Dear All,

Please find below a very good article as appeared in Cafe Mutual of a advisor whose success will be a lesson and motivation to all of us:

Rags to riches, he was a waiter and now owns three firms

Sachin Karate left his home in Akola at the age of 16. He served as a waiter in restaurants by earning Rs. 1,700 per month as salary. Today, he owns three companies and aspires to achieve Rs. 100 crore AUA in mutual funds. Read his rags to riches story.

What is your background? What were you doing before venturing into financial advisory? 

I come from a very poor family from Akola, situated in Maharashtra. My father was a cycle rickshaw driver. We were seven members in our family and my father’s income was never sufficient for all of us. I faced a lot of challenges in my childhood. Sometimes, we did not have enough food to eat. My parents used to quarrel on family issues every day. My entire childhood was spent in poverty with no peace of mind. Our house was too small for the family to stay. I had to walk 10 km to reach my school, sometimes barefooted and sometimes with empty stomach. 

In 1998, immediately after completing secondary education, I left my home at the age of 16 with a hope of getting a job in Nashik. When I arrived there I had to deal with a series of challenges -  sleeping on railway platform, going without food for several days and being all alone in an unknown place. My search for a job ended with me becoming a helper in a restaurant. As a helper I used to earn Rs. 20 per day by cleaning the floor and utensils. 

But I was relieved that at least I got a place to stay. I became friends with waiters and with their company came host of bad habits. I realised, this was not taking me anywhere. I changed several jobs that paid me marginally better than the previous one but it was still the waiter’s job. I knew I wanted to be elsewhere-someplace bigger and better! 

What inspired you to get into financial advisory? 

It happened by chance. I used to work as a waiter in a restaurant in Nasik and in 2004, someone suggested me to sell insurance policies. I saw an opportunity in this and so I started selling insurance policies from morning till evening and worked as a waiter at night. 

How were the initial days of your business? What kind of challenges did you face? How did you overcome the same? 

I was new to this city. Making contacts was my first priority as people did not trust me easily. My first commission from insurance was Rs.2,100. For the initial three years, I invested my earnings in enhancing my knowledge by buying books and by enrolling for courses. After gaining confidence, I quit my job as a waiter in January 2007 and took up insurance advisory as a full time job. During this time, my bank balance was only Rs.17,000. I wanted to reach out a wider audience. So I spent Rs.12,000 for putting up a stall in an exhibition.  I took personal loan and bought an office in 2007. 

How did you acquire clients? 

I was selling life insurance and my next step was to get the mediclaim agency. To expand further, I took up mutual fund advisory in 2008. I used to put up stalls on the roadside to grab people’s attention. Today, I have around 200 clients including 10 HNI clients. In 2011, I completed my CFP and alongside passed a certification for ‘Capital market dealer’ by NISM.

How much assets under advisory do you manage in mutual funds? How did you manage to get it? 

My current AUM is Rs.7 crore in mutual funds. Recently, I got Rs.11 lakh insurance premium from a single family. A HNI client invested Rs.45 lakh in mutual funds and another HNI client started SIP of and Rs.70, 000 per month.

What were your biggest learnings as a financial advisor?

I believe education is important to succeed in life. In 2004, I completed my B.com from an open university. People are mean, they come and go. But one should take it in their stride. I always try to inculcate good habits, be with good company and believe in upgrading my knowledge constantly.

Please share a memorable moment in your financial advisory journey.

There are many moments to share. But, when people come and thank you for helping them in managing their finances, I consider this as my biggest achievement. 

Apart from mutual funds, what are your other businesses? 

I run Varad Training Academy which is a training firm for insurance agents. I’m also into organic farming. 

What is your key to success? 

I am hardworking and do not easily give up. I have faith in god and this makes me grow stronger. I work for my dreams without any compromise. My advice to aspiring advisors is to be positive, polite and serve people who are in need. Stay humble and stay focussed. At one time, I did not have a shelter. Today, I own a flat worth Rs. 30 lakh, have a car and own five acres of land. What are your future plans? My strongest desire is to possess an AUA of Rs.100 crore within the next two decades.

