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BREAKOUT SESSION 3 – A – ARCHITAS
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Which investment solutions will prevail in the digital world?
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Everyone hates change 89% of advisers say Robo-Advice is a threat to the traditional adviser industry. Source: Panacea Survey for Financial Advisers and Paraplanners, as at 14 July 2016.
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The pace of change Where is the car?
5th Avenue New-York City, April 15, 1900 Where is the horse? 5th Avenue New-York City, March 23rd, 1913 Source: US National Archives, as at 1900. Source: George Bantham Bain Collection, as at 1913.
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Learning outcomes Attitudes of different generations towards digital investments Investor choices in the digital world Robo-advisor experiences in the US The current landscape in the UK How to prosper in the digital world The Architas proposition 5
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Attitudes of different generations towards digital investments
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What do consumers want? Different needs of different generations
Source: Fidelity international, as at July Note: Digital generation defined as heavy mobile internet users
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The behavioural revolution
Market places are becoming more efficient Improved price transparency Shorter Competitive Advantage Periods Increase in visitors to price comparison websites Sales Introduction Growth Maturity Decline Withdrawal Time Source: comScore, Average unique visitors between Feb-May 2015 in brackets; July-Oct 2014 data used for Skyscanner instead of Feb-May 2013 Source: Raymond Vernon, 1966.
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Shrinking information asymmetry
Impact on professional service further out Commoditised Differentiated Personalised Unique goods / tailored services Current Imminent Near-term Further out
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Rise of IFA comparison websites
Better ratings lead to more clients Source: Architas
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Millennials good for my business?
Only account for 5% of investible market Believe they need 43% less to retire than their parents 78% prefer to spend their money on an “experience” — over something that is tangible Allocate more than 90% of their equity portfolios to ETF’s Source: Legg Mason UK Research, as at December 2015 / Harris survey of US consumers, as at July / Financial Times, as at June 2016.
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What do most clients want?
Gen X and Baby Boomer sentiment about Robo-Advising 69% 35% 10% Source: The Allianz Generations Apart Study of Baby Boomers and Generation X, as at January 2015
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Investor choices in the digital world
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The robo-advisor quandary
Positive Negative Cheap May not take into account investments held elsewhere Provides an entry point to diversified investment for smaller investors Often can’t choose or edit investment suggestions Takes emotion out of the equation Unlikely to cover tax planning, budgeting, and other financial planning Time-efficient No track record - unproven
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What are the investor choices?
Where do automated services fit? Simple capabilities (more automated/do-it-yourself) Advanced capabilities (more flexible/reliant on others) All-in-one funds Online tools Automated service (robo) Hybrid advice Traditional adviser Funds of funds align asset allocation based on a target retirement date or a specified goal Portfolio analytics guide self-directed investors toward a better asset allocation Portfolio management enabled by technology Access to an adviser Higher touch advice model Largely virtual In-person Asset allocations for “personalised model portfolios” Customised financial planning Full suite of planning services Ongoing portfolio management Broader product options Often based on investor questionnaire User-friendly technology Complex issues such as tax / estate planning Source: Vanguard, The rise of the machines, 2015.
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Experiences from the US
Contents Experiences from the US 16
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Robo-advisors growing faster
Time To $1B Assets Under Management (AUM) 1 yr 2 yrs 1 yr 2 yrs 3 yrs 4 yrs 5 yrs 6 yrs Source: CB Insights, Business Intelligence
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But still very small players
Incumbents enjoy size advantage that can act as a buffer $9 Source: The Wall Street Journal, Bloomberg and CNBC
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The current landscape in the UK
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RDR regulatory hangover
Will MiFID II have a similar impact? RDR requirements came into effect on 31 Dec 2012 Number of Financial Advisory firms Source: The Financial Adviser Market: In Numbers Edition 3.0, as at April (2011) and FCA (2012 onwards) *Other classified as Discretionary Fund managers and stockbrokers
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Barriers to offering advice
Regulation prevents advisers taking on more clients Source: FCA, as at April Note above chart combines participants that stated the barrier to offering mass market advice was either very important or important.
