Banks could learn lessons from innovative CIOs

As PWM publishes its 150th edition, global society and the investment world in particular finds itself deep in the throes of the Third Industrial Revolution. 

Technology today, as both an investment theme and enabler for private banks to communicate with customers, is at centre stage. The world is also sensitive to heightened political risks from China, Russia and the Middle East, with US foreign policy now lacking any real certainty, direction or coherence. Populism is also rampant and can raise its head anywhere at any time.

Looking back to the launch of our title in 2001, investors’ priorities and concerns shared some similarities. The dotcom bubbled had burst after the prolonged tech boom, which led many private investors to back almost non-existent companies. Firms were, for a short period at least, increasingly judged on tech-spend rather than traditional performance indicators.

Day trading or self-directed investment were just beginning to take shape, although data access was still limited. Private portfolios were on the cusp of being loaded by hedge funds. And 10 years after the end of the Cold War, what appeared to be an increasingly unipolar world was now under threat from Al-Qaeda, following the infamous 9/11 attacks.

All of these trends, whether funding start-ups, developing data analytics for bedroom traders or even assessing communication networks utilised by renegade Islamic extremist groups, depended on fast-moving technological innovation.

It has taken private banks years to catch up, and even now, only a small cohort of around 25 banks globally are in the vanguard, recognised in this year’s inaugural PWM Wealth Tech Awards. Barely playing catch-up, many others are more than a lap behind on the race track.

Typically, the chief technology officers who have signed off the banks’ submissions highlight concepts of agile automation and security which “permeate” their organisations, support and influence the metamorphosis of their culture. But automation is not true innovation, it is merely converting manual processes to digital, something which should really have been completed 10 years ago.

When it comes to truly cutting-edge digital initiatives involving analysis of so-called ‘big data’ to aid both portfolio management and predictive sales of preferred products to clients, only a handful of players are in the game. These are mostly in Asia, where newer banks without smokestack legacy systems have spun straight to digital, in the same way that developing nations have pioneered mobile phone technology as an alternative to laying expensive infrastructure.

Too many banks, it appears, are digitally defensive, using technology to slash costs. Perhaps banks need to put more weight onto the front foot and attack the market, not feel shy about using data and digital formats to sell more products and improve the ‘customer experience’ in such a way that not only does the client feel more comfortable, but that balance sheets are boosted through a deeper penetration into portfolios.

Spain’s CaixaBank is a case in point. Like competitors BBVA and Santander, Caixa was forced to digitalise as banks closed their shutters for good after being caught out by the global financial crisis, which laid waste to much of the Mediterranean banking landscape.

Caixa’s Smartmoney robo-advice solution, for example, not only offers comprehensive financial planning from home, but makes sure that within two days of the process kicking off, clients are being offered ‘investment proposals’ recommended by their relationship managers, with the convenience of trading the products online. Caixa is smart enough to be on the money: there is no pretence that this is just for the client’s good – the bank also benefits financially and this is part of the attraction.

High-tech themes

While many banks have been slow to innovate, their chief investment officers have long been advocating investment in technology, and today the peddling of digital themes is at fever pitch for most CIOs, in stark contrast to some of the backward processes still rumbling along behind the scenes.

As PWM goes to press, we are hosting the key panel discussion at Fund Forum in Berlin, gathering top CIOs from Europe to elaborate on their investment themes.

The great minds of BlackRock, Coutts, Lloyds Bank and charity specialists CCLA are all highlighting themes involving the evolution of digital society, robotics and high-tech healthcare. Should we be worried that the market is invested too narrowly, with another bubble ahead? 

Most wealth firms want to talk about driverless cars and robotic keyhole surgery performed over the video screen under a surgeon’s direction. Shouldn’t we be concerned about the limited number of investment opportunities available to underpin such themes? 

UBS’s London-based investment guru Caroline Simmons will suggest a broader approach to the Berlin audience, encompassing all sustainable investment opportunities, while ABN Amro’s Didier Duret looks at how demographic trends underpin all successful innovative concepts.

Credit Suisse’s CIO Burkhard Varnholt, a pioneer of sustainable investment, a designer of structured products in previous incarnations and predictor of long-term trends, also favours the broader approach.

His calls today include backing the millennial generation, with its love of sustainable resources, while also investing in the type of national champion firms which can benefit from populist policies such as ‘America First’. The likes of Mr Varnholt have always matched up themes with investable products, rather than giving large numbers of clients false hopes. They have also highlighted risks and currently it is the frozen conflicts of the Far East, where fluid borders abide, that gives Mr Varnholt sleepless nights.

Yes, by all means we must digitise, data-mine and de-silo, but let us not forget the highly intellectual, human input of the chiefs who spot the trends and build the products, which can later be sold either over the counter or, more commonly, through the screen.

The value of these investment chiefs for private banks should never be under-estimated. While chief digital officers map out customer journeys and client experience trails, without the hard grafting CIOs, analysing reams of research and visiting interesting markets and manufacturers, private banks would be dramatically failing their customers.