Why it matters

The UK is a big player. According to Bank of International Settlements data from 2016, the UK processes nearly 70%, by turnover, of the euro-denominated traded interest rate derivatives every day.[1] The next four biggest players—France, Germany, Denmark and the US—account for little over 20%!

Certain regulatory control issues remain unresolved. Following the financial crisis, the European Central Bank deemed large central counterparties—defined as those that have a daily credit exposure of more than €5 billion in one of their main transaction categories—systemically important for the European Economic Area. In 2011, the Eurosystem Oversight Policy Framework called for settlement activity to be performed by institutions “legally incorporated in the euro area with full managerial and operational control” and supervised by the European Central Bank.[2]

In 2015, following a challenge by the UK, the European Court of Justice (ECJ) ruled that the European Central Bank lacks the competence necessary to regulate the activity of securities clearing systems. The Repeal Bill, currently going through parliament, gives existing ECJ case law the same status as decisions of the UK Supreme Court. How future decisions are to be regarded remains up for consideration. In August, one UK justice minister said that Britain would have to keep “half an eye” on rulings by EU judges after the transition period.[3]

What to expect

If the loss of passporting rights forces some, or all, of the euro-denominated clearing business to relocate from the UK to Europe, the impact on individual firms and the financial services sector could be significant.

At the firm level, we can expect to see organizations:

• Reviewing their cross-border operating models and refining their legal entity structures
• Rethinking their collateral models to accommodate the split between euro-denominated and products-denominated in other currencies
• Scaling and reorienting transferred activities and associated infrastructure
• Reviewing and potentially reworking legal documents, including thousands of contracts

At the market level, we may see:

• Direct economic impacts. A relocation of business would mean a relocation of jobs and profits from the UK to mainland Europe
• Reduced market liquidity and increased costs for investors. More limited in their ability to net euro-denominated risk exposures against exposures in other currencies, clearing members would have to put up more capital and collateral. That could reduce the liquidity and competitiveness of the European market and increase costs for European investors

While many unknowns remain, it’s never too early to start planning. Where does your firm fit into this picture? What steps are you taking to mitigate risk and prepare your business for the new world that’s emerging? If you’d like a hand tackling these important questions, let me know at owen.jelf@accenture.com.

[1] http://stats.bis.org/statx/toc/DER.html

[2] http://curia.europa.eu/juris/document/document_print.jsf?doclang=EN&text=&pageIndex=0&part=1&mode=req&docid=162667&occ=first&dir=&cid=390270

[3] http://www.bbc.co.uk/news/av/uk-politics-41022574/dominic-raab-uk-should-keep-half-an-eye-on-eu-law

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Gone are the days of inside-out thinking, focusing on products and services from a set repertoire. Some wealth management firms ushering in the future are using design thinking—an outside-in approach in which advisors must understand their clients’ life journeys and prescribe accordingly. As I said in a recent panel at Sibos 2017: “Don’t just create a product and then explain to the client why they should love it.” Our clients and advisors should be driving their experiences, not the other way around.

The human element is central to design thinking for wealth management, and is a vast departure from the traditional model. Accenture acquired Fjord, a global design and innovation consultancy, in part because so many firms may need design thinking at the center of what they do to be truly client and customer centric. For instance, Accenture worked with a brokerage firm to recreate its advisor experience and desktop using design thinking. We helped a bank redesign its wealth management client experience using the same. When an industry is being reinvented—as wealth management is—“tweaking” won’t help.

“Design thinking allows you to create something that works better for humans as they interact with the new digital reality in which we’re all working and playing.”

As your firm creates a human-centered advisory model, you must include advisors. When firms do not, they risk ending with a model that is far less effective than it could be. As your “boots on the ground”, advisors have the most frequent contact with investors—making their input invaluable. Even in the hybrid model investors clearly prefer, the role of human advisors is key. Create thoughtful ways to always be engaging clients and advisors in the design, getting their feedback and testing ideas. Don’t miss this opportunity to tap their knowledge to better serve your client base. Other areas of financial services may be able to operate primarily via digital channels, but wealth management will always involve more nuanced decisions requiring human empathy and judgment.

Make this fun! Advisors who have a say in designing the client journey to better serve your base will most likely be happier advisors. The more autonomy workers are given to influence outcomes, the happier and more productive they tend to be.[i] Who better to design a journey for human clients than the human advisors who interact with them most?

If your firm is looking to take a design thinking approach to your client experience, I’d love to talk with you about it. As always, please email me, Kendra Thompson, if you have insights or questions you would like to share.

