fbpx

WealthTech Insights #64 with Walter Vester. How an AI-Empowered Crisis Signal Can Improve Wealth-Management Services

Whereas some WealthTech companies add value by building convenience, others deliver services that were out of bounds before

Interview with Walter Vester,
CEO at Huygens Capital

Is it right to think of WealthTech as just automated financial advisory routines? If the answer is “yes,” then it would just squeeze human advisors out of the market instead of creating value. Technologies were invented to empower humans to do something beyond their natural abilities. If WealthTech can deliver such differentiated services, advisors will get the perfect mixture of robo and human powers.

Walter Vester very much appreciated being able to take volatility out of his own investments. For that reason, he was searching for ways to forecast how the market will change. The results of his attempts became a commercially successful artificial intelligence (AI) -based equity market signal.

“What does a typical robo-advisor do? It rebalances your portfolio into the falling asset class, which means it actually enhances your volatility during the crisis time. There’s a flaw in that, [even though] eventually the rebalancing could result in higher total return, once the falling asset class eventually recovers, if it recovers. But not lower volatility. ”

Walter utilized artificial intelligence methods and historical data representing market changes over time to teach the algorithm how to signal crises before they start and end. This has enabled him to take money out when the market is crashing and put it back in to get the most out of the recovery.

Creating additional value is crucial

People tend to pay more for more value. The tactics that Walter utilized in his algorithm managed to minimize losses and save more money compared to a passive approach. Thus, he created added value for clients and can now charge for that service.

Walter’s approach is very similar to that of insurance. Clients may pay more, but they get higher revenue and peace of mind in return. Generally, in Walter’s opinion, the partnership between regional banks, insurance companies, and WealthTech platforms has great potential. In this case, solutions like Huygens and regional banks or insurance firms can be mutually beneficial and generate even more value for their clients.

“A typical insurance agent likes to offer wealth-management services in addition to insurance sales, just to increase their share of [the] wallet. But it’s hard for an insurance company or a bank to break into that market unless they want to build these capabilities themselves because they can hardly afford to buy Betterment.”

At the same time, Walter admits that nowadays it takes human advisors increasingly more effort to justify their input. Technologies such as AI no longer scare investors; they feel more able to trust their money to machines. This means that advisors who don’t utilize the extra abilities of technology are going to have a harder time proving their value.

Is AI a silver bullet?

Naturally, different approaches and technologies suit, or don’t suit, a particular task. For example, Walter’s platform has nothing to do with the crypto market. First, there’s no historical data to train the AI on; second, the volatility of that market completely negates all the possible gains.

“We look at the normalized prices per option and functions of their changes over time to tell when sentiment is changing. In the US equity market, I have two really severe crisis periods and many other weaker ones to mine a lot of data from. But I have no data to do the same with cryptocurrencies.”

However, this is another argument for choosing to narrow focus instead to building good old commoditized solutions with just a friendlier interface than before. Walter feels that there’s no point in chasing as many markets as possible; conversely, it’s important to ensure the value you provide is high and the product you offer is well differentiated.

The bottom line

Summing up, AI is very well suited to some of the wealth-management tasks. It really can add value to the products and achieve a differentiated performance that’s far beyond the abilities of human advisors. However, there are cases when it won’t work to the same level, as it’s not a magic pill. It’s vital for platforms to focus on the value they create. Technologies are just the instrument to deploy that value.

About

Walter Vester is CEO and founder of Huygens Capital. He studied computer and systems engineering plus applied physics.  He had a first career in signal processing and algorithm design, focusing on handwriting recognition, secure defense radio communication systems, and many more engineering novelties.

Later on after business school, he switched his activity area to general consulting and then investment management, working at Boston Consulting Group, then AllianceBernstein and Blackstone as an analyst and co-portfolio manager.

He first wrote the algorithm underlying Huygen’s signal by himself to manage his own money. Soon after it proved to be efficient, he founded Huygens to introduce it in a commercial B2B product and rolled it out to the market.

Walter Vester, Huygens Capital

DOWNLOAD PDF


Interviewed by Vasyl Soloshchuk, CEO and co-owner at INSART, FinTech 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.

Keith Gregg

Founder, Chairman, and CEO of Chalice Wealth Partners

WealthTech Insights #63 with Keith Gregg. What Trends Will We See in the Finance World over the Next 10 Years?

With Keith Gregg, Founder, Chairman, and CEO of Chalice Wealth Partners, we discuss how the demographic shift is affecting advisors. While clients are getting increasingly younger, the aging population of…

Eric Clarke

Founder and CEO of Orion Advisor Services

WealthTech Insights #62 with Eric Clarke. Overcoming Tech and Business Challenges: Best Practices for Financial Advisors

With Eric Clarke, founder and CEO of Orion Advisor Services, we discuss what advantages technologies give to advisors today. Eric explains what advisors should question when choosing technologies for their…

Michael Kitces

Partner and Director of Wealth Management at Pinnacle…

WealthTech Insights #61 with Michael Kitces. Why Big Data and Blockchain Won’t Affect the Average Advisor

Using behavior analytics to predict user behavior and select more accurate financial strategies has been a hot topic in recent years. But Michael Kitces says that when it’s applied to…

Adrian Johnstone

Founder and Chief Commercial Officer of Practifi

WealthTech Insights #60 with Adrian Johnstone. How Can Advisors Improve Their Business Practices?

Generally, people fantasize about making more money. Nobody fantasizes about working hard and seeking out talented individuals to help them grow. With Adrian Johnstone, Founder and Chief Commercial Officer of…

Michael Kitces

Partner and Director of Wealth Management at Pinnacle…

WealthTech Insights #59 with Michael Kitces. The Golden Age of the Independent Advisor

With Michael Kitces, we discuss pains in the advisory space. How is technology helping advisors, and why it’s not doing everything they expect it to do? Will technology improve workflows…

Richard Hamm

Founder of Bristol Gate Capital Partners

WealthTech Insights #58 with Richard Hamm. How Machine Learning is Changing the Way We Invest

With Richard Hamm, founder of Bristol Gate Capital Partners, we discuss how artificial intelligence is disrupting the finance industry, what are the benefits of empirical advice, and how machines empower…

John Prendergast

Cofounder, Director, and CEO of Blueleaf

WealthTech Insights #57 with John Prendergast. The Augmented Advisor: Scaling Efficiency and Margins

How can financial platforms help advisors meet client expectations? What is the human advisor's advantage over robo-advisors? Why do advisors need to communicate frequently with their clients? With John Prendergast,…

Gavin Spitzner

Founder and President of Wealth Consulting Partners

WealthTech Insights #56 with Gavin Spitzner. The Financial Advisor of the Future

With Gavin Spitzner, President of Wealth Consulting Partners, we discussed how technology can help advisors offer better advice, improve financial wellness, reduce financial stress, and truly make a difference in…
?>