Rob Goldstein is the chief operating officer of BlackRock, the world’s largest asset-management firm with $5.7 trillion under management.
He heads BlackRock Solutions, the unit responsible for Aladdin, the firm’s signature operating system combining risk analytics, portfolio management, and trading.
Goldstein also leads the firm’s fintech effort, overseeing several recent acquisitions and investments.
- BlackRock’s acquisition of Cachematrix, which simplifies the cash-management process for banks and their corporate clients.
- A minority stake in Scalable Capital, a Europe-based digital investment manager.
- A partnership with UBS on Aladdin Risk for Wealth Management, an adaptation of BlackRock’s institutional Aladdin platform.
- An investment in iCapital, a fintech platform providing access alternative investments for high-net-worth investors and their financial advisers.
- The acquisition of FutureAdvisor, a digital investment manager.
BlackRock is also a huge player in developing passive investment products – funds like ETFs that passively track benchmarks at a much lower cost than actively managed funds.
Business Insider recently met up with Goldstein in his Manhattan offices at BlackRock headquarters to get a sense of where he thinks fintech and passive investing are headed.
This interview has been lightly edited for clarity and length.
Rachael Levy: Do you think that the robo advice, or wealth-management space, in terms of using these new tools for risk management and transparency — do you think that it’s becoming crowded at all?
Rob Goldstein: No. Just so you know, I’ve never been asked that question before. I don’t believe it’s becoming crowded at all. I believe that — I don’t think we should underestimate how much opportunity there is.
The way I look at it, if you think about, who’s the best in the world at something? In today’s world, if you just said, who’s the best in the world at building portfolios? At managing money? The reality is, it will likely be institutions and the opportunity to democratize tools, democratize data, democratize capabilities; that’s what technology is all about. I think we’re in the bottom of the first inning or the top of the second.
When you look at these cycles, there are a lot of companies that get flushed out in every inning, but I don’t think it’s at all crowded relative to the opportunity — forget about the financial opportunity — just the opportunity to help really bridge that gap. It’s tremendous.
Levy: The reason I ask that is I know there are several that come across my radar. You know, there is Personal Capital trying to expand into that space; Ellevest is specializing in targeting women. There are others I could rattle off, but that’s why I wonder on the consumer side if there’s ever maybe confusion with “What are all these new brands coming to market?” and “Why should I choose FutureAdvisor versus Ellevest, which I saw on TV?”
Goldstein: I answered, “Is it crowded from a business perspective?” If I said from a consumer perspective, it’s confusing from a consumer perspective, and I believe the winners will be people who have both established brands and have other services.
It’s confusing from a consumer perspective, and I believe the winners will be people who have both established brands and other services.
And we shouldn’t underestimate the importance of, if you are managing your investment portfolio, it’s sort of helpful to get a checkbook type of thing as opposed to each of these are stand-alone.
The reality is, from a consumer perspective, this is all one thing, which is, this is your money and how do you leverage your money to both live and achieve certain outcomes you are striving for? And I think that the more the various elements of that can be brought together, the greater the value proposition from a consumer perspective.
Levy: How does active management fit into this? If more people — you know, mom and pop, Main Street, however you want to call them — have access to better tools now, is there any role for an active mutual fund or a bond fund and how is it going to play out for active money managers essentially?
Goldstein: I actually believe better tools make it better for both funds that are trying to generate alpha as well as people who are trying to use index products to try to generate alpha.
Risk transparency doesn’t favor one investment strategy. It’s a concept that extends across all investment strategies. What’s interesting is that, in many regards, if you look at something like an ETF, it is a technology to just give you very efficient, cost-effective exposures. But even the way that people use ETFs are in the context of making active decisions.
And as we look at these capabilities, we think it helps to build portfolios blending the two because we believe very strongly it’s not a one-size-fits-all model in sort of one direction or another. We actually believe that it’s a fund debate, but it’s not a portfolio-construction debate.
Levy: So this doesn’t necessarily change money flowing to one type of strategy over another necessarily?
Goldstein: I don’t believe so. I think that the nature of risk transparency and technology, what it should do — and this is a point in time statement — if you look at this unprecedented liquidity, the numbers are staggering. Seventy trillion dollars. I don’t know what the most recent number is, but the last I’ve heard is sort of $70 trillion in sort of cash. It helps people migrate that savings to investment and, again, it’s very hard to achieve most financial outcomes through keeping your money in cash.