[i] https://www.nbcnews.com/better/careers/how-be-happier-work-it-s-easier-you-think-n738081

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Five ways to leverage AI

Capital markets innovators are beginning to use AI to automate more intelligently, enhance judgment, enhance interactions, create intelligent products and services, and enhance trust. Here’s how:

Intelligent automation takes robotic process automation (RPA) to the next level, making it possible to replicate increasingly complex processes, adapt to changes and exceptions, and improve performance over time—particularly in the back office. Instead of anticipating and programming responses for every possible scenario, AI can monitor humans in action, watch for patterns and learn how to respond.

Enhanced judgement uses AI to help employees make informed decisions, consider new strategies and ultimately provide better outcomes for you and your clients. A classic capital markets example is next-best-action decision making, where cognitive knowledge management systems produce timely insights that your financial advisors can use to anticipate client needs and make appropriate recommendations.

Enhanced interaction uses AI to automatically analyze client behaviors to facilitate hyper-personalization, and the curation and delivery of information in real time. Here, digital assistants are shifting the client experience from filling in forms and navigating online portals to human-style interactions with conversational interfaces.

Intelligent products use AI to enable new offerings—or try to make existing offerings profitable in new demographic or geographic markets. Robo-advice is a particularly good example of how a precursor technology has changed the calculation and made it financially feasible for firms to target and engage clients with smaller asset holdings.

Enhanced trust involves not only building trust in AI within your organization, but also building trust in your institution among industry players, regulators and clients outside your organization. In a highly regulated environment like capital markets, AI can be a cost-effective approach to governance that provides important insights.

The next wave of AI

As AI technology evolves, so too do the use cases. In the first wave of adoption, capital markets firms focused their efforts on compliance and security, using AI to enhance fraud detection and boost cyber security. In the second wave, attention shifted to client service, in the form of next-best-action and next-best-offer decision making. Going forward, I anticipate growing interest in risk management stress testing, algorithmic trading and conversational user interfaces.

The case for AI in capital markets is clear and growing, but you have to know where to look—and be ready to act on what you find. To learn how your organization can build a foundation where AI will thrive, read our latest paper: Show Me the Value: The Case for AI in Capital Markets or get in touch with me directly at jeffrey.brashear@accenture.com.

The post Artificial intelligence can unlock value for capital markets—if you know where to look appeared first on Accenture Capital Markets Blog.

In the not so distant past, it would be unusual for wealth management firms to even consider going to a software conference. But in the wise words of Microsoft CEO Satya Nadella, “Every business will become a software business”.[1] With investors showing a clear preference for hybrid wealth management, digital solutions matter in the industry more than ever.

If you’re planning to attend Dreamforce, I hope you will join me at the November 8^th Accenture roundtable I’m hosting on hybrid wealth advice. I’ll be discussing what investors have told us about their hybrid preferences and the implications for your industry. In addition to my roundtable, two of my Accenture Financial Services colleagues are leading other discussions on some very timely insurance and institutional banking topics.

It is always a wild week, so if you need help creating a tailored agenda, let us know and we will help you get the most of the time in San Fran. And please stop by the Accenture booth, #701 Moscone South, to say hello. We’ll be happy to greet you there and share the latest on what we’re doing with the Financial Services Cloud (FSC) and help you sort through the wealth management fintech ecosystem.

Look to this space for my thoughts on the Dreamforce wealth management buzz, post-conference. As always, please email me, Kendra Thompson, if you have insights you would like to share.

[1] http://www.computerweekly.com/news/2240242478/Satya-Nadella-Every-business-will-be-a-software-business

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I am seeing asset management firms starting to redesign their performance measurement processes to meet rapidly changing demands. And while there is a lot of room for innovation, there is no magic-bullet solution. Quite the opposite—investment firms that want to transform performance measurement need an enterprise-wide approach to identifying opportunities for improvement across three mutually-dependent areas. 

1. End the data dilemma

It is no surprise that data is at the heart of performance measurement, or that bad data leads to bad reporting. But what may surprise some is just how challenging data management has become for many asset management firms.

Take data aggregation. To provide the multiple views of performance information that stakeholders demand, firms must aggregate data from many sources prior to calculating returns or attribution. Without a central repository for their data, asset managers could drown in complexity and manual processing that together multiply efforts—and errors.

We are also seeing widespread data quality issues. The impact is significant because it has never been more important for asset managers to be able to access—and trust—the most granular data elements. To make improvements, performance measurement teams must get to know stakeholders’ needs and take an active role in the data governance process. 

2. Evolve the operating model

There is no one-size-fits-all operating model that best supports next-generation performance measurement. Whether firms have a decentralized or centralized approach, the key is that the operating model helps enable production, delivery and client service.

In addition, performance measurement models could succeed due to thoughtful alignment of people to processes. Highly-skilled experts should focus on the highest-value activities, while intelligent automation could be utilized to gather and format data and other activities.

