 Hello, welcome everyone. We're glad to welcome you at this issue briefing about Fintech, the future of finance. My name is Peter Vannum. I work with the World Economic Forum as a media lead and I'll be the moderator of this session. And for this session, we have two great guests sitting right next to me is Beau Lu. Beau is the founder of Future Advisor, is a company active in wealth management to say it with another term in robo-advising. His background is mostly in computer science. And then next to him is John Flint, the eminence gris we would say in French of the banking industry, 26 years of experience with HSBC across several continents and now the head of the retail banking segment of the bank. And we're gonna be talking today about that Future Financial Services most particularly about Fintech and even more particularly about the wealth management part of it. And so I wanna start with you, Beau. You sit next to a man who has 26 years of experience in banking, who looks like a banker also. And you have, you're active in the same sector. Why would people and why do people trust you for wealth management? And where are we right now in that sector? It's a great question. And I'll say, given your 26 years of experience, you've probably forgotten more than I know but the core experience that has always been the way that people have gotten asset management delivered but I think client expectations are changing. I mean the primary driver here is that there's a more convenient client experience to be had if you have a great digital mobile experience that's at your fingertips all the time. I mean in banking many of us no longer go to the bank because we can do it all on our phone and I think in asset management there's no reason to expect that it'll be different for some fundamental way and this comes from the big things, the little things such as reading a PDF report of an eight and a half by 11 or a four piece of paper on your phone is actually really really difficult. And so there's a better mechanism and a better way to communicate with our clients. I think the secondary driver that's kind of underlying all this is that not only is it a great digital experience that I think more and more clients will demand but that automation drives down costs and enables better control and compliance. And this gives firm scale allows firms to not only better serve their existing clients but to address a new segment of clients that have traditionally been unserved by wealth management. I think your question about where we are in why do folks trust small tech companies is that the answer really is not everyone will. And the vast, vast majority of assets are still with traditional financial institutions but not everyone will at first. And I think, but enough will and a small portion and that portion will go over time and our memories are short but I'll recall that back in the 90s you recall that e-commerce was like this in the early days. People would say, why would I ever give my credit card to a website? And today nobody says, what's Amazon gonna do with my credit card number? It's just a fact of life. And so I think it's a combination of, it'll appear small for a while but it'll continue to grow at a rapid pace. Okay, well, let me take it one more step down. If I go to my bank and I'm still used to going to my advisor and then I ask him, what should I invest in or where should I put my money in? There's a factor of trust and he'll give me some recommendations. So why are people in the same situation, why would I as a person come to you and why do people do that? I think a couple of things. On the personal level I mean more. One is ease. I think we should never underestimate the power of convenience in marketplaces. There's a great saying in Silicon Valley where we're based that the most convenient option usually wins eventually. And the second one is, whereas the vector of trust in a human-to-human relationship is that they work for the bank, I've heard of the bank, the vector of trust in digital oftentimes is transparency. And so for example, we will, for free in under a minute, take a look at all of your assets regardless of where they might be, at least in the United States so far, and give you a all up view and give you a set of recommendations and then give you a bunch of reasons level by level why those recommendations are made if you want to do the math yourself. Okay, and right now how big is, how many clients are actually buying into that? I think the entire Robo's sector in the US is probably somewhere on the order of tens of billions of dollars. Okay, so we've got of course next to you someone who knows all about numbers and has been working with them for 26 years as we said. So from your perspective, which is that of a traditional bank, if I may say you at some point you even said the boring bank, how do you see the entrance of these new players into the market? It's healthy, it represents a challenge for the incumbents but I think it's a good challenge and it's a good challenge because the end result is better customer experience. I don't think the foundations of what we do or purpose is not in any way disrupted by FinTech or by new technologies but this puts pressure on us to really focus on the customer experience and on the ownership of the customer journeys. And I think that's really where the battle ultimately is going to be won and lost. And one of the things I've really enjoyed since I started attending Davos is how the conversation between the incumbents and the disruptors has evolved. In my first Davos I felt very uncomfortable because there was almost open hostility between the disruptors and if you like the old world. This year there's a much healthier debate around how we're going to collaborate. Now the reality is we're of incumbents like us, we've been around for 150 years, customers have made a conscious decision to trust us to look after one and a half trillion dollars of their deposits and trust is what we do, it's our foundation stone. FinTech shouldn't disrupt that but it really does put the onus on us to really understand how we're dealing with our customer experience and firms like the one that Bo has founded just intensify that for us. And we have a challenge here to respond or not. If we stick our heads in the sand the risk for the incumbents is that over time our customers will prefer the convenience and the ease and the simplicity that the disruptors can provide. And it will take time but the pressure is absolutely real. Right, now you talk about time but of course a lot has already happened in the last let's say 12 to 24 months and also here at Davos and at the World Economic Forum we've seen that evolve. We've seen basically the reaction