Read more at: http://cafemutual.com/news/tarraki/189-rags-to-riches-he-was-a-waiter-and-now-owns-three-firms

regards

aknarayan

Dear All,

Please fine below an article for your reading:

Things Successful People Don’t Mention In The Workplace

Obviously, in order to gain the trust and friendship of your colleagues, you need to open up to them. However, there’s a very fine line between giving just enough information about yourself and giving too much information about yourself. If you mistakenly reveal the wrong things, it could mean the end of your career (or, a little awkwardness at least). You need to learn how to stay on the right side of that fine line and find ways to open up without revealing the things that should be kept to yourself.

Here are 9 things that successful people do not discuss at the workplace, or even if they are out for a fun night with their colleagues.

1. Their Facebook activities

Your co-workers and employer should not be on your Facebook friends list. If they are, they see everything you post, and you may post something that could get you into trouble at work. If you must have them on Facebook, set up a separate account and don’t post anything personal on it.

2. Their negative opinions of others

You will never work at a company that doesn’t have at least a few incompetent people, but you should never tell anyone you work with that you think others are incompetent. This will do nothing more than make you look like someone who is negative about others.

3. Their thoughts on politics and religion

These are two topics that should never be discussed with your co-workers and business colleagues. They are very sensitive subjects — people take their religious and political beliefs very seriously.

4. Their partying habits

You may like to have a few drinks on the weekends. That is your decision to make, but no one in your workplace needs to know about it. If you come into work everyMonday morning talking about how loaded you were on the weekend, you are soon going to be seen as a party person and not someone to be taken seriously.

5. Their incomes

While it is okay to let your family members know your income if they are interested, it is not something you should share with your co-workers. This can make things seem more competitive and bring on resentment if others make less.

6. Their bedroom activities

This is another topic that is off limits in the work place. You don’t want to hear about what your co-workers are doing in their bedrooms, and they don’t want to hear about your bedroom activities either. Some people may be very offended by this kind of talk, so it’s best left out of the workplace.

7. Their ideas about what others do in their bedrooms

No one’s sex life is any of your business, and there is no need for you to talk to your co-workers about the sex lives of others. The same goes for talking about sexual orientation. Basically, leave the sex at home — where it belongs.

8. Their negative feelings about what they do

Never tell your colleagues that you hate your job. No one wants to hear you complain. It will just make you be seen as negative and not a team player. Bosses will pick up on this and you could end up being replaced by someone who really does want to do your job.

9. Their latest dirty or offensive joke

Most of us love a good dirty or offensive joke, but there is a time and a place. The workplace is not that time or place. Some may find it funny, but others may take great offense.

Following the lead of successful professionals will help you to lead a tactful work life — without worrying about offending coworkers or jeopardizing your position.

Dear All,

Please find below a good article as appeared in Cafe Mutual for your reading:

How do advisors define their ideal clients?

Financial advisors say that openness, faith, and comfort level are three main traits of their ideal clients.

Banali Banerjee Jun 26, 2015

Typically, many advisors tend to onboard all types of clients when they start their practice. Over time, advisors evaluate the psyche of each client and decide to work with a certain set of clients whom they are more comfortable with.   

We asked advisors as to what is it that they look for in an ideal client. 

Faith 

Faith is an essential factor to forge a long term relationship between an advisor and his client. “According to me, my ideal client should have faith in me and he should also willing to trust me. There have been many instances where we have parted ways with clients solely because of lack of trust,” says Vinod Jain of Jain Investments. 

Suresh Sadagopan of Ladder7 Advisories says that although every client has a different story to say, he prefers only those clients who follow what he advices. “Doubting a financial advisor is never helpful. I have met many clients where they do not follow our advice.” 

Comfort 

Lovaii Navlakhi of International Money Matters says “A certain level of comfort should exist between us and the client.” 

“My ideal client should be someone that I feel totally comfortable dealing with,” agrees Vinod. 

Openness 

A financial advisor expects openness from clients. “We expect clients to be open. Unless, they give us the freedom to know about their investments, our advice will not yield any benefits,” says Vishal Dhawan of Pan Ahead Wealth Advisors. 

“My clients won’t appreciate if I give incomplete information to them. Similarly, I also expect my clients to be open about their investments. This is essential otherwise the trust cannot be built,” points out Suresh.

Set a target audience 

Narrowing down on a target audience is one of the way advisors can find their ideal clients. Shifali Satsangee of FundsVedaa says, “Defining our client base has helped us in identifying our niche market where we desire to build our focus. Our ideal client base comprises prospects who desire to achieve their financial aspirations and those who recognize the importance of financial planning and wealth creation as a means to reach them. We focus only on HNI segment.” 

