The Approach

Below is an excerpt from our free Plan Clear methodology book called The Asset Science by our founder Al Naqvi
You can download a full copy here

Why Should I Build My Firm Around Artificial Intelligence?

What’s your flywheel?

Amazon calls it “flywheel” and it has done wonders for Amazon. The concept is simple to understand. It has five parts.

First, decide that you are an AI-centered company and reorganize your firm around machine learning and AI capabilities.

Second, embed the AI capabilities both in your products and the operations platform required to develop and deliver the products.

Third, deploy the AI capabilities across the entire value chain and do it in a systematic way.

Fourth, share and reuse innovations developed by one team across the firm and even make it available for customers as a service.

Fifth, hire the right AI talent.

What’s so special about flywheel? More importantly, why do so many firms have a hard time understanding how to embrace the cognitive revolution? Why are executives and managers struggling to get it right?

The difference, in a nutshell, is that they are not thinking competitive advantage.

In a fast-paced world where competition can strike from any side, firms have not figured out how to blend their artificial intelligence pursuits with their firm’s overall strategy. This creates a void and that void is being filled by siloed projects.

Siloed innovation is not modernization. It is a liability. Sooner or later, it will lead to value loss.

What you really need to do is to modernize your asset management firm. You do that by moving your firm to a science-oriented firm. Becoming a science-oriented firm is key to acquiring the competitive advantage your asset management business needs and these days the only way to become a science-oriented firm is by building your firm around artificial intelligence. Amazon knows the formula.

But while Amazon has its flywheel, where is your plan? Even if you have a plan, what is the execution path? It seems we neither have plans nor clarity about how to execute to become an Asset Science firm.

If we approach the cognitive transformation with a Plan and we provide a Clear execution path to the Plan, we can have our flywheel. I call that Plan Clear.

Plan Clear® is a methodology and a strategic document to transform a legacy asset management firm into an advanced, 21st century, modern, asset science company. Plan Clear is also an artificial intelligence platform that helps you build your firm around AI – but in this book, I will focus only on training you on the methodology.

The Plan Clear® methodology challenges you to think differently. It links business outcomes with artificial intelligence centric transformation.

Plan Clear = Have the right Plan + Have a Clear execution path

In a world dominated by hard core technology researchers and mathematicians on one side and soft skilled graduates of management schools on the other side, Plan Clear® builds a bridge where the two sides can meet.

The innovation spark happens when the two come together.

The Plan Clear® approach is built upon approaching strategy from a flexible, market developments aware perspective. And the execution layer is designed to be responsive and adjustable to changing plans.

But before I introduce Plan Clear® to you, I want to address two questions that you may have:

  • What about all the cognitive and digital automation projects my IT teams are currently doing – isn’t that building my firm around AI?
  • Why should I shape my firm around AI?

Both are fair questions and here are the answers.

The Fallacy of Going Digital

I recognize that you have been led to believe that your firm is on its way to become digital and cognitive. Well, you are not alone in that. If we start piling up firms who think they are becoming cognitive and intelligent, it will create a bubble bigger than the one created by “irrational exuberance”.

The reality is that only a handful few truly understand what the cognitive change entails.

When the Internet came, many firms found themselves in a similar self-deceptive fallacy.

Let’s reflect on what happened in the retail sector when e-commerce matured. Nearly all large retailers (Kmart, Sears, Macy’s, Nordstrom, Toys R Us etc.) launched major digital transformation programs. All were advised by leading consulting firms. All believed that they are on their way to become a major online sensation. The consultants assured them of that.

But despite building significant digital presence, nearly all retailers lost ground and could not withstand the powerful force unleashed by Amazon. For decades they slowly simmered and festered as Amazon languished them – never quite realizing what was happening to them.

Well, to be fair, all except one. Walmart was not only able to thwart Amazon’s competitive advances, it is emerging as a formidable force.

As we learn from the past, the first lesson is that just having a digital program is not enough. Just because you joined the automation club doesn’t mean you get a seat at the table. There are ranks within the club and only the ones at the top matter. Others simply survive, pulling one stunt after another, until there is no act left.

Sears, GE, Toys R US were American icons. They all thought they were technologically advanced. They all had powerful technology programs. But disconnected silos of innovation are not transformational. You need a coordinated strategy.

Second, and perhaps more interesting lesson is that it is indeed possible to transform a legacy firm to keep it at the forefront of technology. Walmart’s example gives us hope.

Take the example of wealth management market. On one hand you have firms like Wealthify who have declared their intent to partner with traditional advisory firms and on the other hand you have companies like Nutmeg and Betterment who are adding human advisors to their robo-advisors.

If I am sitting where you sit in the asset management world, I will look at both developments with certain level of skepticism. Firms like Wealthify can partner with select few firms. Their partnership can last only to the point when they can figure out how to scale without the help of legacy firms. And even if they open their platform to all advisors in a partnership model, where is your competitive advantage?

