Munich’s first Kapitalmarkt Kolloquium organized by financial.com, was fully booked with over 250 visitors at the Sofitel Munich Bayerpost. The new conference format deals with digitization and innovation in the financial industry. The conference topic “Artificial intelligence, automation and intuition: how are services and jobs changing in the financial industry” was discussed in four lectures and a panel discussion.
Carsten Eckert, founder and managing partner of Insticube, presented a new form of transparency for the institutional investment market. Special funds are not open to public inspection like mutual funds, but they are the vehicle for major investors such as pension funds, insurance companies, trade unions or church institutions. Insticube offers a unique database where 612 institutional investors currently provide feedback on 15,150 mandates with 449 asset managers. In total, this creates complete transparency for an investment volume of 2.3 trillion euros. In the last 3 years, the share of passive investments has increased from 18% to 38%. Interestingly, however, the fees are only ranked in 10th place of the most important decision criteria. As expected, the performance of the fund is in first place, followed by the transparency of the investment process and the consideration of customer-specific investment requirements. The least important of the 12 criteria is the size of the product range. Institutional investors are very open to investment boutiques that specialize in specific areas. In exchange for the valuation of asset managers, institutional investors receive the assessment of their peer group and can thus reflect their own view. The database also offers very interesting recommendations because institutional investors also exchange views on the most interesting pitches.
Dr. Lothar Jonitz, founder and managing partner of tetralog, presented a comprehensive portfolio management solution that supports investment advisors at the client interface. In 1995, his company was the first to integrate the algorithm of Nobel laureate Harry Markowitz into a software package and thus calculate “optimal” portfolios for investors. Investment advisors can determine the investment universe and construct an individual, efficient portfolio together with the client. By using a state-of-the-art algorithm with a live implementation, the advisor can sell very convincingly. The algorithm assumes the role of the actual investment advisor, but the parameters are controlled by the advisor, who also gains more time for addressing the client.
Prof. Dr. Stefan Mittnik, holder of the Chair of Financial Econometrics at the LMU Munich and co-founder of the leading Robo-Advisor Scalable Capital, then presented his assessment of “Digital Investment Solutions in Europe: Status Quo and Outlook”. Banks are currently facing major challenges such as low interest rates, regulatory pressure, reputation problems and old IT systems. This is making customer service increasingly difficult. Young Fintech companies can therefore relatively easily create modern offerings that generate significantly higher customer benefits. According to Stefan Mittnik, established banks only have the 4 K-strategies left: copy, co-op, buy or capitulate. Scalable Capital is the leading online asset manager in Europe with 80 employees, more than 30,000 customers and over 1 billion euros in customer assets. Although they are growing faster than the US pioneers Wealthfront and Betterment, they have between 8 and 11 times as much investor money in administration. However, the largest providers are not start-ups, but offshoots of established companies such as Vanguard Personal Advisor Services (USD 100 billion) or Charles Schwab Intelligent Portfolio (USD 27 billion). In addition to direct asset management, Scalable Capital also offers its platform as a white label service to cooperate with established banks.
Björn Torkar, Managing Partner of Privé Technologies, highlighted the major IT trends of recent years. Mobile devices are now used for Internet access by 39% of people in Germany. Two thirds of all 16- to 74-year-olds already make purchases online. At the end of 2017, mobile devices overtook the desktop in online shopping for the first time worldwide. 51% of all Germans are “active users” of social media. The spread of technologies is also accelerating. While the telephone still needed 75 years for 50 million users, the Pokémon Go App achieved the same range in two weeks. The digital society acts, communicates and exists online and offline. In this environment, the financial industry is changing completely. The branch loses importance, while digital channels become more and more important.
The biggest threat comes from Google, Apple, Facebook and Amazon, all of which have already announced their own financial services. Customers today want individuality (mass customization). The focus is on the “user experience”. Customer interaction must enable live and mobile messaging, as well as video conferencing and, best of all, gamification. In 2017, only 17% of customers still prefer offline consulting, while 42% prefer hybrid consulting (face-to-face and digital). After all, 43% only want purely digital advice.
Finally, there was a panel discussion on the question of which jobs will be taken over by robots and which by people in the financial industry in the future. In addition to Stefan Mittnik, Carsten Eckert and Björn Torkar, Dr. Jochen Papenbrock also sat on the podium. He studied and received his doctorate in computer science at the Karlsruhe Institute of Technology before founding his company Firamis, which specializes in AI in the financial sector. Artificial Intelligence is now accessible to everyone due to the Open Source movement (Jochen Papenbrock) and is therefore becoming more and more relevant. Nevertheless, there is currently a lot of hype about this topic, despite or because many managers have no profound knowledge of the subject (Björn Torkar). An ever larger quota of passive forms of investment as well as strong regulatory pressure lead to synchronisation and thus to a greater potential for setbacks in the markets (Stefan Mittnik). If individual portfolios are formed here by AI, the risk tends to decrease. The validation of data is crucial for further processing by computer systems (Carsten Eckert). An important criterion for the acceptance of AI is human control (Human Centered AI). Especially supervisory authorities and customers want to understand decisions, which is why there are strong efforts towards an Explanaible AI (Jochen Papenbrock).