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Regulator supports robo-advisers
FCA looking for a silver bullet: 1. There is a gap in the advice market 2. Firms focus on higher net-worth customers There is a gap in the advice market. The FCA's report notes that two-thirds of financial products sold in 2014/15 were "non-advised", and that 34% of people who had bought a financial product without advice later regretted the decision. Firms focus on higher net-worth customers. Providing face-to-face financial advice is expensive for firms, so they often only advise high net-worth individuals in order to achieve a profit. This makes it hard for those with fewer assets to get advice or to even consider the option since these products aren't marketed to them. Technology can help. The FCA believes technology can help lower the cost of providing financial advice since it either requires less effort from human advisors or none at all. And that could lead firms to offer advisory services to demographics that would otherwise be unprofitable. The FCA wants to build an Advice Unit to help firms develop roboadvisor models. This follows the success of the regulator's Project Innovate which provides innovative firms with feedback on the regulatory implications of their business model and tackles structural issues that impede competition 3. Technology can help Source: FCA, Financial Advice Market Review, as at March 2016.
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Are Robo-advisers sustainable?
Average UK robo account would need to be invested for nearly 11 years to reach profitability Costs £9.42 for every £1 of revenue Average holding period for a robo-adviser client estimated to be 3 years Source: SCM Direct, Fintech Folly report, July 2016.
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How to prosper in the digital world
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How best to service clients
Digital supported with personal Client risk profiling Financial advice Investment updates Account maintenance Source: Architas
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What are the client options
Evolution not revolution High net worth investors The advice gap Investment size Mass affluent Spectrum of choices Less affluent Number of investors
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The Architas Proposition
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Architas About Independent Fund Selection Investment Experience Risk
Member of the Global AXA group Established in 2008 £21.2bn AUM and advice Head office – London Circa 170 employees Independent Fund Selection Large team of Investment research specialists Diverse range of backgrounds including real assets, fund of hedge funds, real estate Independent internal risk team Investment Experience Investing in equity, bond and alternative funds since launch in 2008 Approximately £707million in alternative investments Strong track record across all asset classes Risk Assessment Operational due diligence Strict governance processes Liquidity management Source: Architas, as at 28
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Melchior de Villeneuve Paul-Henri Bayart de Germond
Global Investment Resources Remi Lambert CIO – Architas France Lorna Denny Investment Specialist Sheldon MacDonald Deputy CIO / Senior Investment Manager Seamus Lyons Senior Investment Manager Daniel Capocci Senior Investment Manager Anna O’Donoghue Investment COO / Head of Research Antoine Machado Deputy CIO Pierre Jean Marcon Senior Investment Manager Nathan Sweeney Senior Investment Manager Steve Allen Senior Investment Manager Melchior de Villeneuve Investment Manager Paul-Henri Bayart de Germond Investment Analyst Jen Causton Investment Analyst Makis Agoros Senior Investment Manager Hai-Ho A-Haja Senior Investment Manager Solomon Nevins Senior Investment Manager Quentin De Bottini Investment Manager Benoit Labeyrie Investment Analyst Alex Burn Investment Analyst A diverse team to encourage debate Glenn Muller Trainee Investment Analyst Anna Vaugrante Trainee Investment Analyst Saskia Bennett Investment Analyst Source: Architas, as at August 2016. 29
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Independent Fund Selection
Looking beyond in-house options (unfettered funds) MA multi-managers ownership of own active funds (past 5 years) Average (excl. Architas) Source: Morningstar, as at March Analysis covers historical quarterly holdings analysis of open-ended non-index multi-asset fund of funds over past 5 years. Only includes surviving investments with GBP as primary share class. Holdings analysis based off oldest share class. Funds classified as unfettered where there is no home-bias mentioned within the fund investment strategy. 30
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Architas Risk Profiled Range
Volatility band management MA Blended funds Managed within respective volatility bands Can take tactical bets IA Unclassified 6 5 4 3 2 2 3 4 5 6 Risk Volatility Band 31
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Blended Investing How much of each?