of the traditional banking sector to go from it's a non-factor to we're maybe afraid, we're worried to in the end we have to do something about it. And that actually has happened and both of you have reacted in a different way. There's to say if you look for example at Bo you look of course like you are the new player in the market but as a matter of fact as of very recently you are actually an old player in the market because you've been acquired by BlackRock. So how does that change your business model? It doesn't really because one of the interesting things is that we've been hearing from both sides kind of the same story which is ever since our company got initial traction we were getting inbound calls from banks and brokeragers saying hey is there any way that you can help us cross this digital divide and help us with our digital initiatives internally. Meanwhile when we're talking to customers they love the product but sometimes they say look it is really nice but I gotta move a bunch of stuff everywhere I already trust my existing financial institution why can't I just get this where my money is today? And so we sat down and said hey but both sides are really telling us the same thing and then the market has spoken and that led to our collaboration with BlackRock we've known it for a long time but that led to our eventual collaboration with BlackRock and I think if you drill a level down I think many of those here and those watching are probably in financial services there's actually a great complement between our two models, right? Digital is not going to take over or replace it is highly complementary because there's a segmentation happening at work here which is kind of one level down for existing clients digital will not only give them a better experience that complements the existing experience through getting from their great advisor but it'll give the advisors a better experience, right? It'll allow them to deliver better services and it'll allow them to do so more easily and then the other segment is for clients who may be the clients that the bank doesn't have today because they're a segment that's hard to serve or they're a set of clients the advisor isn't able to find enough time to spend with them and they're always trying to get there but things get in the way that we can help the advisor scale their efforts across more of their books so I think that complement is there but I'll say this, I think to take the other side of my argument even though they won't take over there will be parts of wealth management where it will absolutely take over tax laws harvesting on an automated basis that should be done by a machine digital account opening, that should be done by a machine like the things that advisors do best they should do more of but the things that they, to be honest do spend a bunch of time on that is not what the clients are looking for is the barrier to getting the service digital should take over for them. Okay, well that's one way of course that the FinTech sector is evolving and is I would say integrating into the traditional financial services sector. John you may have perhaps taken a bit of a different approach at HSBC rather than acquire you spend several billion dollars a year on technology and a big part of that is of course innovation and you even have five centers you told me where innovation takes place at HSBC so is that, how does that work? Is that where your FinTech projects take place? Yeah, so we've got a reasonably broad approach to this so we've got a traditional if you liked IT development business with inside HSBC that's keeping the lights running and keeping software on the existing platforms up to date and current but again over the last few years we've recognized the need to be a lot more open-minded we used to develop nearly all of our own software we used to develop things from scratch we used to recognize the proprietary advantages or we believed in the proprietary advantages of doing this ourselves and technology's evolved to the point now where we cannot compete on that basis so we have a much more open mind towards this we are collaborating with all of the big names in technology to help improve what we do for customers from the beginning to the end and we are making nascent steps into the VC space as well so partnering up with firms that are developing technologies that we can see are gonna be really interesting for us so things like digital identity, financial crime business priorities for HSBC that can be solved or that can be enhanced or enabled through technology will start to help some of these customers some of these disruptors grow with us and so we've got a broad sense I think one other thing just to pick up on in terms of impact and where FinTech can actually make a really positive difference to the traditional advisory based models the cost of serving of an advisory model is quite high and it does therefore lead you to exclude by model by business model the biggest ways of the population that when you consider the demographic trends over time we'll need to invest and we'll need to save for ever increasing longevity and in many markets there are thresholds beneath which an advisory model just doesn't work economically and robot advisory in the broader sense has got a crucial role to play there and we will participate in that too but to me that sounds a bit like for example the model that business schools are taking you have only a selected number of spaces in the school available for people to go and all the rest can take the Coursera online MOOC courses of course also there and in other industries you've seen that that's not what happens sometimes it remains to be seen whether that's the case or not but it could also be that also the people with lots of wealth under management will turn to robot advising because it's better because it's cheaper because whatever reason it is and so what do you expect will happen and I wanna see a bit of two points of view here because I know Bo that you have a demographic that is maybe not what we would expect could you say something about that? Yeah sure so I think millennials are oftentimes the headline because you know it's tech and that's a well-worn story and millennials also in the sense of the people who don't have that much wealth yet because normally wealth is accumulated over a lifetime and so the people with the highest wealth would be the ones that are let's say plus 40 yeah so from us if you look at our data more than half of our clients are over 40 and that's by headcount only and then if you cut it again by assets under management reflecting Peter's point more than three quarters come from clients who are where the head of household is over 40 and so I