By Daniel Lanyon on Thursday 1 March 2018
The soon-to-launch digital wealth manager’s CEO explains the firm’s plans and ambitions.
The soon-to-launch digital wealth manager’s CEO explains the firm’s plans and ambitions.
The digital wealth management landscape will soon have a new feature with the launch of Exo Investing next month. For anyone wanting a more detailed explanation of the investment proposition this article should help but to suffice to say the firm is aiming to offer something different to existing robo-advisers.
Rather than on-boarding clients into existing discrete risk-targeted portfolios, it builds each investor a completely individual portfolio set around their preferences and systematically rebalances each one according to risk management algorithms. This ultimately means each investor sees different returns based on the behaviour of the underlying holdings set out in the preferences of the investor.
This process utilises a service usually restricted for high net worths or institutions, according to Exo, and has not been normally available as a robo-solution either.
In this article we hear from Lennart Asshoff, CEO of Exo, as to how the firm is planning to further disrupt an in industry rapidly being disrupted by the likes of other digital wealth managers such as Nutmeg and Scalable Capital.
What is your vision for the future of wealth management?
“You have to find a way to follow suit what has happened in other industries, so that you have a more individualised product, a customer centric product and not the kind that has been created and then sold to whoever wants to buy it.”
“We want to build products that are made for our customers; that are individualised for our customers. Every person’s financial situation is different, and the financial product they need that fits this financial situation has to be different, so it doesn’t make sense to sell every person the same product.”
What are the problems with ‘robo-advice’?
“Firstly I don’t really think that the term is correct because most of the services out there are not offering advice to clients. They don’t even have the advice-permission, so coming from a regulatory perspective it is not really correct to say that.”
“Second of all, from the product that they offer, it’s not really advice, it’s mostly discretional management, which is fine, but it’s a different kind of product. It’s a great exposure for people who just want convenience and access to the market. Then you get a portfolio, a one out of 10 portfolios, or one out of 25, it depends on the service, but you are still just classified by a number. So what is your risk? A seven? Then you get the product for risk level 7, and that’s it. The product itself is not really made for you nor is it anything special, and that hasn’t been around before, so that is one problem.”
“The other problem is that a lot of those investment methodologies that are being used by these new services are relatively simplistic, so they have just a simple mark of its optimisation of an investment universe of 10 ETFs and that’s about it. It’s great for somebody that wants this simple solution, but if you have a higher demand for sophistication in terms of your financial products, you would need to look for something else, and this where Exo comes into play.”
“We try to combine the customisation and taking your preferences into account with an investment methodology that has been used for decades and has been proven for different market downturns that is still around and working very well.”
How important is the role of emotion in investing?
“Emotions are one of the biggest enemies for every investor and there has been a great deal of research over the last few decades on behavioural biases and I would say that nearly every human falls to at least one them.”
“What we at Exo believe is that a mathematical model can do a better job than a human in managing a portfolio’s risk. It’s not about stock picking or selecting what is the best possible stock that you could select, but it’s about managing an overall diversified portfolio on a quantitative basis, and that means we will look at the market at each moment in time, and then adapt to it depending on how it has evolved over the current episode.”
“That is very important because in moments of market distress, humans make very bad decisions and that is normal, that is just human. But we can use mathematical models and statistics to actually avoid this wrong decision making, adapting to markets before the big crash and reducing risk when we see there’s higher volatility in the market and higher probability of loss, thereby improving the overall odds of getting to your specific investment goal; this is what it’s all about.”
“You want to invest and you want to reach your specific goal in the future. What we do is we just improve the odds as much as possible, so you just have the highest probability of reaching this goal in the future.”
21 March 2023
Daniel Lanyon