WealthTech Insights #25 with Alexis Kalmanovitz: On cultural difference and high touch in wealth management

WealthTech Club recently spoke with Alexis Kalmanovitz, who specializes in financial technology focusing on enterprise services. This covers software, content, connectivity, and analytics.

Alexis Kalmanovitz
Founder and managing director of Zelig Associates.

Alexis has close to two decades of industry expertise. During his career in the financial space he has held multiple roles, working as an advisor, banker, and principal.

Zelig Associates is a boutique investment bank that helps companies with capital-raising and merger and acquisition projects.

Thoughts on trends

We are seeing aging in the developed world, which means people need to work longer and the younger generation being in debt for a very long time. Although across developing countries everybody is talking about millennials, Alexis does not think this category of investors has a lot of money to invest, and points out that they are clearly used to doing business in a different way.

“Millennials are the Facebook, Amazon, and Google generation.”

Thus, they’re not going to be happy with a face-to-face physical meeting with their advisor every quarter or six months. It’s really about the level of service in terms of real-time processing and content. For this transformation to happen, you actually need the whole workflow chain up of the wealth managers to be upgraded.

“Developing countries are different because you see a quantum leap in terms of technology and access to technology.”

Nowadays, several countries are drawing directly from a technological stage in which there is very little access to anything, including landlines, so they’re moving directly to mobile access. Alexis adds that in Africa and some parts of Southeast Asia, which are still very poor countries, even something as simple as bank accounts are moving directly into that space via technology.

“Technology is key for everyone. It’s very hard for legacy companies to differentiate themselves in a world where it’s a lot easier to do online comparisons.”

Specific strategy to keep up with trends

Alexis’s clients are companies that help modernize and digitize the industry. These firms are looking for new ways to talk to their customers, especially legacy wealth-management companies.

“Many companies are creating new tools, new content and new technology that is available for legacy companies to buy.”

For the retail market, this technology could be robo-advisors, for instance. There is a very limited market and there will not be a lot of success for most startup companies because it’s extremely difficult for newcomers.

The difference between robo and digital advice

Alexis believes that the key aspect is focusing on clients.

“When people are looking for the next big thing, sometimes they just get a new gizmo and it’s very easy to forget what we’re trying to do, which is to solve a problem or improve services. Geographically speaking, the wealth market varies. It doesn’t make sense to sell the same products everywhere.”

Alexis emphasizes that advisors don’t work with a highly educated client based in America in the same way that they do with a more retail-based client in Europe. Globally, the needs are slightly different because of the difference in wealth levels, so they typically don’t give the same of advice to people who have $1,000 invested or $2 million.

To top it off, the availability of products also varies, as do the regulatory frameworks depending on the country in question.

In some countries you have a lot of different instruments and assets you can invest in, and in other places you don’t.

“Culturally you also have a big difference going back to financial education.”

The level of responsibility that a particular individual is given in the way they manage their money also varies worldwide. The obvious example is North America versus Western Europe: in North America almost everybody is responsible for managing their own pension, whereas in Western Europe you have state-controlled and state-sponsored pension plans, so citizens don’t need the same level of education.

“To me, the most important aspect is advising with an emphasis on service, which actually addresses the needs of the customer.”

If you’re going into a highly educated culture like North America, you want to get most people online tools to be able to do simulations and push particular products in a more automated fashion.

At the same time, you have that other side of the spectrum where you actually need very high touch, particularly for very high net worth clients that need a much more personal and intimate component.

The possibility of robo-advisors replacing humans

You have the whole spectrum where you have more low-touch clients and a low-touch type of advice, and then you see more “robotomated” processes.

In the past 30-40 years technology has been applied to different parts of the world across financial industries, trading, regular banking, etc. Now it is starting to be applied within insurance.

“Technology is just one of the components to serve your clients and actually in most cases it’s a small component.”

If you go back to the power of the brand and actual offices where people can go in and talk to someone, while having technology to play with, you will see tech firms that are quite broad, with everything from low- to high-touch offerings.

The next big thing in wealth management

The real big issue is that when you look at the changing demographics and the yield environment together, it’s really hard to match people living a lot longer and needing to live off their pension.

With higher standards of living, they need a wider range of instruments available to invest.