Balance between value for money and potential outperformance How much of each?
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Architas Multi-Asset Blended Funds Performance
Saving MA Blended Reserve 6.4 4.3 6.3 7.9 1.5 MA Blended Moderate 6.1 5.1 7.5 11.2 -0.1 MA Blended Intermediate 5.8 5.4 7.1 14.7 -2.6 MA Blended Progressive 7.3 17.8 -4.9 MA Blended Growth 4.1 7.4 7.0 -7.9 Discrete performance 01/07/ /06/2016 01/07/ /06/2015 01/07/ /06/2014 01/07/ /06/2013 01/07/ /06/2012 Source: Morningstar Direct, Performance as at 30 June We work out return figures using a single pricing basis. Performance figures are shown in sterling unless we say otherwise. The fund performance figures take into account the yearly management charge, but not any initial charge that may be due. Investing using a wrapper (a wrapper is an arrangement that brings together a range of investments under one roof) may also involve charges which will have the effect of reducing the past performance figures shown. Performance shown is for the A Acc share class.
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Important information
Issued by Architas Multi-Manager Limited, which is authorised and regulated by the Financial Conduct Authority. The value of investments and the income from them can fall as well as rise and is not guaranteed which means your clients could get back less than they invest. Past performance is not a guide to future performance. Investments in newer markets, smaller companies or single sectors offer the possibility of higher returns but may also involve a higher degree of risk. The value of investments can fall as well as rise purely on account of exchange rate fluctuations. If you require further information on any of our funds, the Key Investor Information document (KIID) and the prospectus are both available free of charge on request from Architas Multi-Manager Limited. The KIID is designed to help investors to make an informed decision before investing. You can view or download all our funds’ KIIDs via our website at mm.com, by following the Key Investor Information documents link from the homepage and in the information centre. This document does not constitute an offer to sell or buy any share in the Fund. Information relating to investments is based on research and analysis undertaken or procured by Architas Multi-Manager Limited for its own purposes and may have been made available to other members of the AXA Group of Companies which, in turn, may have acted on it. Whilst every care is taken over these comments, no responsibility is accepted for errors and omissions that may be contained therein. It is therefore not to be taken as a recommendation to enter into any investment transactions. AXA is a worldwide leader in financial protection and wealth management. In the UK, one of the AXA companies is Architas Multi-Manager Limited, an investment company that provides access to other investment managers’ services through a range of multi-manager solutions, including regulated collective investment schemes. Architas Multi-Manager Limited is a company limited by shares and authorised and regulated by the Financial Conduct Authority. It is registered in England: No Registered Office: 5 Old Broad Street, London, EC2N 1AD. As part of our commitment to quality service and security, telephone calls may be recorded. The AXA Group includes other fund management companies which we refer to as in-house managers, such as AXA Investment Managers and AllianceBernstein. We, Architas, may choose to include funds managed by in-house managers, which we refer to as in-house funds, in our multi-manager funds. AXA also works closely with a select number of external fund managers which are referred to as strategic partners. These partners are selected on the basis of their strengths under certain criteria and we may choose funds from the strategic partners to make up our multi-manager funds. In the UK, we follow an in-depth research process that ensures that the funds selected for our multi-manager funds are included on the potential benefits they could bring to our Architas funds. We are not influenced by the AXA Group to include in-house or strategic partner funds over funds from other fund managers; funds are selected on their consistency to meet their objectives. We regularly review our selection of funds, including those from strategic partners and in-house managers, to ensure they continue to be appropriate and in your clients’ best interests. More information about our use of funds from strategic partners and in-house managers is available at mm.com/inhousestratpartners/ Icon design by Austin Condiff, Mungang Kim and Chameleon Design, from Noun Project.
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NEXT SESSION: MAIN ROOM – INVESTMENT STRATEGIES
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