Your Quarterly E-Zine
Edition 11 • December 2019

This website contains the latest edition of Forsyth Barr Focus, a quarterly on-line magazine written by senior members of Forsyth Barr's investment team.

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MICHAEL DAYMOND-KING

Following a very distinguished career in both the financial markets and technology industries, Michael Daymond-King is tasked with enabling Forsyth Barr to take full advantage of new technologies which can help investors achieve their goals. We put Michael on the digital spot with a few questions.

“Digitalisation" is being called a global “mega-trend”. But what is it and how is it changing society?

The short answer is “in many ways.” The most obvious is in the ‘de-materialisation of life’. Put it this way, how many young people own a camera? Does anyone use a fax anymore? Or a Filofax? A desk calendar? Many offices I visit don’t use a PABX system or even desk phones; no company uses a typing pool, let alone a typewriter!

With de-materialisation comes de-monetisation; what do all those companies make any more? Note how little it costs to have all these capabilities in the palm of our hand. The latest A12 chip in the newest iPhone has 6.9 billion transistors on it, each transistor the size of the length your fingernail grows in 7 seconds!

The exponential growth of businesses leveraging the internet, and the hardware and software made possible by it, are changing the face of the planet. We have a very interesting decade ahead of us. The reduction in the cost of hardware enables access; it brings the world to people who were previously unconnected. We will see a massive explosion of new ideas, new art, new business out of these masses of newly connected people.

When we realise that the current boom in human growth due to the internet has been experienced by less than two thirds of the planet, and we have in the region of 2 billion people “who haven’t bought anything yet”, that’s a seismic shift in society right there. It won’t be their governments which enable this growth, it will be private (global) companies interested in the data, interested in bringing these people to a new marketplace.

What excites you most about the change that technology brings?

Technology enables access, and access equals democratisation. For instance, the reduction in costs of Research and Development for healthcare, and its vast possibilities for doing good for the human condition through access to better healthcare. In the year 2000, it cost $100,000,000 to sequence the human genome. Now it costs around $1,000.

That exponential cost reduction has been matched by an equally dramatic increase in performance and the democratisation of access to the benefits.

Why has "Artificial Intelligence, also known as AI, become such a focus for businesses worldwide?

Understanding how AI can help us augment the skills and creativity of humans will likely be the key to success for a business in the 21st century.

The world of AI encompasses the subsets of Machine Learning (ML) and Deep Learning (DL). Rather than using human “past experience” to learn, we let the machine use data as “past experience”, allowing it to learn (program itself) to achieve the outcomes we want. Therefore when faced with vast sets of data which would take a human eons to code a solution for, we can have the machine do it in a tiny fraction of the time. Very powerful.

Can AI help investors achieve their goals?

In simple terms it can; it can augment a human, or a set of human inputs, to achieve the desired outcome. There are many possible applications of AI and it will take financial market players some time to get to grips with its ideal use (a little like the telephone and later the internet did for investors).

What's your view on so-called "robo-advice"?

Robo-advice has its uses for people with simple financial lives or those for whom the digital world is natural, when ringing someone and talking to them isn’t. As consumers of financial products, we see it more and more in the way Banks and Government agencies interact with us. As customers of these services, we do all the interacting; effectively self-service. For the ‘self-service native’, robo-advice makes great sense. Statistics NZ figures show that in 2020, 50% of the working age population will have been born since 1980. It is highly likely that for these people robo-advice is the answer for a savings regime that they will be comfortable with.

How is technology transforming financial markets?

Globally it is reducing the cost to serve and improve the service we can offer clients. In the 90s it was the “straight through processing” of transactions in the wholesale markets that started the journey for client-facing organisations to take this learning to a wider audience; frictionless transactions and transparency of information previously held behind walls, available at your fingertips.

Another buzz-phrase is “algo-trading”. What is it and will it become more prevalent in markets?

Algo-trading, or automated trading based on a set of parameters defined or explained by an algorithm, is already with us and will be for some time to come. The key skills now required in most of the global trading powerhouses is programming. Globally, the number of equity traders has reduced by at least 75% and will continue to drop, as more trading is automated.

Are there any risks associated with the widespread use of new technologies in financial services?

Yes, without question, but there always have been. I am particularly interested in the impact of technologies introduced since the late 1990s through the early 2000s have had on market liquidity. New rules implemented since the GFC in 2008 have made it harder for trading houses and banks to hold positions in the global bond and equity markets, and this leads to a liquidity crunch at volatile moments in the markets.

In your view, will the world of 2030 be fundamentally different from the world of 2020, due to technology?

Definitely! We are embarking on the most transformative decade in human history. The world has become so complex, and this is due to the convergence of technology and globalisation embarked upon since 1945 and accelerated in the internet age; I doubt anyone fully understands the implications. We all struggle to connect all the dots at the best of times.

Imagine what can happen when the traditional sources of wealth, “power over access”, begins to change. Access to oil, commodities, education, information, and services are disrupted by cheap or free energy and ubiquitous broadband.

A government may not like that you use free broadband beamed from low earth orbit satellites, but won’t be able to do anything about it. A small improvement, relative to where we have come from, in the performance of battery technology, and that we will all be able to have self-generated solar-powered homes and cars. What will that mean for energy companies? What will be the impact on countries whose armies defend and protect the world’s energy countries and supply routes?

What are some of the main opportunities for Forsyth Barr to help clients through smart use of technology?

Currently, we are on a significant upgrade path; a programme of work which will enable us to serve our clients better digitally, bringing the adviser closer to the client via the use of well-tested technologies.

Many of us forget that, over the past 15 years, we have all been on a massive re-learning journey. Little-by- little we have learned to ask Google for most facts, been happy to let Amazon or Netflix help us with book and entertainment selection, and allowed Facebook to build our photo “memory” album.

Digital experience can now come to the financial world, all the while keeping our core goals intact: securing the financial protection, growth, and well-being of our futures.

Michael Daymond-King
Head of Innovation

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