Also, having a well-defined target audience helps advisors improve their expertise in specific areas and in turn improve their efficiency. “We deal with wealthy clients who come with a certain minimum ticket size. Catering to a niche helps us to improve our efficiency,” says Vishal. 

To sum up, besides the ticket size, faith, openness and comfort level are the main traits which advisors look for in their ideal clients. 

Let us know what is your definition of an ideal client?

Read more at: http://cafemutual.com/news/business-development/300-how-do-advisors-define-their-ideal-clients

regards

aknarayan

There is more to personal finance than investing

Dear All,

Please find below a good article of Mrs. Uma Sashikant as appeared in Economit Times for your reading:

There is more to personal finance than investing 

This week's story is about someone whose personal finance skills I have observed for the longest time. Usha returned to her hometown 18 years ago, with two girls aged 7 and 3, after the unexpected death of her husband. Both the girls are today engineers, working with top firms and standing proudly by their mom, whose money management skills helped the family rise from the brink. Usha focussed on what she knew best—dealing with money sensibly. This story is about her attitude towards money and her balancing act of the present and the future.

The most common mistake lottery winners, pensioners and others who get lump sums make, is the mixing up of principal and income. Usha was a simple homemaker and the household's only source of income ceased when her husband died. When Usha got the group insurance payment after a month, she made her first major money decision. 

She would treat the payout as stopgap income to sustain her family. Before it ran out, she would work towards getting the rest of her dues. After that, she would not touch the principal. It was all that she had to secure her girls' future.

Many of us do not realise the need to plan and execute, especially in money matters. Usha had to realise her dues before the initial money got over. She allocated a specific amount for her monthly expenses and spent her days relentlessly following the paper trail and chasing government clerks. In the next 10 months, she realised the funds that were due, and got her widow's pension activated. She did not grieve and grovel. She chose to get out and get things done.

Money management is a personal preference. My deepest understanding of why some people will not look at equity investing comes from conversing with Usha. Her only choice was the bank fixed deposit. She drew no interest and simply renewed them. She refused to look at any other option.

Even the post office was not her preference, simply because any premature withdrawal would come with a penalty. In all my years of telling her about equity, her response was standard: This is all I have for my children and I cannot take any chances with the principal. She saw the high returns as the lure she should avoid, and no amount of statistics could change her. She was assiduous about her Form 15G and renewal of deposits. Accounting and paperwork was a natural skill and she leveraged that.

Financial independence is critical to emotional wellbeing. Usha belonged to a large family that rallied around, ready to chip in with finances. But Usha's growing up years where her widowed mother depended on her kin, had left some scars. She knew the toll that dependence takes on the confidence and attitude of the family. She did not want that for herself. She says she would not be what she is without her family, but she kept her head high by refusing to seek monetary help. The emotional support is what she needed most, and got aplenty. Many had to compel her to accept assistance, and Usha liked it that way. She wanted to be able to tell the givers that she already had enough. It also kept in check the givers' eagerness to interfere.

Usha learned to convert her money dealings into a win-win approach. When she sold her house to move closer to her maternal home, she paid a large part payment, and negotiated with her seller to repay the balance in installments , without seeking a home loan. She knew that her seller was also a simple middle-class man struggling to manage the cash flows. She saved over the year and gave him a lump sum every January.

That was the time the seller was struggling to meet his tax-saving investments, and Usha's money helped him to immediately do his 80C investments. Usha knew how cash flows worked. She intuitively understood how to structure them. 

In simple middle-class communities, the need for money is always unexpected and hand loans from one another is the first call. 

Everyone knew that Usha had lump sums put away. She told me that others in need can't help seeking those who have it, and the need is to draw the rules, instead of a downright 'no' or a destructive 'yes'. She found a balance instead. She created a small rotating corpus. She lent it whenever her immediate family was short on cash, but the money had to be repaid. Usha would have been a successful banker if she went to work. She funded a few crises in the family, provided working capital to her kin who ran businesses, and enabled friends to pay lump sum fees. A tiny part of her principal was devoted to her community, and I revel at her ability to find a sensible way to give. In running the household, savings should be based on principles, not transactions.

Her spending mantra was simple: All basic needs would be fully covered, and the home would have no conversations of shortage. 