“The big nut to crack is how you match demographic trends and returns on investments.”

Matching the need and the demand for longer-term capital management with yields will allow an aging population to live through retirement.

“I think what’s going to be very interesting and important is how you think about portfolio construction.”

Wealth-management companies themselves have not been incentivized to optimize returns for their clients. Historically investment advisors have been compensated on gathering more assets, and less on giving advice to clients to improve their returns. Better analytics on the corporate side are essential to access different investment categories and asset classes more quickly so as to exploit benefits that are somewhat short-term for clients.

Going forward, we’ve already seen large institutional putting a lot more money into alpha-generating investments. You’re going to see exactly the same trend trickling down to the more public parts of the retail market.

Big data analytics and artificial intelligence

Analytics will play a larger and larger role going forward. One role is really about understanding the client.

“Every client is different, and today most providers of wealth-management services tend to apply a small number of generic pre-defined client profiles.”

So going forward we’ll see a smarter way to analyze data and characteristics of particular clients, resulting into advice that is much more custom-made. And on the backend of that, from the product end, we need more content and analysis for new products to evolve and be created. We have a lot of very bright people out there who are capable of designing new strategies. Another thing that is necessary is to create more visibility of returns in the longer term, for instance.

Distributed ledger technology: Real-world use cases

Lots of people are passionate on both sides of the spectrum. Some of them believe that blockchain will revolutionize initial market and some people believe that it’s a bubble and nothing will happen.

“Technology for technology’s sake has never been a positive factor anywhere.”

However, it depends on what you use it for. Alexis is positive that we’re still in the process of figuring out what this new technology is, which is very advanced database technology, but at the end of the day that’s all it really is. Last year Alexis gave a speech in which he was talking about big data and blockchain to a number of professionals, and asked: “What is blockchain good for? It’s good for counting pork chops.” So the issue there is not the value of the technology itself, it’s really what you do with it.

Everything around KYC and AML, being able to visibly track and give transparency and visibility to client transactions, is a good target segment for distributed ledger technology. You can definitely see a need for technology that is simple and allows you to share the right data in a secure and precise manner.

Wealth transfer from the older generation to younger people

On the front end, the client-management side, you have a lot of need for new platforms and you see a lot of very prestigious companies develop UIs and new ways for clients interact with the provider. Typically your bank knows everything about you, but it is becoming less about the bank and more about the Facebook app.

“The key is to make services more user-friendly across generations.”

If somebody wants to speak about their mortgage, they go to a specialist. However, very few providers out there offer a holistic view and knowledge of the balance sheet, about assets and liabilities.

Cooperation between big asset managers and FinTech

We’re going to see legacy incumbents replaced by new technology-based players who are a lot more nimble and interactive. But the client base has been slow to move to new FinTechs, since it is not easy to convince someone to move away from their bank/advisor and run with someone very new.

“On the one hand, new tech companies are very good at creating new products and interactions, ways to deal with customers, and services. Legacy guys, on the other hand, are good at managing the client base because they’ve been doing it for ages. So there are processes in place and workflows, people, brand, capital, and relationships.”

A lot of the incumbents are putting investment money in FinTech companies so they can be part of the innovation ecosystem.

“There’s nothing wrong with companies wanting to change the financial space by selling new services to banks and other financial services’ incumbents.”

We have also seen a number of acquisitions. The problem, most of the time, is that it doesn’t work for very long because you buy innovation, meaning you buy a company that is nimble and fast, and you put it into an environment that is slow and old, so it doesn’t match very well. It’s better to try fostering an ecosystem, a relationship, a partnership, an investment where people work together.

“You marry the best of the nimble next generation, the new stuff coming out, and the old world, which is slower and can pick up clients that are looking for a trust relationship.”

Future outlook

“It takes a long time to change industries.”

Some of the largest managers of money in the world are the insurance companies, which are just starting to modernize the way they think about technology, the backend that services the client. It will take 25 years to actually change their model and get closer to a modern way of dealing with people’s money. You’ll see some innovation around how you’re able to relate differently in a different market.

From client acquisition all the way to the back office, the upgrade will be slow-paced, but it is certain to happen. In summary, five years down the road won’t make much difference, but 15 or 20 years are likely to bring sweeping changes.


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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