm/

Services

Financial

Planning

Account

Aggregation

Asset

Allocation

Individual

Stocks

Single-stock

Diversification

Automated

Rebalancing

Dividend

Reinvestment

Tax-loss

Harvesting

Free

Portfolio

Review

Wealthfront

Betterment

Charles Schwab

Personal Capital

Future Advisor

Learnvest

WiseBanyan

Sigfig

Motif Investing

Hedgeable

Nutmeg

Wealth Horizon

Swanest

MoneyFarm

Vaamo

InvestYourWay

The primary “disruption” is the business model, not the capability or technology


5

Comparison of few Robo-advisors

Automation is the key to success for Wealthfront and

Betterment. Adding other services and mixing non-Robo

advice is helping Personal Capital and Future Advisor.

High

Low

Investments Offerings Financial Planning

Combination of “Technology” and “Human” is still white

space, combine it with Networking and Alternative

Investments

Au

tom

atio

n

eToro

FutureAdvisor

Lending Club

Hello Wallet Motif Investing

NestEgg Wealth Betterment

Wealthfront

Tech

no

logy

Bas

ed

Ad

viso

r B

ase

d

Investment Financial Planning

Covestor

White Space

Personal Capital

Edelman Onliner

Everbank

Vanguard

SigFig


6

Robo-advisors only partially address the myriad of issues associated with

leveraging a client relationship once the account is established

Business Objectives Business Objectives Business Strengths Business Strengths Key Differentiators Key Differentiators

Services Offered Services Offered Customer

Experience Customer

Experience Service Quality Service Quality

Target Operating

Model

Target Operating

Model

• Customer Reach

• Customer

Acquisition

• Advisor

Acquisition

• AUM Retention

• AUM Growth

• International

Expansion

• Brand

• Customer

Segment(s)

• Investment

Management

• Banking Services

• Financial Products

Specialization

• Wealth Planning

• Intellectual Capital

• Customer

Segment &

Personas

• Customer needs

served

• Outreach themes

• Services &

Capabilities of

each segment

• Behavioral

‘Triggers’ for

Customer

Acquisition and

Adoption

• Features

• Channels

• Business

Outcomes

• Personalization

• Gamification

• Seamless

transactions from

KYC to Funding

• User friendly

Portfolio

Management and

Reporting

• KPIs

• SLAs

• Front office

changes and

support

• Shared middle and

back office

services

• Data and Analytics

driven operations


7

Cognizant believes that technology augmented human advisors will triumph over

automation as robo-advisors evolve

Banks need to focus on the hybrid service model of machines and humans

• Good financial advice depends on things that robots can overlook, like intellectual capital and an

understanding of nuance. The future will thus require a hybrid approach — part human, part robot

• Investors aged 40 or under are independent, excel at leveraging technology’s potential and are in

search of financial mentors they can collaborate with, in order to make decisions differently

• Banks can combine the expertise of their financial advisors with the convenience and technology that

the robo-advisors provide to capture the huge potential that lies with serving the millennial generation

• One of the value-adds that an advisor can provide to the self-directed robo-advisor solution is being

able to manage the Behavior Gap in the event that markets become volatile

1

Supplement Human advisory services with robo-advisor technology

• Algorithm-based solutions may stay to solve finite and specific problems but would

need the human touch to tackle the full breadth of complexity of a comprehensive

financial plan

• Banks should outsource investment management to technology to focus on the

value-add side of the business, creating a segmented service offering and

targeting cost-conscious clients

• If banks can incorporate a competitive, differentiated digital robo-advisory solution

among their product offerings, it has the potential to impact customer acquisition,

brand recognition and profitability tremendously

2


8

Banks can adopt robo-advisor capability through one of three ways

Source: Deloitte – “Robo-Advisors: Capitalizing on a growing opportunity”

Partner Develop Acquire

Partner with an existing robo-advisor

• Partnering with an existing robo-

advisor involves lower costs and

limited organizational changes

• Advantages: Process automation,

cost reduction and attracting new

customers

• Disadvantages: Limited flexibility,

over dependence and conflicting

objectives

Develop in-house solution

• Traditional advisors are looking to

develop in-house robo-advisory

solutions for existing and new

customers

• Advantages: Low-cost alternative

and flexibility to offer varying

functionality

• Disadvantages: Risk of channel

cannibalization

Acquire a robo-advisor

• The market is well positioned for

consolidation and will see increased

focus as it further matures

• Advantages: Accelerated channel to

some markets for firms lagging behind

• Disadvantages: Valuations may be

inflated, unforeseen integration

challenges and operating costs


9

However, this evolution will drive the need for significant improvements in the ability

of organizations to create new value propositions

• Individually customize pricing models and targeted fee reductions will advisors more attractive to the “mass affluent” and a younger generation of HNWIs