Every task in the house that needed payment for a service, she took on herself, so she could save. There would be enough money for education and books. Good home food was cooked and enjoyed. But there would be no eating out or lifestyle expenses. The home ran like an efficient office where resources were optimised. Usha managed to save each month from the meagre pension, since she was determined. 

There was not a single dry eye when she conducted her daughter's wedding with grace and pride. Usha's story tells me that not everything in personal finance is about income and investing. There is a lot to learn about attitudes to money, discipline, patience and perseverance in spending and saving. Usha's daughters have already begun mutual fund investments. She tells me she can begin hers when the second daughter is also married. She knows the principal she has is now hers, to make decisions. She will be ready for conversations about asset allocation then.

The author is Chairperson, Centre for Investment Education and Learning. 

Should gold be part of your long-term investment portfolio?

 Jul9by freefincal

Should gold be part of your long-term portfolio? Does it help to have some exposure for the sake of diversification?

This is the second part of “asset allocation for long-term goals”. The first part which considered only equity and debt, can be found here

This post was made possible, thank to Balaji Swaminathan. He got me the source of monthly gold price from June 1995 onwards.

Link:

http://www.indexmundi.com/commodities/?commodity=gold&months=240&currency=inr

If google has got it, Balaji can find it. He is the most intelligent web searcher I know. Probably why he does not post questions at AIFW! Why ask, when you know what to look for!

Methodology

• Franklin India Blue Chip is chosen as representative of equity
• Franklin India Income fund as representative as debt.
• These are among the oldest equity and debt funds in the market.
• A monthly SIP from 6th July 1998 to 5th May 2014 was considered (too lazy to update)
• The monthly gold price (per gram) was considered to be equal to the price on the NAV dates of the above funds. Have to make this approximation. Can’t be helped.
• Two different asset allocations were considered: One with 60% equity and another with 70% equity.
• The gold allocation in the above was varied from 0% to 40% or 30%. The rest is assumed to be in debt.
• The variation in monthly XIRR  was calculated with the XIRR SIP tracker.
• The standard deviation in the monthly XIRR variations was computed.
• The final XIRR and the standard deviation are plotted for different gold exposures for 60% equity and 70% equity.

Equity exposure = 60%

The x-axis represents the exposure to gold.

Notice that with increase gold exposure, the XIRR increases (not by much, if you ask me) but the volatility (- standard deviation) also increases.  There is a minimum at 5% exposure.  It is worth the effort and stress especially when gold is riskier than stocks, is something for you to consider. No point in holding gold as far as I am concerned. Will just increase my stress.

Equity exposure = 70%

The x-axis represents the exposure to gold.

The case of holding gold is much worse here.

Conclusion

Stay away from gold funds or gold etfs. Do you see articles in the media now, suggesting you buy gold, when the prices are lower from the peak of the crash?

Think for a moment as to why.  AMCs were busy pushing these products when gold prices looked liked it could never fall.  Now when there is sideways movement, no one is saying buy them.

Gold is supposedly a hedge against inflation. Not exactly in terms of price movement. When the economy collapses, then physical gold will perhaps serve as currency. I don’t think it has much value (other social, religious, traditional etc.)  otherwise.

It is silly to stock up on physical gold and not focus on investing.  What kind of  physical gold should it be, is another question: jewels, gold bars etc.

Should I buy some physical gold each year to protect myself against economic collapse? Perhaps.  As long as it not part of my investment portfolio.

equity vs gold

Charts: Equity vs. Gold. Vs. Debt

 Jul10by freefincal

Here are some charts from yesterday’s post: Should gold be part of your long-term investment portfolio?

• Franklin Indian Blue Chip is chosen as representative of equity
• Franklin Indian Income fund as representative as debt.
• Per gram price data obtained from indexmudi is used to represent gold investment
• Data range is June 1997 to June 2014 (quite small but not bad).
• Results over a longer period can be found here:  gold is riskier than stocks

Normalized NAV movement (absolute)

Normalized NAV movement (logarithmic)

Rolling annual returns (all three)

Rolling annual returns (debt and gold)

Extent of Correlation

The extent of correlation between annual prices returns can be easily computed with Excel. If there are two asset classes in a portfolio, ideally they must be negatively correlated. That is if one gives +ve returns, the other gives -ve returns and vice versa. This will stabilize the portfolio regardless of market conditions.

