Digital Wealth Product Design discusses the shift towards digital investment advisors and personal investment solutions. It notes the demand for help managing the thousands of investment products and high costs of customer acquisition. It also discusses how digital advisors can provide low-cost, personalized investment advice and portfolios through techniques like risk profiling, periodic rebalancing, and using ETFs and other low-cost products. The document advocates for digital advisors to provide transparent, engaging investment experiences while controlling risks.

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