Technology provides clients with real time data around markets and portfolios, enabling them to make timely decisions. But it is important to distinguish between investing and trading mentalities
One aspect of digitalisation on which the jury is still out is whether technology can enhance portfolio investment returns for clients.
While it can be challenging to quantify the exact impact of digitalisation on portfolio performance, digital tools and technologies “significantly enhance” clients' ability to manage their portfolios effectively, believes Royce Teo, DBS Bank’s group head of cognitive banking and martech in Singapore. This is especially true for simpler and tactical needs that can be directly fulfilled by clients themselves.
At DBS, digitalisation provides clients with “real time insights” into market data and portfolio performance, any time and everywhere. “This constant accessibility empowers our clients to take timely action on their portfolios, thus potentially mitigating risks and capitalising on opportunities as they arise,” says Mr Teo.
The bank’s digital platform also provides clients with alerts regarding their portfolio and significant market events, enhancing the visibility of their investments and enabling them to “proactively manage and adjust their portfolios in response to market dynamics”.
Furthermore, advanced technologies like artificial intelligence (AI) and machine learning (ML) can provide sophisticated market forecasts and personalised recommendations, allowing clients to “strategise and plan their investments more effectively”, he says.
Trading mentality
AI-generated alerts and insights may drive greater customer engagement and empower advisers to conduct meaningful conversations with clients, enabling them to offer more personalised advice, but is there the risk they fuel a trading mentality? Increased turnover in portfolios certainly boosts the bank’s revenues, but what about portfolio performance?
Our main objective is not to foster a trading mentality, but rather to encourage strategic and informed decision-making
“While our platform utilises nudges and alerts to keep our clients informed about market opportunities, our main objective is not to foster a trading mentality, but rather to encourage strategic and informed decision-making,” insists Mr Teo. “We are guided by long-term sustainable relationship development which cannot be achieved without a win-win proposition in today’s competitive world.”
The bank’s approach is to prioritise “value for client” over “value for bank”, he states. Prompts are designed to help private bankers proactively reach out to clients during difficult situations. Presenting real-time data and insights that align with clients' investment objectives and risk tolerance, these alerts offer clients relevant information to make decisions that “best serve their financial goals, not to prompt impulsive trading”, he says.
Aligning portfolios
Importantly, digitalisation allows both private bankers and clients to align portfolios with the CIO's views. These form an integral part of the wealth advisory data-driven insights, generated for relationship managers in the bank’s customer relationship management platform. ML is used to synthesise client’s current portfolios and recent investment patterns against the most relevant CIO views, asset allocation strategies and future market outlook.
“This process generates specific portfolio recommendations that RMs are using when they have conversations with clients and includes diversification strategies, reinvestment opportunities and emerging trends,” says Mr Teo.
Moreover, through the customer-facing platform, clients themselves can compare their portfolio with the CIO’s model portfolio, adjusted for various risk profiles, allowing them to evaluate their own portfolios.
The platform also offers thematic research articles and corresponding investment products, personalised for each client, encouraging strategic investment decisions aligned with the CIO's views, and “fostering a disciplined approach to wealth management”.
“While the direct correlation between digitalisation and portfolio performance may not be quantifiable, the advantages that digital platforms provide, such as real-time insights, increased accessibility, enhanced visibility and advanced tools, undoubtedly equip clients with the necessary resources to manage their portfolios more effectively, which can potentially lead to improved performance over time,” concludes Mr Teo.
There is nothing wrong with trading if investors know what they're doing
Sharmil Patwa, founder of London-based consulting firm Opus Una, highlights the difference between 'trading opportunity' and 'investment opportunity', and 'trading idea' and 'investment insight'. It all depends on how the insight is presented, and the financial understanding of the client, he says.
“There is nothing wrong with trading if investors know what they're doing, including how to interpret the information they're presented with and know when it's garbage, but it's very different to investing, which is what wealth managers should focus on helping their clients with,” he says.
Digitalisation helps generate “long term alpha” in an investment portfolio by being able to act more quickly to mitigate risks and dependencies, believes Christine Gill, BNY Mellon Wealth Management’s head of family office. Most family offices are still mainly paper-oriented.
“In general, less friction in the dissemination of data within an office and to stakeholders should result in better adherence to investment policy statements and alignment with long term investment goals,” she says.