While it is often underappreciated, client service is mission critical to performance measurement, and should be accounted for in the operating model. Client service bridges stakeholders and the production process. The more finely-tuned and customer-centered it is, the more streamlined the entire function becomes. 

3. Enable with technology

From process automation and standardization to self-service options and dashboards, technology is essential to driving performance measurement improvement. However, there is a right way and a wrong way to invest in technologies, whether firms build or buy applications.

Think of technology as the means to the end, not the end itself. In other words, firms should let the business requirements guide the technology investments, not the other way around.

Firms should also keep their eye on the ball, and avoid investing everything at once in one major technology fix. Technology is constantly changing, and staying abreast of what’s on the horizon can help firms maintain the flexibility to change with stakeholder demands.

If you’d like more information about this topic, please read my recent InsideOps article, A New Paradigm for Investment Performance Measurement, or contact me at girard.healy@accenture.com.

The post A New Paradigm for Investment Performance Measurement appeared first on Accenture Capital Markets Blog.

I also addressed why we see little appetite for fully automated wealth management and more desire for hybrid advice. Listen until the end of the audio clip to hear what we expect to see in the future of wealth management.

As always, I’d be happy to have a more in-depth conversation about transitioning your firm to hybrid advice, so please reach out to me, Kendra Thompson.

The post The Use of Technologies for Wealth Firms appeared first on Accenture Capital Markets Blog.

What’s the takeaway? We currently find ourselves in an era of unprecedented displacement and disruption.

Although each firm’s situation differs and the opportunity set available to them varies too, one thing is certain: the landscape is changing. What does this mean? Long-term success will depend on the ability to embrace new technologies in creative ways and deploy them across organizations to unlock value.

To do so, the industry needs to redefine itself. Simply put, to succeed in the future, asset managers should become more innovative. Digitalization and leveraging emerging toolsets will play a critical role in this effort. They help firms to derive insights, drive infrastructure and technological efficiencies as well as enhance the end client experience.

The linchpin is an asset manager’s commitment to think differently—to build, develop and maintain an innovative culture.

Hail the Revolution

Creating an innovative culture often starts at the top of the organization. Genuine enthusiasm and commitment from the top-level champions revolutionary thinking. Most importantly, leaders should empower employees to drive transformation through the firm.

Some asset managers are further along this journey than others. Over the past year, a number of high profile “Silicon Valley” innovators moved to Wall Street. The objectives of these strategic hires were mostly to inject creativity, challenge the art of the possible and rotate to the new with the help of technology.

Acquiring top talent is the first step to pivot to a more innovative culture. But firms cannot expect outside experts alone to foster the innovation agenda.

The second step is to confirm the entire organization, from senior leadership to interns, is onboard. All employees need to understand that new ideas about processes and problems are encouraged and rewarded. Warby Parker, crowned number one on Fast Company’s 2015 Most Innovative Company’s list, believes employees must take it upon themselves to be innovative.¹ To that end, the company asks everyone each week for an innovative idea.² Channeling the power of a firm’s most valuable asset—its employees—is an effective way to transform into a more innovative culture.

Finally, the asset management industry might want to follow in the footsteps of the leading banks and create dedicated innovation labs. Innovations labs should be tasked with idea generation and staffed with diverse employees who offer wide perspectives.

To enable this capability, a strong governance structure should be in place to help ensure that most ground-breaking ideas are pursued. The selection committee should consist of leaders steeped in making timely, accurate and creative decisions. Far too often, strategic initiatives take months—even years—to get the green light. In this new land, the old playbook must go. The world is changing: employees are changing, market participants are changing and clients are changing too.

The stakes in the industry have never been higher. The benefits of innovation cannot be underestimated. Being the first to market with an innovative solution developed from insights gathered from an asset manager’s own client data sets would create strong first-in advantage. Leveraging and implementing technologies, such as robotics and the distributed ledger, could help radically help reduce costs, better access data, increase transparency, drive efficiencies, reduce risk—and could set firms apart. The time to act? Now!

¹ https://www.fastcompany.com/3039573/most-innovative-companies-2015/warby-parker

² http://www.nytimes.com/2013/10/25/business/neil-blumenthal-of-warby-parker-on-a-culture-of-communication.html

The post Asset Management’s Innovation Revolution appeared first on Accenture Capital Markets Blog.

I think the implications for wealth management firms doing business in Canada are clear: Hybrid advice—combining humans and robots—is the way forward not only to retain current clients, but also to help develop relationships with digital natives just now coming into their own money.