think even though millennials are often seen as the driver the data actually belies a different story where people are selecting the service and I think that here that your point about massively online courses is valid though I think wealth management is a little bit further along that spectrum like today it's relatively rare that you got to understand from the Bay Area that you decided to stay home and take the online course instead but it's probably happening right people are super busy and I think but here I think in wealth management there's starting to be that beginning contrary of people who either because of lower fees or because of transparency because they're just too busy to like ever go into the city and talk to somebody that they're right now deciding to go for digital but it's a continuum right I think that's the thing that I think both of us will agree on it's more advisor or less advisor depending on cost structures and what the client prefers are more digital and less digital depending on those same factors and so I think you'll see kind of a very equal melding of the two over time. Right that sounds conciliatory John so I wanna get your perspective on this you know in our preparatory conversation you talked about how you saw the importance of the boring banker that the banker that follows the rules and that in the end people are gonna follow with that rather than the convenience of the of the robot visor is that the driver that you expect will take over and thus will people still come into your office in 10 years time? Yeah I think the reality is for most retail investors the markets and investing is scary they're not comfortable navigating the financial markets I've been doing this for 26 years and there are aspects of it that are still quite uncomfortable for me so for the average retail investor some have got the confidence to go straight to a robot visor and trust and enjoy the benefit of simplicity and ease of use and perhaps the lower fees but our experience to the client base we serve and it's a diverse international client base is the vast majority of our clients want a conversation with the human being for now and I think my best guess would be five, 10 years from now that would still be the case but there's absolutely a role to play for execution only at one end of the spectrum where you have fully conversant investors who know what they wanna do they know what they wanna buy and they're happy to do their own risk management and their own risk profiling you've got other people that are happy to follow an algorithm or be guided by a piece of technology at the moment though across our customer base the vast majority of the customer outcomes that we deliver come through a human contact a qualified advisor and so and based on that experience or that observation you think it's gonna be a gradual change my instinct is it'll be a gradual change in five to 10 years most people will still come into your office and ask your advice I think for wealth, yes I still think there will be the primary flow of wealth revenue will still be driven through a human being would you agree Bo? well now that you've called me a conciliatory I may be able to take it to the side I'll say that I think you know we should be aware of a very real human cognitive bias that all of us, many, many human cognitive biases by the way is just one that all of us share including myself which is that we underestimate sorry we overestimate progress in the near term but we underestimate its impact and also its direction in the long term if folks, this is a cultural reference if you've seen Back to the Future you realize they had flying cars but they also had a newspaper and you're like well kind of too far on that one and too not far on this one and I think looking ahead it will probably be slow adoption for a little bit but then there's an S-curve well known S-curve with technology adoption it's not this way it's slow for a while and then at some point it passes a point of no return and I think that's why both of our firms are investing so heavily into it because you kind of have to be there when the thing takes off and I think we're starting to see from our perspective some of that's happening already right I want to perhaps also open up the conversation to some of the people in the audience because I know there's a lot of people interested in this topic what are some of the perspectives you have or questions that you have? Yes? No man, Dar maybe you see your name in No man, Dar I'm CEO of HBL which is the largest bank in Pakistan and I mean the experience that we've had over there is that some of the new technology operators have tried to make it disruptionist which is not sensible the cell companies would not give us the USSD to do mobile banking because they said no this is for us to do so then we had to wait and go into the smartphone where you can do it yourself so like David said we are investing so we will be there when that time comes but we firmly believe that this 75 or 100 years of trust is important because what we see that people are doing transactions with mobile phones with these mobile operators and others but they're not leaving their money in their mobile wallets they leave their money in the HSBC they leave their money in HBL so and that is will take time to change and we feel that if we cooperate more if we work together I think we can have a win-win situation but if we have this attitude that we will disrupt the age-old players then I don't think it's going to be meaningful okay and thank you since you didn't ask a question specifically I will ask it for you no no that's fine so I derive two questions from that and the first would be what is the role the driver of what's happening in the financial sector in the future is it going to be regulation or trust right sorry regulation and trust or is it going to be the customer centricity and I would say the first part would be the traditional banking sector says there is regulation and we have the customers trust hence we won't see so much of the change and perhaps the fintech represents a more no we look at the client first and that's going to be the primary driver and of course since we have a fintech player and we have a banking player we can ask is that is that also how you see it the relationship between trust regulation and customer centricity I think fintech forces the incumbents as I said really focus on the customer centricity piece if we do that then I think we can continue to rely on trust and regulation to preserve the moat around around the incumbent industry or the old industry if we lose sight of it if we don't keep up on the customer centricity piece there's a risk then that that moat becomes redundant