Gold and Equity annual returns are correlated by -0.65%.  Negative, but too small to make a difference, in my opinion.

Debt and Equity: -3%. Better but not spectacular. The stability that debt offers in a folio makes it indispensible.

Debt and Gold: -21%. Now that is significant, but not very useful!

A View to the Future: Changes in the Investment Industry

In an interview with CFA Institute Magazine, Tom Brown, global head of investment management at KPMG, discusses the coming cultural and technological disruptions facing investment managers, the implications for new hires and career management, the search for the “Apple factor” in financial services firms, and even the possibility of tech giants (such as Amazon and Google) entering the investment business.

CFA Institute Magazine: How are megatrends reshaping the investment industry?

Tom Brown: We focused on four categories of megatrends. The first is around changing demographics. The second is around technology. The third is around resource shortages, and the fourth is around changing social behavior.

These are the key trends that we believe have been reshaping the industry. But at the heart of all this, it’s about the industry focusing on the changing needs of the client, which will look very different in 2030.

One of the big questions is how the industry will shift as the players look to get closer and closer to their customers. The business and operating models will need to be reshaped and restructured to be successful.

How are the rules of the game changing?

New business models are emerging that play into the evolving needs of customers, and as such, traditional investment management products are becoming more innovative. Client service models will need to do a better job of explaining the proposition and providing more aggregation of information — a more holistic view of people’s investments, in other words. Then, the real big game changer is financial technology, or “fin-tech,” and so-called fun-tech, and the combination of that is emerging as a very interesting trend.

What is fun-tech?

Fun-tech is similar to gaming technology and is often associated with the term “gamification.” It’s a different mindset of how people like to engage digitally. The gaming industry has been successful in engaging with people and encouraging people to play these games, time after time. Some of these approaches can translate across into the investment management industry, and by combining these with fin-tech, investment management firms can better serve their customers.

You say that an investor of 2030 looks quite different. How so?

He or she is much more mobile — and global. They are encompassing many more life events. In particular, employment trends tell us that the idea that someone starts to work for a corporation and works there for 40 years and then retires just doesn’t happen anymore. The 2030 investor will be much more connected to many different communities, through social media and other networks. They are a far more diverse demographic than today’s customer of investment managers.

If you look at the success of the industry over the past 20–30 years, it’s largely been built on the back of the baby boomer generation. It’s predominantly a male-dominated middle-class demographic.

As we move from one generation to another, it is clear that the industry’s client base will be much more diverse in the future. The investor of the future is likely to come much more from the developing economies than from the developed world.

How will this affect the investment industry?

This creates a much wider set of options for the industry — across a much broader demographic. I think the aging population and the scenarios we are seeing present a great deal more opportunity for long-term saving and investment propositions. The increasing wealth and growing population of developing and emerging economies represent a significant pool of capital and source of revenue for the industry.

Which metrics are tracking these shifts?

Clearly, there are lots of metrics around trends — you can look at savings rates, employment, changing employment patterns, and data in terms of how frequently people are changing jobs and how long they are staying in the work force, to name a few.

There are a number of different data points one can use for tracking. Through technology, such as big data analytics, firms can make sense of these data points and create models to help them develop products that are profitable and relevant to their clients.

What can financial firms do to reposition themselves for the future?

It’s about starting to think through what the customers of the future want and expect from investment managers in terms of the customer experience. I think a big part of it is thinking through the digital revolution. What is a company’s digital proposition to their customers and potential customers?

Certainly a lot of the conversation within organizations has been around trying to move away from spending time and effort on fixing legacy issues with their technology platforms of the past and starting to think to the future. How do they start to embrace the potential of digital big data, data analytics, and so on? How do they change?

How do organizations need to start thinking if they’re currently operating in a world where they’re too far removed from their end customers, because they distribute their product through third-party distributors? How do they start getting closer to understanding the needs and the requirements of the end consumers?

If they don’t go all the way to the direct consumer, how do they get much better at working with their distribution partners? Those are some of the things I would say to start doing now to anticipate the future.

What can you say about the new “trust paradigm”?

Trust is absolutely key, and that needs to be earned. The ways that the industry can start earning that trust revolve around a focus on simplicity and transparency, as well as actually delivering on the customer service promise.