While we gleaned many insights from the survey, a few key points rise to the top:

Digital is changing how investors perceive “advice.” While robo-advice seems to be working for general advisement, investors will still want human advisors for more complex situations. But: 30 percent of investors are open to using non-traditional companies like Google for basic financial advice.

Clients want the flexibility of hybrid advice. Survey participants told us that if a firm does not have the right digital tools, it won’t make their short list. But, when dealing with issues that require a customized approach, investors still indicate they want the human touch. Six in 10 Canadian investors prefer a human as a source for new wealth management ideas.

The hybrid model can deepen client engagement. Investors in the hybrid model are significantly more likely to have sought and received financial planning assistance than investors in any other model. They are also more likely to have talked to their advisor about their children’s financial needs (72 percent versus 53 percent for traditional advisor model).

If your firm sees the need for hybrid but lacks the roadmap to get there, please email me, Kendra Thompson. I’d be happy to have a more in-depth conversation about beginning that journey.

The post Canadian Investors Move Toward Hybrid Advice appeared first on Accenture Capital Markets Blog.

“Every battle is won before it is fought”[1]

Sun Tzu was referring to war, but the same holds true for back-office transformation—whether you’re tightening operational governance, strengthening vendor oversight or initiating a change in service providers. Before beginning, you should consider the potential impacts from all angles, align stakeholders so that everyone is working toward the same objective, prepare detailed plans (and contingency plans) and clearly define what success looks like.

Over the years, Accenture has developed methodologies to help capture business requirements, proven accelerators to support project planning, governance frameworks to establish accountability and the data management expertise required to see these types of transformations through to completion. Now, we’ve gathered these insights into a comprehensive resource for asset managers.

Accenture’s Back-Office Conversion Toolkit for Asset Managers

This toolkit is made up of four short papers that explain, in clear and practical terms, how asset managers could:

Manage a vendor conversion efficiently. Find out why it’s important to make sure your organization is ready for what lies ahead, provide effective direction to internal and external stakeholders, assemble an effective program management office (PMO) and define your future-state technology architecture.

Introduce a centralized PMO. Explore the pros and cons of project managers versus PMOs, and discover how a centralized PMO could help you improve resource allocation, streamline project administration and ensure coordination across the organization.

Transition to a risk-based oversight model. Discover how a risk-based oversight model could help you avoid costly rework by focusing attention on high-risk processes and outputs. We’ll walk you through the process step by step, from current state assessment through to implementation and evaluation, with special emphasis on how to change operations staff from “doers” to “reviewers.”

Establish effective service-level agreements (SLAs). Learn how SLAs can be used to define the overall scope of work, establish the specific responsibilities of each party and set the service standards that apply—both between and within organizations—and find out why measurability and enforceability are paramount.

As cost, speed to market, control and complexity challenges mount, asset managers’ ability to plan and execute back-office transformations is becoming increasingly critical. This new toolkit could be a first step in that journey.

To set up a meeting to talk about your transformation or to download the papers, visit the site: Back-Office Conversion Toolkit for Asset Managers. Or you can contact me directly at mike.kerrigan@accenture.com.

[1] https://www.fastcompany.com/3021122/leadershipnow/fighting-your-business-battles-6-lasting-lessons-fromsun-tzus-art-of-war

The post Back-office transformation: Plan for success appeared first on Accenture Capital Markets Blog.

So the obvious question is: How do firms fall off track? Although each organization faces its own unique challenges, there are several common pain points that we see time and again:

Insufficient understanding of business requirements. If you fail to take time to clearly define your business requirements at the outset, you’ll often pay dearly for it later in the form of rework, delays and budget issues.

Rigid development processes. A development process that lacks flexibility can make it difficult to address new requirements or changes to existing requirements as they arise, forcing costly rework down the line.

Poor data management. A poorly designed data management framework—or worse, no data management strategy—has the potential to increase operational risk and lead to significant end-user rework.

Unrealistic expectations. If you purposely (or unwittingly) underestimate the time required to execute the transformation, you can expect missed deadlines, budget overruns and change management issues throughout your organization.

Inadequate staffing. Without adequate resources and access to key subject matter experts, the risk of project delays and poor decisions can increase significantly.

Competing priorities. Without effective issue resolution protocols in place, disagreements among stakeholders could increase tension, create service level gaps and delay progress.

Lack of leadership. Stakeholders are bound to have competing demands on their time. If management does not establish back-office transformation as a top-priority across the organization, progress will likely be delayed.

If any of these challenges sound all too familiar, you’ll be happy to know that help is on the way. We’ve compiled all of our very best thought leadership on back-office transformation into a Back-Office Conversion Toolkit for Asset Managers.

In the meantime, do you need help identifying your organization’s pain points? Let’s talk. You can reach me directly at mike.kerrigan@accenture.com.

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