and that people can invade and take our customer base but it's interesting that the disruption to date to the extent it's occurred has really been around narrow pieces of the value chain the core function of looking after other people's money and then allocating it across an economy productively is a really difficult and expensive and heavily regulated thing to do and a lot of the new technology energy doesn't want to commit to that for obvious reasons so I think for me and I appreciate this as a view that comes of 26 years of doing it this and nothing else the trust and regulation piece I think will dominate assuming that we can keep up on the customer side right, both? I think I largely agree and I think there's a nuance here to point out though that trust is necessary but the delivery mechanism of that trust like I was talking about earlier by transparency can be something other than humans and I think in the United States we have a large broker dealer such as Fidelity and Vanguard people have their entire net saving net worth they're more than half of the bank and they've never met a Vanguard employee in their life and people trust an Uber driver that they never will meet and never have met and never will meet to take their kids to after school baseball practice and so if you think about those who are the pillars of what I'll trust some admittedly random person to do take my kid's safety and my whole net worth and I think that's the boundaries currently of trust building without a human face-to-face contact I think that's the ceiling and if we put a value to that Bo if you make your sales pitch where do you say is going to be the level of wealth management than my robo-advisors instead of say three years and five years I think if we're successful and I think this will be maybe weird to hear if we're successful there won't actually be such a metric there won't be an upper limit no no there won't be a metric such as this is managed by robo and this is not managed by robo I think if we're successful it'll become a more nuanced conversation of probably over time almost all or all financial institutions will allow the scalable things that computers are best at to be done by computers and 20 years from now if you're still hand-opening accounts like that's going to be a waste of time and money or if you're not engaging your customers in a scalable way like for example with the recent market turmoil we have systems that allow advisors to send out very personalized messages with their commentary under their name to each of their clients before they wake up and if you don't do that and you kind of call through your list by the time you get halfway down the list people are calling you and saying hey what happened heard from me what's going on and so I think not only in terms of the back end execution and fulfillment but also in the front end customer experience people will come to expect a digitally enabled level of service and so I think they'll just kind of bleed into and blend into the experience they already have right and then the second question that I wanted to ask based on your statement is how do you see the difference let's say geographically in how this sector is going to evolve you operate in one country you say you come from Pakistan what's going to be how different is there going to be per country and based on what is that going to be based on regulation or is it going to be based on something else where do you see this going and we must say you spend a lot of your career also in Asia I think in Hong Kong right yeah I mean investor behavior is vastly different by geography so Asia we see a very active self-directed behavior from low end of retail all the way to the top so we've got a very healthy mix of advisory based services as well as execution only and that's partly cultural it's partly being fostered by regulation you come to say our other largest market the UK the investor is an awful lot less inquisitive and a lot less active and we've had regulation there that again has kind of slowed down I think the ability of many segments of the system to invest so RDR has had I think some adverse impact on the ability of people to access the markets and products they need and that's something we need to think about I think the fundamental answer is each of the societies we serve has different expectations of us as service providers they have different cultural expectations and we just need to fit each of those so there's always a danger in this debate I think that we talk about the customer the customers are a really complex thing they get underneath it the geographic dimensions and then the point you made earlier on about the generational differences it's complex where do you see this going? and then even within our own data set actually we see psychographic differences depending on how comfortable you are what kind of experience you had recently and we can see this all in our data about conversion rates and engagement rates with what parts of the site or what types of content they engage with the most I think you'll see the same thing happen in digital across most markets but I think you should think of digitalisk as a tool set that allows the financial institution partner that we work with to deliver their values to deliver what they want their client to experience to be like and so for a particular market you want your clients to all wake up to a personalized message digital will be the way to deliver that and for another market you want clients to wake up to a push notification that lets them schedule some time with their advisor and digital will deliver that and so I think to take your point one point further it's actually we will all define what we want as the digital client experience as the client experience overall and my hope is that we will be less bound by the business model dynamics or the other constraints of our business because of the ability of digital to give personalized service at scale in a way that just feels great and many of our clients don't know but they might know after hearing this that the emails that they get that looks like they were written by somebody they were written by somebody for 2,000 people at once who look like you and they contain your numbers and they contain references to your situation but that's the machine so that's already happened I saw another question over there so my name is Sumitra I'm a Dean of the Business School at Cornell and I find the discussion very fascinating because I do research in this area so just one very brief comment at the World Economic Forum we did research looking at online behaviors across different markets and what was interesting was we found that people who are online and emerging markets