• Measures such as value-based pricing of advisory fees, and performance fees will enable unique pricing models suited to customer segments

Hyper-focused and timely delivery of

advice and information based on

behavioral analytics addressing nuances in

client decision making criteria

Validation and reinforcement of existing

and new investment strategies based on

experiences of peers and influencers

• Customization of service levels creates opportunities to establish, maintain, and deepen trust that can overcome temporary performance shortdfalls

• Advisors able to make connects at the moments that matter - the times that will most favorably influence client perceptions of service quality

Customization of information presentation

to cater to client learning style

Clients contacted via the best channel at the

best time

More robust simulation capabilities

provided to reinforce understanding Re

du

ce

c

os

ts

Impact Quality of Service

Pricing Effectiveness

Relevance

Cost of Service Customer empowerment means more than self service; includes access to platform enabled ecosystems that allow rapid and affordable inclusion of new capabilities

Front, middle and back office processes selectively digitized to minimize cost of delivering new experiences, products, and services

Ge

ne

ra

te

R

ev

en

ue


10

Representative Use Cases

• Advisors provide “ala carte” pricing for advisory services ranging from simple allocation advice (e.g. robo-advisor enabled at 30 basis points) to complete wealth management (personal financial management, retirement planning, estate, insurance, etc.)

Clients provided news and analysis related to

correlation risks unique to their portfolio

Clients provided comparison to performance

of portfolios of individuals that they would

consider peers or influencers

• Clients are provided the ability to explicitly specify frequency, channels, triggers, formats for communications

• Advisor calendar scheduling aided and optimized by intellegent process automation that serves as virtual personal assistant. The VPA provides both recommendations and rationale

Traditional text-based information delivery

complemented by audio, graphs, video, and

interactive dashboards

Clients provided with a life event simulator

that assess potential impacts of significant

positive/negative scenarios Re

du

ce

c

os

ts

Impact Quality of Service

Pricing Effectiveness

Relevance

Cost of Service Clients provided simple interface for integrating planning and analysis tools (e.g. third party social investing apps used to trigger buy/sell actions)

Document gathering simplified through combination of technology (workflow enabled DAM)and Uber-like personal assistant services

Ge

ne

ra

te

R

ev

en

ue


APPENDIX

ADDITIONAL DIGITAL ADVISORY

USE CASES

11


12

Facilitating discovery of new opportunities

P2P social deal making

– Objective: Provide access to unique investment opportunities by facilitating introductions and collaborations between individuals with

similar interests, investment objectives, and risk profiles

– Concept: Provides graphs showing grouping different types of investment opportunities, level of participation. Highlights where like-

minded clients tend to be concentrating their focus

Idea validation

– Objective: Reduce time/effort required for UHNW clients to explore and determine viability of their investment ideas

– Concept: Implement, interactive, AI driven dialogue to facilitate concept definition and then extract and synthesize relevant research

Customized/tailored research based on investment style and financial data

– Objective: Provide information in a manner that is more relevant, impactful, and useful

– Concept: Embed learning strategies into interfaces to assess how clients absorb and use information. (e.g. implementing goal based s

opposed to subject based search capability)

– Comment: Machine learning is only applicable here if the number of interactions for a particular client are enough to extract

statistically significant patterns. If not, a more proactive, diagnostic approach is required. These findings can be submitted to ML

techniques to see if there are patterns that emerge across a larger population.


13

Improving and simplifying the decision making process

Psychometric analysis based investment suggestions/ options

– Objective: Structure and present recommendations in a way that fits with a client’s unique behavioral traits as they relate to investing

– Concept: This is a variant of “Customized Research”. This idea focuses on the generation of specific recommendations as opposed to

packaging and delivery of research. Learning strategies and analytics are required to identify potential differences between an

individual’s self-described level of investment discipline and risk tolerance versus their actual behavior

Alternative investment options through social closed group

– Objective: Provide insights into alternative investment opportunities being pursued by peers and influencers

– Concept: Similar to “P2P Social Deal Making”

– Comment: Whereas the idea on the previous page is about matching clients so that they can jointly create an investment opportunity

this suggestion focuses more on identifying opportunities to “piggyback” on existing investment opportunities

Comparison of various investment products (funds, etc.)