And if anything, if you look at the period from the financial crisis, and you know next year will be the 10th anniversary, for example, of Lehman Brothers, if you look at those that put their money on cash for that period or those who kept in their investments, I’m not saying the risk taker who bought a bank the next day. I mean, just if you kept at it recognizing investments are a long-term game, and particularly for retirement savings, longevity in terms of being able to invest, being able to save and invest over a long period of time is your greatest asset. The people who stuck with it relative to the people who didn’t have dramatically different outcomes.
Levy: And all the losses they would’ve remade and more, right? If you look at 2008 forward.
Goldstein: But even if they wouldn’t have had such a good outcome, you know the outcome has been extraordinary, but it still would’ve been — over a 10-year period — it still would’ve been greater than keeping it in cash. So I picked a good 10-year period because it’s the most recent 10-year period, but at the same time, just relative to keeping it in cash, over a long period of time through a cycle, that’s the right thing to do.
Levy: Can you speak to how BlackRock views active versus passive more broadly?
Goldstein: Sure. It’s incredibly simple in terms of how we view it in that our goal is to construct portfolios that achieve our planned outcomes. And we believe that often, in building those portfolios, you’re blending active management and you’re blending index product. We actually believe one of the greatest misnomers is this word “passive” because we don’t believe any investment decision is a passive decision. You could buy an index fund but you’re not doing that passively. You are making a judgment about asset allocation and other things that impact your portfolio. So when we look at it, we look at it really from, “What is the objective the client is striving for and how do you build the most efficient portfolio to get him or her or the institution to achieve that objective?” Most of the time, you see a role for both active product as well as index product in constructing that portfolio.
Levy: So you don’t think there’s going to be a “death of active” necessarily?
Goldstein: Not only do we believe there’s not going to be a “death of active” but I think quite strongly, we’ve been investing in our active businesses and we’ve been quite transparent and vocal about some of the investments that we’ve made.
Levy: In the sense of expanding them?
Goldstein: So for example, we’ve been very focused on how we could leverage — funnily enough, this could be its own technology discussion — but we’ve been very focused on how we can leverage technology, big data, and other concepts to generate more alpha in portfolios. That’s been a huge thrust of what we’ve been focused on.
Levy: In actively managed portfolios?
Goldstein: In actively managed portfolios, and obviously technology has changed so many things. I mean, look, you’re recording this on your phone. The whole thing is amazing, where the world is. If I would’ve told you 10 years ago you would have a device that does all those things, you would’ve thought I was crazy. And the irony is that when you look at the devices on “Star Trek,” what you have is actually cooler than many of the devices on “Star Trek.”
When you look at one of the major changes, it is this combination of the data that’s now available, the technologies that are available to analyze the data, and access to computing power at the price points that you can access computing power and put them together, the opportunities that creates to identify themes, trends, market paradigms is just — it’s limitless.
My sales pitch is very simple: BlackRock is a growth company. BlackRock is a growth technology company and we’re growing our technology functions. We have a very ambitious plan that we call “Tech 2020.” And as part of that, we are looking to extend the 2,000-plus technologists we already have within BlackRock. And we’re really excited about the opportunity to take a company like BlackRock, which is already, I’d say, at the forefront of technology in its industry, and, if anything, keep expanding that.
Levy: Do you anticipate buying more wealth-management-type startups? How do you see that being implemented?
Goldstein: It’s a great question. I see it implemented in a variety of ways. First is, hiring and building the current capabilities that we have. Engineers, analytics, financial modeling. The second is we will continue to look at opportunities to expand our technologies through acquisition. And lastly, we have actually taken, made investments in firms that we believe have interesting technologies that we think the notion of having some sort of partnership with can accelerate client outcomes.
Levy: Are these asset-management firms?
Goldstein: No, these would be — I’m in fintech land — so, for example, we’ve taken an investment in a company called iCapital, which is trying to democratize access to alternative investments. We’ve taken an investment, we’ve made an investment in Scalable Capital, which is the leading digital advice platform by far in Europe, so leveraging all three of those capabilities or tools, I guess, leveraging all three of those tools in terms of continuing to accelerate our technology capabilities.
When we see interesting capabilities that we think we could help the capability and they could help us, that’s what’s exciting to us.
Funny enough, I wouldn’t call it diversifying. I would call it extending our capabilities.
Levy: And would the common thread be that they all somehow cater to the Main Street investors versus the institutional? Cash Matrix is institutional, but the other three?
Goldstein: The other three, yes. The other three would be more on the wealth-management side.