are much more open and willing to experiment in the online behaviors than in the developed markets so actually which means that you might find more interesting models business models emerging in online spaces in emerging markets especially as center of gravity of internet users moves to the markets so that company nature is VC that you're global I think that could be interesting to see what happens the second point is a question I think we have made a lot of distinction between customer centricity and automation and so on and my question to you is what if the customer cannot tell the difference between a machine and a human being and I think that point is not too far away already when you chat with many of these online chat bots you can't really tell and what if sometimes in the near future the Turing test is essentially spassed that the customer cannot tell the difference between a human being so what kind of impact will it have on your business so two comments one about emerging markets and how people are more open there and the second one about human versus robot which is the central theme here so let's get off with the first one and maybe Bo you have maybe knowledge about this I have the impression that fintech centers right now are London and perhaps where you're from the Bay Area we heard from Sumitra that the clients might be more in the emerging markets so where do you expect that to go I think it's actually a nuanced segmentation question once again because you'll probably note that many of the folks in emerging markets haven't traditionally had access to you know traditional human advisor but you know that's the same in the US if you have less than a half million or you know whatever line you want to use and so I think rather than looking at it from a country-by-country distinction you can see that within a country particular segments will behave like other segments with the same properties but that will look like them with the same properties in other markets so for example we've seen that there's a difference in the way that digital is adopted depending on whether you come from a traditional advisor that you may not have had a good experience with or you know may retire or something like that versus had you come to us and we're the first advisor you've ever had we have to teach you about ACATS we have to tell you about how hey we're going to move assets from one institution to another and you know it's going to show zero dollars on both sides for a few days don't freak out and so we're going to build a lot of software for that because that first-time experience is fundamentally different whereas you know for existing clients who know about ACATS they're like yeah it's fine don't worry about it and then the second question was about robots versus humans so John can I just make a quick comment on the first question first because I agree with that observation I mean the market that is the most progressive with respect to e-commerce that we serve is China consumer behavior there is at a different level to any other market we serve including including the UK or even the US for that matter so one of our innovation centers is cited in Guangzhou so that we can hopefully take advantage of some of the skills and talent that exist there sorry just remind me of the first well we're looking at the more philosophical and we'll end up on that note but the question of robots versus humans so in 20 years time or in 10 years time am I going to work with a robot banker or with a human banker you know I'm going to cop out a little bit on this I don't know the answer I mean I can absolutely see that robotic stroke AI have got the potential to displace a lot of low skilled aspects in what we do but I think there are some real challenges even in something simple like delivering risk-profiled wealth management solutions to clients a human being needs to be involved somewhere in the process somebody needs to be setting the parameters somebody needs to be writing the rules somebody needs to be overseeing the governance from a customer perspective making that and from a risk a reputation risk perspective making the leap from a bunch of trained humans to avatars you can argue this either way on the one hand it reduces your risk because you've got a single control point a single focal point that's fine as long as you get all the assumptions right in the rules that you set and the behaviors that you allow and the behaviors you don't allow I'm really interested to see how this evolves and I think that will definitely be a slower burn than if I'm going to be a bit provocative I think it'll be a slower burn than some of the disruptive thing I think we've run out of time so I'll maybe let you just make a closing statement to each of you so where do you expect the future financial service to be infinity I think I want to take part of my statement and address your question which is it doesn't have to be all for all as long as we chip away at the kind of low value services that today are done by humans we will dramatically change the cost structure in the business models in the industry and that has great externalities for societies because it allows there's great research that says if you have a financial plan you feel better, you have a better financial outcome and in the US I think the research shows that only half of pre-retirees and retirees arguably the group that most needs it have a financial advisor and so if we can get that penetration up it'll be great overall for everybody's outcomes and I think, you know, to your point it's, you know, how long is it going to be until we get to a point where it's all computer like every last, probably a while but you know, even today we're already at a point where sometimes you actually don't know and that's okay, right, so You got it, John, any final remarks? No, I think just come back to something I said perhaps at the outset I think the incumbent firms now nearly all of us feel a lot more confident around this challenge and the way forward for us is to embrace new technology the customer wins the customer benefits, whatever happens from here the customer is probably going to get a better customer experience and they're almost certainly going to get cheaper products and services if we apply the new technologies right we've got the ability to take costs out to your point, so again, we've got the potential to use new technologies to manage our own P&L but I think if we just focus on the end result for the customers I don't really want the debate to be about good versus evil, winners versus losers it's going to be more complex or even more complex Thanks very much, both of you and thanks to the audience for being here Thank you, Peter Thank you