Luca can rightfully be called a pioneer of FinTech because he was working in this field before the term actually emerged. Combining a strong background in computer science with studies in management and private equity, he has been in charge of software development in several companies in the financial sector.
Before establishing his own company, Luca had a position in Swissquote Bank, which was one of the early adopters of robo-advisor technology. There, his work in senior management gave him vast exposure on various financial technologies, including: robo-advisory, automated trading strategies, risk management, and Forex. Leveraging this experience, he started his own broker-independent investment-management company—Guruvest.
In our conversation, we discussed the many problems of outsourcing trading strategies and investment decision, and we also discussed the robo-advisory company of the future.
The conflict between asset allocation and investment decisions
While discussing his path to wealth management, Luca highlights a crucial industry raw spot—the conflicts of interest between asset allocation and investment decisions. That is also one of the reasons why he decided to make Guruvest independent of brokers:
“Many financial institutions that are brokers […] are investing [clients’ money], not theirs. Even if the trading strategies are often developed in-house, however, they are not designed around the client and, as a result, the portfolios they can offer is quite limited.”
Following the line of asset custody, Luca insists it is best to decouple banks from the investment process and let them grow apart from each other, thus enabling more options for customers. Nevertheless, these two parts of one chain should be easily interoperable:
“There won’t be any conflicts of interest and this will allow us to connect more financial institutions and propose customized trading strategies or investment strategies for every person.”
The problems of chasing robo-advisory solutions
Luca knows all the angles of robo-advisory systems. He points out the huge customer-acquisition costs as the first and the biggest problem in such businesses:
“Just imagine that you have to open another bank account to access a robo-advisor solution. No matter how simple the procedure, [there] is still a need to transfer the money in[to] this account.”
This also aggravates the restrictions imposed by national laws and regulations. Banks that are going to use robo-advisors have to put up with the fact that their operation will be limited to the country in which they are regulated. To expand internationally, they should either acquire a licensed broker or bank in the target country or obtain a new license and grow their brand there organically. After studying the issue, Luca says, both variants turned out not to be good from the return on investment point of view. On the flip side, Guruvest claims to avoid these obstacles by being broker-independent, asset-free, and not subject to the same licensing and low-rate restrictions that other banks or brokers have:
“We have the luxury that the clients does not have to deposit money through us. So the clients can keep their money in their favorite banks, brokers, [and] crypto exchanges, and we send them trading instructions and orders directly into their accounts.”
Introducing artificial intelligence and blockchain to trading strategies
Being an investment-management company, Guruvest provides a local advisor service that allows to execute and mirror orders just like in social trading platforms. The technology enables the strategy of a professional trader to be mirrored; however, it is still the client who is responsible for copying one trade instead of another. In turn, Guruvest sees the value in using corrective intelligence to protect their clients. Their AI algorithm will be able to learn how to react in certain situations; for example, in case the trading strategy has major changes. Luca claims that AI can be used to analyze the strategies, which the platform stores, and can help to build better portfolios based on the acquired insights:
“We have access to all the strategies and can rank them, categorize, and then be able to build customized and diversified portfolios by combining modern portfolio theory with the data of the matched clients.”
Also, for security reasons, Luca suggests that companies should use blockchain and smart contracts, which provide transparency throughout all the aspects of the investment process and guarantee automated settlement of transactions. This will add value for the traders, who can be sure that every transaction is fair.
The value of open API and integrations
Luca is confident that platforms like Guruvest should have an open API. He claims that the key is in a diversification of integrations with different platforms, which requires the API to be smooth, open source, and easy to integrate. Moreover, he intends to introduce this idea into his own product:
“The system is open in that sense and that’s why banks could partner with us easily. Thanks to our broker-independent nature, they might partner for global advertising; other banks have approached us because they want to offer our trading strategies onto their existing trading platform as a form of social trading to their clients. Other financial institutions have shown interest in using our AI system for their own investment portfolio; all of this will be comfortable […] So we’re really building a protocol which is open to different players to connect.”
Such configuration of an outsourcing investment instrument enables its integration with the existing system consisting of the trader, which provides the trading strategies, and the investors. Moreover, it does support an entity in the middle that works as an affiliate, which takes trading signals from multiple traders and re-distributes them to the correct investor.
Social media for UX and personality trait reports
Luca likes the idea of using social media accounts. It is simple, quick, and there is no paperwork, which is very efficient. All you need to get started is to link your trading account, set your investment goals or what you want to invest in, assign a limit, and then it is ready to go.
As well as social media accounts providing a smooth user experience, the information they contain about the user can be utilized to construct a more precise risk profile:
“For example, users can register with a LinkedIn or Facebook account, which would help us to assess the risk profile in an easier way [than] starting with zero data […] That’s something that gives us a little bit of advantage.”
According to Luca, wealth management can also benefit from utilizing the personality trait reports created from social media account analysis. The findings that are acquired in this way can be integrated with a machine-learning algorithm—for instance, IBM Watson—and can then influence the investment decision making:
“There are companies that use [personality reports] for matching a client with a salesman. They know that this client has a certain personality and probably will get along with this specific salesman. So I think that, with the correct data policies, we can do the same to predict the investment behavior.”
He also states that the data acquired will be used for the sole purposes of protecting the clients from unreasonable risk and to provide them with the most relevant advice.
What will the wealth-management company of the future look like?
According to Luca, most of the robo-advisory solutions have business model issues because of very high customer-acquisition costs. The companies that intend to grow in the future should keep this aspect in mind and develop new models that are able to mitigate this factor. In Luca’s opinion, the easiest way to follow this practice is to become really open, to embrace different services, and to partner with different feeder companies in order to provide the best UX, as opposed to building everything in-house. In that vein, he holds up Revolut and N26 as examples, which grew by providing additional services throughout APIs and partnerships:
“Why does it have to be linked to the current financial services? Maybe it doesn’t. We are seeing a major shift, where banks are pushed by digitalization and blockchain technology, in a space where they are not experts. […] ‘We cannot do everything in-house; these guys are providing this great service, we just want to integrate with them in order to deliver more value to our clients.’”
Luca’s main message is the necessity of being open, whether for building partnerships or integrations, or for creating a valuable eco-system through open innovation:
“What we learn with these models and strategies [is that] you cannot just say, ‘Oh, I’ve made a model, it works great.’ It’s constant work which requires somebody to keep monitoring, modifying and evolving the models [over] time. This can only be achieved by aligning the interests of the various stakeholders through an open eco-system.”
As Luca anticipates, the only way for wealth-management companies to keep pace with the industry is to experiment and introduce daring and novel ways of using the technology. The one who puts together the right ingredients for the right recipe will be the winner:
“It’s not a vision; it’s a reality. The biggest taxi firm in the world owns no cars; the biggest retail company, Alibaba, carries no stock; and the biggest social media content producer, Facebook, produces no content. So, for what matters the FinTech space, the vision I have is that the biggest robo-advisor firm will hold no assets.”
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.