I would just say that the starting point on the wealth-management side is such that there’s so much more opportunity to help relative to the institutional side. I think they’re in very different parts in terms of what the starting technology point is.
Levy: And that’s just because historically retail clients have been underserved?
Goldstein: No, I don’t think it’s so much underserved. I always had this saying, which is, in my career, I saw on the institutional side risk go from a nice-to-have to a must-have to a must-have-the-best. I saw that cycle on the institutional side. I think that on the wealth-management side, risk, they’re sort of in that middle bucket. It went from a nice-to-have to now it’s becoming a must-have.
And to be clear, it’s a harder problem in many ways on the wealth-management side because there are many more objectives that people are trying to fulfill. There are many more portfolios. There are many more constraints that you have within the portfolios. So it’s just a harder problem. I believe the new technologies that have emerged over the past two or three years — you know, the ability to access compute power at different price points — just a variety of new technologies have really unlocked the opportunity to do it at scale in a whole new way. It’s just a different scale factor.
With assistance from Raul Hernandez. This article was originally published on Business Insider. Copyright 2017.
Why private label banking apps and products are on the rise
Private labeling has long been a pervasive strategy in retail, where products are made by third party manufacturers and sold under a retailer’s name. The cost to manufacture is often much lower than reselling another brand name, resulting in higher margins and increased revenue for sellers.
Retailers who implement this strategy also maintain wholesale control of the brand, including packaging and pricing, which generates product exclusivity as well as promotes customer recognition of and loyalty to the brand.
Possibly the biggest benefit of private labels, however, is that they eliminate the pains of having to design and build a new product — especially when entering a new market. By outsourcing the entire process and leaving those details to the experts, sellers can instead focus on what they excel at: branding and marketing the finished product.
Because the benefits of this strategy are so multifaceted, it’s no wonder private labeling is moving beyond consumer goods and gaining traction in service-based industries. Businesses looking to develop new offerings and product functionalities can now easily outsource entire technology stacks and tedious regulatory administration.
As tech giants like Apple, Amazon, and Google deepen their financial services plays, banking and personal finance tools have become a prime opportunity for fintechs and smaller firms to leverage private labeling to compete, and for established players to unlock new revenue streams.
Here’s a look inside how private labeling is transforming the banking industry— and which products are on the rise.
What is white label banking?
White label banking is another term for private label banking or banking-as-a-service (BaaS), in which banks open up their application program interfaces (APIs) to let third parties build their own financial products with existing infrastructure. White label banking accelerates the builder’s go-to-market strategy by removing regulatory, legal, and technical obstacles.
White label banking services
White label banking services enable fintechs and third parties to showcase a sleek, company-branded frontend, while leveraging an established bank’s license, regulatory compliance, and technology on the backend to offer core banking features that rival major institutions’.
Common white label banking services include:
- Savings and checking accounts
- Current accounts
- Debit and credit cards
- Simplified bill payments
- Online payment transfer systems
- Personal loans
- Bank statements with transaction details
- Balance notifications
White label banking apps
Some examples of mobile banking apps built with white label features include:
- Albaraka Mobil
- Börse Stuttgart App
- Compte CO2
- Knotist business banking
- Nationwide Mobile
- Score Kompass
- Trade Republic
- Van Lanschot
- Vitesse Mobile
- Xero Accounting & Invoices
Future of white label banking services
Across industries, digital technologies are democratizing information to spur more competition and innovation. Because of this, the trend towards “open access” will only become more pervasive. In the banking industry, particularly, the open banking movement has been unfurling from its epicenter in the UK and stretching across the globe for the past few years.
White label banking and BaaS technology are no longer brand new technologies in the industry, but firms that get involved now will still be ahead of the curve by the time regulation becomes mainstream. The UK’s Competition and Markets Authority has already enrolled the nine biggest banks and building societies in its Open Banking Directory, and others are coming soon. After that, it won’t be long before other countries follow suit with their own regulations.
Per Accenture estimates, €61 billion ($70 billion) or 7% of total banking revenue in Europe will be associated with open banking-enabled activities by 2020. Incumbent banks around the world that invest in open banking platforms now – before it’s mandated – will be rewarded with new revenue streams, an early boost in demand, partnerships with tech-savvy fintechs, and an overall competitive advantage against newcomers in the space.
To stay ahead of trends like white label banking, Business Insider Intelligence is launching a Banking coverage area in September. Tailored for top decision-makers in the financial services industry, this vertical covers digital transformation across the industry, including open banking and BaaS, consumer and business banking, mobile and online banking, digital account opening, and neobanks.
