Zero to One: Unlocking Wealth Management Narratives through Technology and Impact Investing

When we think about the future, we hope for a future of progress. Following Peter Thiel's "Zero to One" vision (he co-founded PayPal, Palantir Technologies and Founders Fund) it can take one of two forms:

• Horizontal or extensive progress: Copying things that work, going from 1 to n.
• Vertical or intensive progress: Doing new things, going from 0 to 1.

For example, if you take one typewriter and build 100, you have made horizontal progress. If you have a typewriter and build a word processor, you have made vertical progress.

At the macro level, the single word for horizontal progress is "globalization": taking things that work somewhere and making them work everywhere. The single word for vertical progress is "technology". There is no reason why technology should be limited to computers. Properly understood, any new and better way of doing things is technology.

It will always be easier to copy a model than to make something new. But unless companies invest time and resources in the difficult task of creating new technology, they will be exposed to the risk of becoming generic providers within their sectors and industries.

Redefining Wealth Management

The digital future has arrived and we must just accept that as the new way we must operate in the business. Private banks, which were already feeling pressure to revitalize, will now need to accelerate its transformation to meet growing expectations. So, how make the most of this model?.

According to McKinsey's recent report "The future of private banking in Europe: Preparing for accelerated change", strategic priorities should focus on:

As pointed out in the report, clients are increasingly demanding more timely and valuable advice (based on a more holistic view of their wealth). In order to respond to this challenge, firms should work in identifying the essential data elements capable of connecting what matters most to their clients with the solutions that will align them to that goal.

But once we've started collecting and combining all kinds of data, the next elusive step is to extract value from it. Although the data may contain enormous amounts of potential value, it will still be necessary to develop the knowledge (and vision) capable of translating it into concrete actions or business results.

To the extent that we are able to redesign the interactions between clients and their advisors, we will also be consolidating a more consistent client experience better prepared for a digital environment. Ultimately, it is about fostering engagement through a "scale personalization" approach across all client segments.

Noise and Signal

Over the last several decades, information as it's used in a business setting has become so abundant that it has, in many ways, negatively affected understanding.

Data alone, even in large quantities, lacks meaning. Unless information is attached to a more comprehensive story that allows you to build a deeper understanding of the issue, information alone will fall short of delivering value.

Data storytelling is a structured approach for communicating data insights, and it involves a combination of three key elements: data, visuals, and narrative.

It’s important to understand how these different elements combine and work together in data storytelling. To explain this classic scheme, I'll follow Brent Dykes' approach on this matter:

• When narrative is coupled with data, it helps to explain to your audience what’s happening in the data and why a particular insight is important.
• When visuals are applied to data, they can enlighten the audience to insights that they wouldn’t see without charts or graphs.
• Finally, when narrative and visuals are merged together, they can engage or even entertain an audience.

Storytelling goes above and beyond purely sharing the facts. A story creates a stronger emotional link to the data and elevates an analysis to the point at which it's more capable of influencing decision-making.

This new knowledge will undoubtedly allow us to consolidate our business strategy in an increasingly technological environment. In the same way, it will provide us with new opportunities to better understand and advise our clients.

In this context, Impact Investing is called to be a fundamental Wealth Management tool due to its ability to implement innovative impact measurement methodologies (data) thought powerful narratives.

Impact Investing: Aligning your investments with purpose

A theory of change articulates the intended changes for people, issues, and systems. It helps make explicit the connections and logic between activities, outputs (the short-term, direct results), and outcomes and impacts (the longer-term shifts).

When used for financial planning purpose, a properly crafted theory of change is the result of a creative, rigorous, and participatory process in which clients articulate both their impact tand investing goals.

So configured, the advantages of integrating a theory of change into traditional financial planning include:

1. Meet clients' growing interest in sustainability by incorporating their personal concerns and values into financial planning.
2. Gain a better understanding of clients and strengthen personal relationships.
3. Design hyper-personalized and scalable "value propositions".
4. Define a global Impact Investing strategy that makes the incorporation of ESG funds coherent into portfolios construction.
5. Turn reporting into a powerful communication tool with clients

One of the best examples of this strategy is included in the report "Impact Investing Handbook: An Implementation Guide for Practitioners" by Rockefeller Philanthropy Advisors:

People hear statistics, but they feel stories

Technology it’s going to give advisors the ability for their value added (and their trust) to be transmitted to far more clients, in a more consistent way and a more proactive way than ever before. I fully agree with April Rudin when she states that we are witnessing the birth of the "NextGen Wealth Management".

Wealth Management firms will need a cohesive larger vision in which they can integrate all of these new capabilities while inspiring clients to make the best decisions.

Howewer, we have to start with the "customer experience" and then work backwards to technology. It would be wrong if we take technology as our North Start and then try to figure out where and how are we going to used it.

Chess Grandmaster José Raúl Capablanca put it well: to succeed, “you must study the endgame before everything else.”

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This is a personal article which does not reflects any other opinion, position or statement.

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References and further readings

"Ultra High-Net-Worth Individuals (UHNWIs), Private Banks and Sustainable Finance": Smith School of Enterprise and the Environment - University of Oxford (2017)

"Impact Investing Handbook: An Implementation Guide for Practitioners": Rockefeller Philanthropy Advisors (2020)

"The future of private banking in Europe: Preparing for accelerated change": McKinsey & Company (2020)

"Your Financial Advisor Is Not That Into You...": Forbes - April Rudin (2020)

"Zero to One: Notes on Startups, or How to Build the Future": Peter Thiel (2014)

"Creating Impact: The Promise of Impact Investing": International Finance Corporation - World Bank Group (2019)

"Data Storytelling: The Essential Data Science Skill Everyone Needs": Forbes - Brent Dykes (2016)