– Objective: Automate detailed comparison of actively managed funds with similar objectives

– Concept: Fund comparison go beyond tradition fund performance metrics to include deeper analysis of the differences in the

underlying composition of the funds and identification of drivers that led to differences in overall performance.

Education sessions

– Objective: Increase client understanding and confidence in advisor recommendations

– Concept: Based on investor sophistication provide just in time education modules relevant to the decisions it is anticipated they need

to make in the next 6 to 12 months. Incorporates strategies for determining optimum learning styles of individual clients

– Comment: Cognizant has a digital learning platform (CasKadeTM) that could be applicable here.


14

Simplify and improve client ability to actively manage assets (1)

Goal based performance tracking /glide path using interactive interface

– Objective: Enable clients to more easily assess impacts of more complex scenarios (e.g. starting a business, divorce, major illness)

– Concept: Pre-configured dashboards used allowing clients to see advisor point of view and see impact of changes to underlying

assumptions

– Comment: In order for this to be truly interesting it would have to include a more robust simulation capability (e.g. life event impacts).

Otherwise it is a glorified Excel spreadsheet.

Cash flow analysis for life style management

– Objective: Enable clients to balance near term needs/wants with long term objectives

– Concept: Provide more sophisticated version of tools provided to retail and mass affluent markets incorporating more comprehensive

use of investment, financing, and tax optimization strategies available to individuals at their level.

– Comment: Basically PFM for the wealthy. “Wow” factor would have to come from quality of recommendations/workarounds proposed

to balance immediate wants with longer term objectives. Presentation of recommendations would be enhanced by capabilities

envisioned in “Customized Research” and “Psychometric driven recommendations”


15

Simplify and improve client ability to actively manage assets (2)

Committed cash management tool

– Objective: Maximize clients’ ability to optimize access and allocation of cash and liquid assets that may be required to cover private

investments (e.g. capital calls)

– Concept: Establish a utility that connects to, and operates independently from, custodian books and records that helps UHNW

investors project, manage and optimize returns on cash holdings that are otherwise committed to private investments.

– Benefits include:

• On the investment holdings side, this utility would aggregate all relevant LP information and optimize cash required to

minimized cash exposure, or to balance cash calls with cash disbursements.

• On the social investing side, this utility could form the basis of an invitation-only investor community where opportunities are

shared, introductions are made, co-investor deals are arranged, etc.

• On the cash holdings side, this utility would identify the best Institutional Money Fund options for short term investment.

• On the books & records side, this utility would also feed into custodian books and records to improve performance reporting

functions


APPENDIX

MAPPING OF COGNIZANT

INVESTMENTS TO THE DIGITAL

AGE

16


17

Key priorities driving Cognizant investments to enable digital transformation

Industry Priorities Customer Experience Analytics &

Insight

Processing Efficiency &

Integrity

Delivery

Agility

Digital Works Domain

Consulting

Journey

Analytics/ Data

Science IPA Blockchain

API

Management,

DevOps

Digital Distribution

Digital Marketplace

Product Evolution

Advanced Analytics

Digital Disruption

Direct and material

business and IT impact

Potential

contribution

Simplifies and

accelerates execution

Significantly increases

potential for innovation

Banking & Financial Services

Strategic Cell Report, July 2016

For more information, please contact:

Anne TAUDIN, Marketing France

[email protected]

www.cognizant.com

About Cognizant Cognizant (NASDAQ: CTSH) is a leading provider of information technology,

consulting, and business process services, dedicated to helping the world's

leading companies build stronger businesses. Headquartered in Teaneck,

New Jersey (U.S.), Cognizant combines a passion for client satisfaction,

technology innovation, deep industry and business process expertise, and a

global, collaborative workforce that embodies the future of work. With over 100

development and delivery centers worldwide and approximately 255,800

employees as of September 30, 2016, Cognizant is a member of the

NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500

and is ranked among the top performing and fastest growing companies in the

world. Visit us online at www.cognizant.com or follow us on Twitter:

Cognizant.

june 2016 cognizant industry perspective: … industry perspective: from robo-advisory to digital...

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