Yes, if all the asset management firms will have access to the same platform, where is the competitive advantage?

Conversely, if only a handful will have that access, then what if you are not one of those handful firms?

What if these robo-advisory firms get acquired and the acquiring entity shuts the door upon previous partners or worse, now has access to your customers. Does that make you feel uncomfortable? Wait till you hear the other side.

Firms like Nutmeg that are now adding human advisors can challenge your traditional business and relationships. They will become like you – except a better you. They will even poach people from your firm. They will blend advanced analysis with human relationships and try to move up the ladder. From younger generation and smaller clients to eventually mid-market and large clients. Why not? Who says technology is only good for younger people. It can do wonders for all age groups.

As the artificial intelligence economy matures, you will need to do what Walmart and Amazon do. You will have to lead the transformation of your firm by building your firm around AI. You will need to develop your own capabilities. Plan Clear® will show you how.

The third phase of believing

An unknown author once said that there are three phases in life: you believe in Santa Claus, you don’t believe in Santa Claus, and you are Santa Claus. It appears we have experienced a similar path in fintech.

Just few years back fintech was both fascinating and enchanted. The charming IPOs and massive funding rounds of startups with “behavioral algorithms” and “peer to peer lending” created an aura of mystery and wonder. The future of traditional business was over, many projected. Then came the realities of business and peak-to-trough declines of 80 to 90% in share prices (e.g. OnDeck, Lending Club) of fintech firms took the air out of the balloon. Suddenly, we stopped believing in magic.

With the crash came the truce – an unsustainable armistice – as both traditional firms and tech firms withdrew to their comfort zones. Legacy firms recognized that they lack the innovation culture, the technology, and the innovative spirit to create a powerful future. And the tech firms realized that they don’t have the deep pockets, stay power, or the customer base to challenge the established firms. Fintech took a breather after a long battle – but the game has only begun. FinTech is only recharging and preparing for the next and the decisive battle.

The stage is set for the decisive battle to begin.

In the third phase the tech firms will break through the barriers of scale. Most importantly the tech giants learning and waiting on the sidelines will finally decide to enter the market with models that will create new value for customers. – while breaking the bank (literally). Legacy firms are not ready for that.

Now let’s return to the question of why do it?

Why build your firm around AI?

There are several compelling reasons to adopt AI. I am sure you can think of a dozen reasons yourself.

Pick any magazine or newspaper these days and you will see articles and references to artificial intelligence. Recently, Arizona became the first state to offer sandbox flexibility to fintech. This means firms can get license to trade (limited and small scale) and experiment to drive innovation.

Think about your clients. They now expect their phones to follow orders and for their cars to park themselves – they sure would want their asset managers to equip them with a fully-loaded investment management performance platform.

Customer preferences are changing. Let’s first start with the younger generation and then move up:

Wealth is moving toward younger, more technology savvy generation. Generational wealth transfer is expected to be somewhere around $30 trillion dollars.

Besides being technology literate, younger (Millennials and Gen-Z) have also experienced the Great Recession first hand. Even if they were in school when it happened, it is likely that they heard their parents and grandparents talk about the anguish of losing lifesavings or reading about the Wall Street greed.

These are also efficiency and cost-conscious generations that prefer solutions that minimize waste and utilize available capacity to the max (e.g. Airbnb, Uber, Lyft).

In some ways the definition of “expertise” for these generations has shifted. They can access vast amounts of information quickly. They can educate themselves with thousands of DIY courses and videos for free. It is natural for these generations to feel they can learn and do anything themselves. Why pay an external party if meaningful and usable expertise develops from your own research and from the wisdom of the masses in a network.

The above factors have contributed to these younger generations seeking greater control over the outcomes that they believe they can influence. Not trusting the specialists and instead relying upon their own research skills and network opinion could come natural for them. Whether that confidence is true or not is a different issue.

But it doesn’t stop at younger generations. Older high-net-worth (HNW) and Ultra high-net-worth (UHNW) individuals also want greater control, more flexibility, and higher transparency. They want to be understood and respected. They too want excellence in customer service.

Same goes for the institutional investors.

Existing and traditional relationship management with both high-net worth individuals and institutional clients can only go so far. Sooner or later firms would need to demonstrate how their strategy and the ability to understand client needs are different or better than any competitor’s.

One small miss and clients will be inundated with alternative options claiming that they have the magic bullet.

Clearly, to gain the respect and (interest) attention of younger generations and to maintain and sustain the existing relationships, firms need to do something different. They must innovate.

This means that from a positioning perspective a firm needs to be able to demonstrate that it knows more, it knows better, and what it knows cannot be easily picked up from reading few articles or taking some courses.

This means that firms need an edge that comes from proprietary insights not widely available to anyone.

Additionally, firms will have to be lowest cost operator, provide excellent service, build trust, and show exceptional command on regulatory and compliance parts of the business.