A short invited talk on robo-advisor fintech product design for MBA students.

1. Digital Wealth Product Design
Dr Drago Indjic
dindjic@london.edu @dindjic
2nd Wealth Management Forum
4 May 2017, Regent’s University London

2. Market for Asset Management
• Demand
• Retail vs institutional
• Delegated^2 (= “sub-optimal contract”)
• (Dis-)Intermediaries
• Help with 3 universes x 5-10k+ products
• Cost of customer acquisition + “bargain” hunt
• Supply
• Investment products or services; business margin
• “multi-management”: passive^2 vs active+passive etc

3. Digital Investment Advisors
• DFS: Fully digital ↔ hybrid ↔ Advisory
– D2C, B2B, B2B2C; 200+ US; 100+ UK; 30+ EU …
– Look in the app store (and under the hub)

4. Digital Investment Service
• Suitability
– Authorised and regulated financial service
– Risk rated product (complexity) = product liability
– Retail is hard. Start (w/o) clients, each +€100 pm
• Advice vs guidance
– (X2C) Financial planning goals
– Massive personalisation; segmentation
– Is advice un-conflicted, independent, delegated
– Deliver investment experience (“fun+++”)

5. Zero Flow @ 0.45% pa
• Investment business break-even AUM
– Performance/Flow ≠ Cost/Flow relationship
– Components: average asset weighted, ~20 bps
– Strategy: all inclusive “robo” fee, ~50 bps

6. Personal Investment Solutions
• Demand shift: investment apps, well scaling
• “digital, customer-centricity, shift in end customer base
combine to radically alter the fund management”
• Risk profiling, start, on-going activity, end
• Produce evidence of total past investment experience
• “Quality”, value for money (cost of guarantees)
• Portfolio service synthesis: reliability, p(target)
• Choice of portfolio components, inc trading costs
• Only one or many products (over time)?

7. Portfolio Maintenance
• Rebalancing allocations
• Asset allocation “selection” (0/1) <> weighting
• %weight: top/down, bottom-up, risk control
• objective(s), constraints → periodicity, cost
• “%Strategy”
• Plain vanilla ETF
• What is missing?
• Smart (bond) Beta
• CTA, convertible bonds …

8. Example of Missing Part
• (e.g.) CTA: a single fund (Winton, Palomar), an
index UCITS fund (green) or smart Beta (blue)?
– Capacity? Cost? Bargaining power? Humans?

9. Digital, but Skilled
• Investment experience
– Direct, transparent, engaging, inclusive
• Risk-controlled, glide-path portfolios
– Cost-, risk- and liquidity-adjusted performance
– ETFs remain open, don’t return capital
– Hedge funds do not produce income
– “Long only” lacks several degrees of freedom
• New investment business models
– Skill pricing: Huddlestock, SharingAlpha …

10. Short Bibliography
• Practice: #roboadvisory
• video: https://youtu.be/BvynzSSY-A0
• http://www.bankofengland.co.uk/publications/Docume
nts/speeches/2017/speech956.pdf
• https://scmdirect.com/blog/fintech-folly-%E2%80%93-
why-are-supposedly-smart-financiers-flushing-their-
money-down-fintech-toilet
• Academic:
– 2010s monographs by Lo, Ang, Roncalli, Scherer