Back in 2015 and starting with a blank sheet of paper, UBS's Nick Middleton and Shane Williams began to work together to build a "best-in-class" robo-adviser for the bank's customers with a minimum of £15,000 to invest.
An unintended consequence of changes to financial regulation in 2012 was that it had become uneconomic to serve these customers — a lost opportunity for businesses such as UBS.
Middleton and Williams applied agile principles to test their concept and launch on a small scale. The project was innovative, not only because of the low minimum investment, but also because of the technology used by the platform, UBS SmartWealth. The six-minute client "onboarding journey" (the original target was three minutes) relies on AI and a behavioural finance tool that uses dynamically changing questions and tipping-point charts to determine a prospective client's appetite for risk. Algorithms also examine people's real financial situation before a recommendation is given for a particular investment strategy.
Middleton and Williams brought very different skills to the table. Middleton, a private client adviser for 20 years, mainly working with pension, charity, and trust assets, was previously running the UK affluent business at UBS. Williams, by contrast, had varied experience that included developing drive-by-wire engine management systems at Ford Motor Company before running large, agile IT development projects and client-facing apps on mobile devices within the banking sector.
Since summer 2014 Williams has been involved in the UBS blockchain innovation group in Canary Wharf, London, and the wealth management innovation group in Zurich, Switzerland, which had been looking at the potential for robo-advisers.
The new investment platform needed to meet the "seemingly diametrically opposed needs" of a quick and convenient onboarding, while protecting the bank through the due-diligence checks of KYC (Know Your Client) and AML (anti-money laundering), explained Williams.
Demands on staff time limit the amount of due diligence that can be achieved manually. Automation can go beyond this to check public and proprietary data sources, said Williams. "We use AI and in particular natural language processing (NLP) for negative news. With AI and NLP, because the machine is doing those manual processes, it can do ... more far quicker. So, effectively, it reads hundreds and hundreds of pages through various search engines. ... We've also got internal services that we use that allow us to identify if there are people we might not want as clients because they have a criminal history, for instance."
Initially, Middleton and Williams pitched to the UBS Group Innovation Board and successfully obtained seed funding to hire a user experience (UX) design agency in London. From the very beginning, they were clear that the customer had to be at the heart of the new business.
Williams explained: "What we didn't want to do was take some of the things we already had and just make a nice interface on top. We really wanted to go to the heart of it and start with a blank sheet of paper and think of the customer — and build from the customer's point of view with no legacy. ... That doesn't mean we didn't want to integrate into the bank — and we have done that."
Having built the platform, Middleton and Williams got the full go-ahead for creating "the whole proposition of a business" from the UBS wealth management executive board. In just a year, between November 2015 and November 2016, the business, product, and team were built up.
Williams said that the team was built like a startup inside the bank, "with the same spirit of a startup ... the same ideas, and same processes and procedures". The team currently totals 70 people across disciplines that include UX, data analytics, business analysis, marketing, and client management.
He went on to explain how this startup spirit worked in practice. "We wanted something that's of the minimum viable product to market and then ... learn and very quickly give customers what they want.
"It also allows us to react to things that were happening in the market. In the UK there are a lot of robos — a lot of the incumbents now, a lot of the retail banks are starting to fire up robos to fill the advice gap."
Wealth management is clearly a global business, and SmartWealth a potentially global solution — many languages were built in from the start so that it could support a global rollout. A UK launch, however, was decided based on three factors, Middleton said. "We have this advice gap, which was created in 2012 with some new legislation that came in called the Retail Distribution Review — RDR as it was known. ... For a client it is very transparent what you were paying for, but for advisers it actually meant that the remuneration they were receiving for giving advice no longer covered the potential liability of having given that advice. As a result, a lot of people exited the space entirely, or banks just moved their minimums [investment required] up to a level at which point they could be remunerated properly for giving the advice and cover the liability."
In addition to this lack of investment advice in the UK, Middleton said that another factor that helped fuel SmartWealth was the progressive nature of the Financial Conduct Authority (FCA), the UK regulator. "The FCA is really leading the way in fintech regulation," he said. "They now have the sandbox so that people can try out different ideas."
"We also have the skillset amongst the population here in the UK to build this stuff. You only have got to take a 50-yard stroll up the road and you're into Shore-ditch and you're at Silicon Roundabout, and if you stroll into any of the coffee shops and say, 'Hey, I need a visual designer,' you'll probably get 50 hands go up."
Making an analogy with trainee pilots who are taught to fly on instruments where there is cloud or fog, Williams said, "Effectively we are always flying on instruments." He added: "Data is a big part of the business. [As] we don't have client relationship managers talking to people, we are very reliant on the technology and the data.
"So very early on a decision we made was to make sure that we captured data on every single aspect of the process. The term for it is 'instrument everything'. At any point or any interaction ... the data gives us valuable insights.
"We are reviewing data continually. We are tuning. We are finding areas of friction and improving the process all the time."
Middleton made a similar point: "Everything we have done is tooled to collect this information. A lot of very large incumbent organisations are probably very data blind. If they do capture stuff, they are not entirely sure what it means or what to do with it. Whereas everything we have done right from the start has been designed to capture that data."
The two "intrapreneurs" have relied on the support of UBS senior management, according to Middleton. "We have a lot of control functions here as part of the wider organisation, which are entirely set up to protect UBS, and if we just come along and tried to do this, then the white blood cells of the organisation would have swiftly shut us down. But ... to succeed we have very good support from all those functions to try to enable us to get out there quickly."
Key to success has been the dynamic way of working, according to Williams. "The important thing that we have done in UBS SmartWealth is really make sure all that team is together and they are all on the same level. ... And that's important for all companies to not treat the IT teams like second-class citizens. I come from the technology side. It's to make sure that you have just got a set of the best people working on a common goal and common mission, and everyone is really fighting to make sure it is successful."
5 tips for the would-be intrapreneur
Professor Harry Scarbrough researches the challenge of innovating in large corporate settings, and teaches intrapreneurship to the MBA class at London’s Cass Business School.
He says that many companies — like UBS in this case — are turning to intrapreneurs to create new ventures and inject innovation into established businesses. Being an entrepreneur is hard, he says, but intrapreneurs face a double challenge: finding a way through the maze of corporate procedures and politics as well as the external challenge of finding a market. What makes intrapreneurs successful varies according to the kind of organisation they are working in and how receptive it is to change. Experience to date suggests the following are good rules of thumb:
- Think like an entrepreneur — accept some personal risk and pursue opportunities aggressively, continually evolving your idea and scavenging resources.
- Create your own team — look for people with complementary skills to your own who are equally passionate about creating something new.
- Rely on your social network, not your job title — you are working off the organisation chart, so connecting to people across organisational boundaries can really help shape and sell your idea.
- “Frame” your idea — pitch it in a way that influential people will find compelling, not outlandish.
- Seek top management support — but at the right time. Reaching out too early may smother the vital spark of innovation.
Oliver Rowe is external affairs content manager for FM magazine. To comment on this article or to suggest an idea for another article, contact him at Oliver.Rowe@aicpa-cima.com.