A reflection about my thought in the financial industry.
Traditional Banks
Banks that provide service for both institutional and retail investors are shifting their attention more on the institutional side — more big banks announce that they will carve out the retail banking service and focuses more on either wealth management, private banking or corporate service such as sales and trading, investment banking etc.
Reason: banks are shifting to places where they can charge a higher profit — where the clients are less sensitive about the fee change — and also where clients will need more products that are financially/artificially engineered.
Fintech
Fintech companies usually start from something with lower service fee or higher reward. For example, making the fee of stock-trading as low as $1, or giving higher deposit interest rate. In the first stage, these fintechs usually need to cooperate with other banks, because they don’t have the license and it is usually required to conduct these regulated service with a specific license.
The second step of these fintech companies is to get themselves a “bank” certificate — in this way, they will start being able to absorb deposit and provide finance service / products directly to their clients.
The reason why these fintech can grow up so fast usually comes from two reasons — first, they charge much lower fee, and it attracts a much larger group of people to start trying new things, like buying their first stock; second, because these fintechs use/claim that they use different risk models, so they are able to grant more people a personal loan, an insurance program or an installment plan.
Because these fintech companies have a much bigger customer base, that’s the picture that they are selling during the fundraising, and that is also the reason why they can use the funded capital to subsidise their operating costs.
Change brought by AI
AI is definitely helping financial professionals a lot — being able to gather information much more efficient as well as “organised” — the time for desktop research has reduced a lot. I also see more companies building tools that provide 10-K, 10-Q, or conference call transcript and presentation materialls in almost real-time level, which, needless to say, has helped the junior analyst save huge amount of time.
Despite of this, “double-check” is always necessary, as the accuracy of optical character recognition (OCR) is not 100% convincible. Moreover, some people still believe that the only way for a junior analyst to actually get the industry acumen is to build a model manualy rather than relying on some OCR tool — for this point, in my opinon, it has its own reason and it makes sense.
One thing that I’d like to point out: in the sub-category, such as IBD, in my opinion, the impact from AI is less compared to the rest. Relationship building has its own value, and it is very difficult for AI to replace that.
To sum up, in the financial industry, I believe that AI will not take over human beings’ jobs, but those who can use AI will.
Trend
- Demand of innovative financial products is growing, as more people nowadays have the access to the trading platform.
- The growth of ETF is continuing — as more people realises that with much lower fee they can achieve almost the same objective by building a portfolio themselves, and also, empirical study has shown that ETF usually beats actively-managed funds — I think ETF is going to be the first one financial product that every market particiapnt starts with.
- The dry powder as well as the lag effect in private markets has led the general partners to keep pushing the development of granting private equityy fund access to more retail investors. We see these products are now commonly offered on neo-brokers.