WealthTech Insights #23 with Robert J. Stanich. Modern-day wealth management: A top-line revenue model

For this interview, we met with Robert J. Stanich, an offering manager for the wealth-management and banking arms at IBM Watson Financial Services. He first came to Wall Street about 20 years ago when he started working on cyber security and resiliency for PwC.

Robert J. Stanich
Global Banking and Financial Markets Offering Manager at IBM Watson Financial Services.

Later on, Robert continued his career in finance at global investor banks on the security of custom trading and security settlement platforms. That period of time can be considered significant since .com business really took off. It was at this point that Robert moved to the management consultancy sector and worked a lot with the original e-brokers who were the first to offer discount brokerage through the Internet.

For more than two decades Robert has worked with various US national and regional brands, where he was managing transformation and developing new technologies, as well as working on a number of broker-dealer mergers across the country.

Subsequently, when IBM first introduced Watson, Robert was a part of the team creating wealth-management oriented service offerings that were built upon machine learning and cognitive platforms. About three years ago, Robert moved full-time into the software role with what is now called Watson Financial Services.

Here, we present his thoughts on industry trends and important drivers behind the industry’s development.

Demographic and regulatory changes

We’re seeing an obvious demographic shift as we come into an unprecedented period of wealth transfer in the US. There have also been some significant regulatory shifts across markets not only in North America (US, Canada) but also in Europe, the UK, and Australia. As Robert states:

“We’ve emerged from a financial crisis that tarnished investors’ perception of many incumbent brands that failed to protect them through the downturn. Because of that, I think the industry has being challenged on the value they’re really able to deliver to their clients and at what cost.”

Moreover, Robert is positive that the digital (technological) change is part of that, playing a major role in recognition that advisors have not delivered investment performance through the crisis. As a result, we are seeing some fee compression and a shift towards less stock-picking-type activity and more holistic financial advice being provided.

As Robert notes, traditionally we have seen the brokerage business move from trading proprietary products into more of an agency world. This is why we are continuing to see innovation in compensation models—i.e., fee- or subscription-based approaches. The proliferation of the independent channels of some of the traditional wirehouses or manufacturing-type distribution channels are driving a lot of technological change, rather than the other way around.

The robo-component and the likelihood that it will replace humans

Robert is confident that robo-advice entering the market has an overwhelmingly positive impact, and has created a price discovery and transparency around the value of investment selection and automated rebalancing.

“Robo-advice is a bit of a misnomer.”

As Robert noted, we are seeing a shift from robo-rebalancing into things that actually look more like holistic financial planning. Over the short term, we will see more hybridized offerings that will be the market winners. It will be a huge job to go from the group of firms we call robo-advisers, which are offering a digital investment experience online today, to artificial intelligence (AI).

In addition, there are numerous consumers with sophisticated financial lives and a need for professional financial advice. Thus, robo-solutions will not replace traditional wealth-management services.

“At IBM, we say AI means augmented intelligence.”

IBM is not trying to replace human advisors with computer programs, but is entering into a very new area of computing that entails assisting humans. This area is newer and more subjective than others.

According to Robert, we won’t see a machine that can look across the table at a client and answer questions like: “Can I afford to keep mom in the house in the Adirondacks that she loves so much?” Machines don’t do that today; perhaps some day they will, but not in a timeframe that most advisors who are providing that level of advice need to be overly concerned about. That said, we are seeing digital firms moving upmarket and being able to leverage some of these technical capabilities to offer higher levels of service that will result in fee compression and erode the incumbency at the margins.

“Financial services is still a business that is sold, not bought.”

At the same time, some of the more tech-savvy consumers and users come aboard, but the cost of client acquisition for an upstart digital channel is still very high because of the fact that financial services have to be sold.

Robert emphasizes that we don’t wake up in the morning and rebalance our portfolio immediately. This is another reason why we’ve seen some of the incumbents that have adopted robo as part of their offerings, or hybridized it with some of their other products, becoming the most successful in the market. They have a captive set of clients who are already among their followers, and can differentiate by offering what the channels are more comfortable in operating with.

At IBM, technology like a Watson chatbot is married to the digital offering. This is one way in which digital firms can integrate AI to provide their customers basic financial advice.

IBM Watson

There are still some incredibly useful things that clients can do right now to leverage different machine learning techniques that fit into this world of AI. Right now, the wealth management industry is very focused on things that drive top-line revenue; this includes acquisition, retention, and deepening, which can mean different things if the client is in a more of a fee-based fiduciary world opposing to a commission product realm.

But that includes the ability to predict and detect individual life and financial events to time service and offerings to money emotion; to anticipate service needs, such as predicting when clients are going to leave; to perform advanced segmentation and clustering of focus of business at both kinds of a sales and an individual advisor levels.

Carrying out tasks such as validating investment in more of an equity research-type area is a goal that includes surveilling suspicious trading core communications and understanding the impact of news and certain events on a portfolio. This means taking real-world events and driving them into the scenario analysis and optimization necessary to start a dialogue with human beings and understand their strategy.

“Everything we’re trying to do has to deliver value.”

This is where the chatbot world comes into play, even to do things like review the regulations for firms and extract their obligations. These are all things IBM is doing right now to cross barrier offerings.

Socially responsible mutual funds

One problem that Robert sees is that that is not a custom portfolio for a user. For example, there are certain enterprises in Eastern Europe where the customer doesn’t want to invest their dollars. Or maybe their source of wealth comes from shipping in China and a customer wants to allocate away from that.

A wealth manager needs to create a custom portfolio to get that kind of personalization, and this type of technology would allow them to do so at a scale that is really only reserved for the very wealthy and high net worth individuals. Thus, the “marketization” of that type of offering is coming, but there is another issue, which is to define the term “socially responsible.”

Hybrid cloud computing

IBM works on various solutions that are cloud-based, AI-powered offerings.

The company says that “not all clients are equal, and proposes an alternative, its own Z hybrid cloud to help enterprises deal with digital transformation. IBM has created a platform that offers users a highly secure ecosystem enabling a rapid deployment model to reduce time to revenue and allow myriad tools and applications to excel.

First off, offering disrupting multi-cloud strategy, IBM Z is about exponential growth for businesses that want to scale. Leveraging the potential of APIs, the tech company offers businesses to unleash data and info on transactions to enable powerful insights add up to enterprise success. The secure platform opens horizons for smooth digital transformation with hybrid cloud.

Beyond that, IBM z14 servers’ family is a set of mainframes offering reliable digital experience and taking care of data protection and legal compliance; iconic secure cloud infrastructure at a fraction of a cost is what businesses need to offer high quality services without changes in application or need to sacrifice performance.

Thoughts on the future

In the next 18 months, Robert expects to see a “large-walletted” competitor come into the market, probably funded by an incumbent that will attempt to marry some of the things we’ve spoken about in this session.

Across client acquisition and customization, the offerings will be more around holistic financial planning and advice. Some significant dollars are being spent to realize more of an end-to-end digital holistic wealth platform.

“We’ve yet to see a challenge to the existing model but at the same time we need to keep an eye on the historical wealth transfer.”

Robert believes that incumbents are going to capture a lot of that, making efforts to obtain as much as they can, but that money is going somewhere. And it’s not to your father’s broker.


Interviewed by Vasyl Soloshchuk, CEO and co-owner at INSART, FinTech & Java engineering company. Vasyl is also the author of WealthTech Club, which conducts research into Fortune and Startup Robo-advisor and Wealth Management companies in terms of the technology ecosystem.

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