That takes time to build. I think the challenge to the industry is that, increasingly, non-financial services brands are gaining trust. If you look at the Amazons and Googles of the world, who are serving so many young people, younger generations have trusted these technology firms more than they have financial services firms.

Should investment companies adopt the methods of technology companies in terms of earning trust?

I think a big part of it is delivering on the service promise. The customer experience of big technology companies is very positive for people who use them.

I think the financial industry and investment managers have a long way to go in terms of getting to that level of customer experience. A big question is, What is the Apple factor, if you like, in terms of a customer experience for a financial services company? That’s a big question and a big challenge.

Are established players in the investment industry doing this?

I don’t think there’s a standout firm in the sector that’s really standing head and shoulders above the rest. I think a lot of them are making some serious moves to try and develop their strategy, but I don’t think any of them have really made a significant step to position themselves ahead of the competition.

And that’s a big opportunity. A lot of firms are spending a lot of time and money and effort in trying to achieve this. The one or ones that manage to do it will be at a significant competitive advantage.

What kind of new investment management value chain might emerge?

There are two key trends. First, investment managers are going to have to get much closer to their end clients. I think some of them who previously haven’t had a direct proposition will go down that path. Others who operate with intermediaries will seek to get closer to their intermediaries to understand their end clients better — ensuring that their propositions and service delivery are meeting the new expectations.

The other big trend is around the appetite for investors to have outcome-oriented solutions as opposed to how the industry has operated in the past — which was more about products than consumers.

So the two factors are being closer to the investors and having more solutions-oriented propositions rather than a simple “product-push” model that gets distributed through third-party intermediaries.

When you speak of outcome-oriented solutions, what do you mean?

This is an area where I think we’ll see a lot of evolution. We’ve started to see some of it already, particularly in the United States. In the long-term savings environment, what is the customer actually looking to save for?

Maybe if customers were clear about what they are saving for (the end product that the customers actually want, whether that’s a health care solution or whether that’s a retirement home or a car), you could imagine some non-investment solutions beginning to appear. Perhaps retailers or health care providers will make a play, which would be a big disadvantage to the industry in its current model.

That’s quite different from the “product-push” model, as you say.

It does require a very different mindset and culture and way of thinking. To actually deliver on that different type of business will require quite a different business model to support it.

Where does that culture change begin?

I have had a lot of conversations with investment managers over the last few months with this research that we have done. Employers are going to start thinking differently about the demographics, about whom they are hiring in the organization, about how they can leverage a younger and different generation. This becomes the internal source of cultural change and innovation.

I think probably a big part of it — from an investment management point of view — is thinking about how to re-create an organization in terms of the work force. Managers can take some of the cultural differences and innovations and new ways of thinking about the world into their organization and use that as a driver of further change.

Could that include hiring people who may not even be targeting a career in investment?

Yes, exactly. Breaking out of the traditional thought process and of what sort of people they want to hire.

What kind of career skills might be attractive to the investment community under that scenario?

I think it all links to technology. If you think about an investment manager, there are two really important characteristics. One is how good they are at investing. In other words, the front-office investment engine. One aspect of that is how the use of technology, big data, data analytics, and sheer computing power can enhance the investment engine being used by investment managers.

I think that investment management will increasingly be looking at data scientists and technologists, working on how the investment proposition can be enhanced and can be developed to such a degree using technology and computing power to get an investment advantage. That’s on the investment side, which will require a different sort of person than they’ve historically employed.

The other side of it, I think, is all around the customer and service delivery side of it. I think as the clients, whether private clients or institutional clients, raise the bar on what they expect for the customer experience — how they interact, what sort of information, and how it’s presented to them by their investment manager — they’re going to need people who come from a much more consumer-centric background.

Why will flexibility and agility be important?

The context for that is not just in the investment world — but in life and the world in general. We’re experiencing a much greater pace of change in everything that we do. A lot of that is driven by new technology that enables us to do things more differently, more quickly, more efficiently, and so on. I think what that means is that all organizations, including investment management, live in a rapidly changing world, and to be successful in that world, organizations need to be far more agile to respond to changes more quickly than they ever have before.

[The report we’ve put out is] a view of the future. It is only a view. The reality is that no one can really predict the future. Things can change and develop very, very quickly. I think a really good path to success for investment managers and other organizations is their ability to think quickly on their feet, and that requires a degree of agility as new opportunities and challenges are presented to them.

