the watch of time

Key trends affecting the future of the financial industry in Canada concern five evolving areas, according to an article in the August issue of The Insurance & Investment Journal. As discussed in a major Chartered Financial Analyst conference held in Montreal in May, these concepts are identified as: robo-advice; big data; cyber-security risks; social media; and responsible investment.

Underlying these trends’ expanding roles is the belief that “Everyone wants more advice about their investments and that advice is very expensive”.

• Robo-advice: The CEO and founder of a U.S. ‘robo-advisor’ company, the world’s largest and fastest growing (160,000 customers, approximately $4.5 billion in assets managed), believes our increasingly complex world requires more advice to navigate it; robo-advice is described as ‘something like a self-driving car for money’; “Whether it is automated or traditional advice, people expect tailored, not generic advice”; rather than replacing humans, with this technology advisors will be able to serve clients better because of access to a more reliable process; a ‘direct-to-customer offering’ is available where an advisor’s counsel is not needed; such technology is increasingly beneficial to investors whether or not they have an advisor, part of an advice revolution in which robo advice ‘is the future in how people will invest and operate’
• Big data: Benefitting from significant declines in storage costs, one research firm is “using big data to build models such as predicting the probability of a company defaulting on their debt”; various sources of public information are searched for key words to help generate a predictive model, ‘ahead’ of rating agencies; video and images are helping shape the way information is used in big data
• Cyber-security risks: The ‘cyber risk lion never sleeps’; according to the co-founder of a risk consulting firm, institutions which have not detected any attack or compromise in the previous six months are not clear of such risks, it’s just that they’re ‘not looking in the right areas’; an unpleasant statistic for organizations is that “insiders are responsible for 90% of security incidents, of which 29% are malicious” (so, 71% are ‘unintentional’, as via log in/out failures or cloud storage); reminders to minimize attacks = not opening attachments or web links, not storing passwords in programs, not trusting, and verifying emails; a wry observation is that the “only way to be safe in a digital world is to go Amish”
• Social media: According to a research director discussing how advisors are ‘winning from the digital age’, on average internet users have between five and six social media accounts, meaning business opportunity for advisors; Linked-In is the most popular site in the industry, with some 70% of financial planners using it, for most the primary social platform; 79% of planners using social media have reported it gaining them new business; the key ingredient involves ‘being engaging and interacting on social media’
• Responsible investment: According to a partner of a social investment firm, with population growth “there will be increasing tensions around natural resources and economic inequality”, providing a new platform for responsible investing; corporate structures have had social awareness instilled via terms such as corporate social responsibility and carbon markets; this in turn has impacted corporate strategies; increasing ‘demand for social and environmental disclosure and ratings’ has created a focus for companies “to demonstrate their credentials across an expanding definition of ‘social responsibility’”; this leads to the financial sector responding to ‘society’s appetite’ for such investing, and to “potential for responsible investing to go beyond product innovation and deliver fundamental changes to the global financial system”

Once upon a time it seemed the future was an amorphous world of possibilities. Now it appears the future is still ripe, but it comes with tangents and implications wherein advancements, not necessarily good or easy, are unlikely to stand alone.