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Man greeting woman to consult on investing

It’s fascinating to think about Microsoft’s role in driving technological innovation in private wealth management, one of the core areas of focus for the Capital Markets business in FY20.

In late August, I attended Market Group’s Annual Private Wealth Florida Forum where I moderated a panel discussion on asset allocation, discussing how wealth managers balance risk and opportunity in their asset allocation strategies. Below are a few highlights from the panel discussion.

Interest rates

We began with a discussion of how current interest rates are impacting asset allocation. One of the panelists highlighted that low-interest rates are driving an over-allocation to equities while an increase in interest rates could create a “reverse tidal wave.”  His expectation was that rising rates would lead investors to head for the exits in credit markets leading to a potential collapse in bond prices.  However, when we returned to the topic later on, there was no consensus among the panelists. In my opinion, US interest rates will remain low and in fact, may even turn negative.

The rise of passive management

The secular shift from actively managed assets to passively managed vehicles has been striking, but not surprising. Academic research has shown that active management does not produce superior results to passive management. Rather, the time it has taken for the shift is surprising. I believe that some of this is technological innovation – not of the digital kind, necessarily – but mostly product innovation, involving the creation of ETFs and funds that are easy to trade and lower the barrier to entry.

Customer-specific asset allocation

An area often overlooked by allocators is allocation within specific customer relationships. Wealth managers are faced with important questions: In a family with three generations, how should the family optimize the allocation of an investment in a high growth fund that may generate large tax liabilities?  How should the allocator optimize the use of intrafamily loans to minimize these liabilities?

The bottom line

Microsoft has robust capabilities to address the challenges discussed above:

  • Microsoft Teams is purpose-built for the private wealth business and should be readily adopted by the advisor community.
  • Wealth Dynamix, a state-of-the-art CRM and customer lifecycle management (CLM) platform and Microsoft partner, will help drive the adoption of Dynamics for private wealth management and asset management firms.
  • The power of all three Microsoft clouds can enhance or even automate KYC and other complicated processes.
  • By moving risk compute to the cloud, firms can enhance their risk management capabilities.
  • By adding a layer of Data & AI or PowerBI to time-intensive processes, our largest asset management has enhanced their middle office processes and risk compute.