How did you come to that idea of technology companies — Amazon, Google, Apple — disrupting the investment industry?

The general thought came from the fact that in a relatively short span of time, we have seen technology companies develop very quickly and develop broad propositions to the people who use them. Apple, for example, has moved into the music business. Amazon has moved into the online video-streaming business. They’re adapting and moving very quickly and disrupting all sorts of industries that previously they hadn’t touched. That’s one aspect.

The other aspect is that in China, Alibaba launched a money market fund. Alibaba is effectively the Chinese equivalent of Amazon. They launched a money market fund [in June 2013] on their platform and very quickly attracted significant amounts of investors’ money into those funds (nearly US$90 billion in the first nine months, making it the fastest-growing mutual fund in history), which was essentially distributed on their platform.

So we are seeing evidence that these organizations can disrupt existing investment industries. For its back end, Alibaba’s money market fund has a partnership with a Chinese asset management company. The whole front end of the experience is all through Alibaba.

How quickly could these changes happen?

I think over the next five years, we’ll see a significant amount of change. We’re just on the cusp of many, many changes coming into the industry, particularly as companies start to embrace technology in a much more innovative way than they have in the past.

What are some of the initial shifts we’ll see, the first wave, so to speak?

I think it will be something around the digital experience. I think the first wave will be around how investment managers will really take a step up in the digital experience of their customers, whether institutional or retail.

Are megatrends affecting institutional investors in the same way?

It is different, but on the other hand, there is an element that is similar. Institutional investors still have human beings who work for them and are fundamentally the people who will be engaging with investment managers. Let’s say you are a large pension fund or a sovereign wealth fund. You still have expectations about your interactions with investment managers. You will still expect to have a different digital experience, you’ll expect to see more transparency, you will expect more tailoring using digital technology in how you interface with your investment manager.

Some of the same principles around the customer experience will apply. I think in terms of the investment proposition, the interest of institutional investors is around adopting more technology and enhancing computer-power-generated investing. Institutional investors may be the early or first adopters of some new investment techniques using a much higher degree of computer power.

You argue the industry hasn’t levered its inherent skill in analytics, in terms of optimizing big data to deliver more to its clients. Why not?

That gets back to the theme that firms — to a large extent — haven’t invested in their data management capability and, therefore, they have been unable to exploit the sheer volume of data they collect every single day on their activities and interactions in the market and with their customers.

The reason they haven’t embraced it is because they haven’t invested in leading-edge data architecture and data management functionality, and neither have they invested in the data scientists and the data analytics capabilities to really exploit the data. They’re playing catch-up.

Are there third-party data management firms specifically oriented toward the financial industry, or is this happening in-house?

What I’ve seen more is that firms are investing in their own capability rather than going outside. They’re hiring people and then building their own capability.

What’s a best- and worst-case scenario for the industry going forward?

The worst-case scenario for the industry is that there is too much complacency and conservatism — a view that things aren’t changing dramatically in their marketplace — and that the business models and approaches of the past will continue to work on into the future. So the worst-case scenario is around complacency and, then, ultimately getting left behind.

The best-case scenario is embracing change, embracing technology — in a very broad sense — and embracing that customer needs are significantly changing. The best-case scenario is that the industry does wake up and embrace that change — because there is, fundamentally, a huge opportunity around the growing need for essentially funding longer lives and populations.

It’s clear there is a job to be done. The big winner could be the investment management industry if it does embrace change. If it doesn’t, then another industry will step in and do the job for them.

Does it take a tiger at the doorstep for change to happen?

Maybe. Maybe there could be an outlier that comes in and takes everyone by surprise and creates a big wake-up call.

What questions can investment professionals ask themselves to prepare for the next 15 years?

If I was a CEO of an investment management company, the first questions I would be asking are, What is our unique proposition as we are today? What are we really good at? How do we exploit what we are really good at today? And how do we need to evolve it?

Next, how well do we really know our clients and what their real needs are and what their needs of the future will be? What is the real value that we bring to those clients? How are we placed to really create value for our clients as their needs evolve? What are we doing to embrace the digital revolution in all its forms?

Nathan Jaye, CFA, is a speaker on intelligence and a member of CFA Society San Francisco. The preceding article originally appeared in the March/April edition of CFA Institute Magazine.