This article originally appeared on Business Insider and is reprinted with permission. To read the original article, visit this link.
Measures to put the digital transformation of banks back on track
Banks were doing well with digital transformation in the early stages, but the deployment of digital banking transformation is slowing down as things move from IT departments to other parts of the organization, according to a new survey.
The survey from the Digital Banking Report indicates the second wave of digital banking, where technologies are being rolled out across departments, is not keeping pace with the first phase where technologies are selected and on-boarded.
As the report notes, cultural factors are the culprit impeding digital transformation and the solution is to use cross-functional teams to breakdown legacy silo perspectives.
Digital technologies to change the customer experience
While technologies such as artificial intelligence and automation are being applied across organizations, the next phases are likely to include greater use of cloud, analytics and blockchain to assist with data gathering and assessment. In addition, both the Internet of Things and augmented reality are being called out as technologies that will change customer experience.
Getting this right is important, since almost all of the banks surveyed said they were increasing the range of different digital technologies.
Four pillars for DX success
While cultural factors and indecisive leadership are presenting obstacles to digital transformation, there are measures that banks can put in place to help keep their digital strategies on track. For banks to be successful with digital transformation, the Boston Consulting Group recommends they focus on four priorities (what they term as pillars), including:
- Reinvent the consumer journey, using the example of how banks can become more like Amazon.
- Leverage the power of data. This includes looking at how data analytics can enable banks and credit unions to best understand consumers, plus to identify business opportunities and lower costs.
- Redefine the operating model. This involves striking the right balance between human interaction and digital and self-service functionality for consumers.
- Build a digital driven organization. Here digital needs to be seen as the new norm. To do this banks need to recruit the right talent, discover agile ways of working and construct an organizational culture that is willing and able to take risks.
Some banks have been successful with digital transformation. As an example, analysts at Forester single out BBVA, the Spanish bank, for balancing functionality and enjoyable user experience whilst maintaining the necessary security checks.
Unskilled staff threaten banks’ ability to digitally transform
Only four percent of bank business and IT executives believe that the impact of technology on the pace of banking change has stayed the same over the past three years, while 96 percent said it has either significantly accelerated or accelerated, according to a new report from Accenture.
This technological disruption has a large effect on how banks operate, and it seems unlikely that the pace of change will decelerate anytime soon.
Here’s what it means: Some technologies will have a bigger impact than others, but it will require substantial work from banks to stay on top of them.
AI is the most promising technology to transform the banking space. Forty-seven percent of respondents said AI will have the biggest impact, followed by just 19 percent saying the same for quantum computing and 17 percent for distributed ledgers and blockchain. The disappointing outcome for blockchain appears to be in line with recent announcements from banks: Citi has abandoned its plans to launch a crypto and Bank of America’s tech and operations chief has expressed skepticism on the benefits of blockchain.
Banks’ workforces appear to be at different stages in terms of tech savviness.Seventy-four percent of banking respondents either agree or strongly agree that their employees are more digitally mature than their organization, resulting in a workforce waiting for their organization to catch up. However, 17 percent of respondents said that over 80 percent of their workforce will have to move into new roles requiring substantial reskilling in the next three years, compared with only 5 percent saying the same for the last three years.
Additionally, banks don’t know as much about third-party partners as they perhaps should. Over one in 10 banking respondents believe that their partners’ security posture is extremely or very important, as well as that their consumers trust their ecosystem partners. However, only 31 percent of respondents say they know that their ecosystem partners work as diligently as they do, while 57 percent of them simply trust their partners and 10 percent hope that they are diligent.
The bigger picture: Banks need to prepare for a future that will require them to put in a lot of resources, and some might struggle.
To make the most of AI opportunities in banking, incumbents need to upskill their workforces. While AI is the most promising technology to transform the banking space, this promise can only be realized if banks have the necessary talent in-house to adopt new AI solutions. As such, they should make it a priority to upskill their staff to make AI transformation a success — which may be difficult for those players that have to upskill a majority of their workforce.
And banks need to up their security efforts since open banking is becoming a global trend.Open banking makes working with third parties more frequent. This will force banks to double down on their security efforts, as a security breach with their partners could affect customer trust in a bank’s overall services. If employees aren’t up to date with new technologies — including application programming interfaces used for open banking, and AI — they can’t keep a bank’s network secure.
This article was originally published on Business Insider. Copyright 2019.
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