Capco Blog

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Via discussions hosted on the Capco Institute Blog. Members debate high profile issues, with frequent and provocative contributions from Capco thought leaders. For institutions around the world, how will the changing financial services landscape form the future of finance?

The content and opinions posted on this blog and any corresponding comments are the personal opinions of the original authors, not those of Capco.

Author: Edmund Cohen
Published: December 18, 2014

Investment in passive funds has grown from £17 billion in 2004 to £80.6 billion today, boosted by regulation and the global recession. Compared to the 1% fee charged by active investment managers, passive funds charges are often around 0.2% and can be as low as 0.07%. As passive Exchange Traded Funds (ETFs) and unit trusts grow, outflows from active funds and inflows into passive funds are likely to follow. How will traditional investment managers survive?

Active vs. passive
Charities, corporates, pension funds and individuals have trusted their ‘active’ investment managers (those that select stocks and bonds on behalf of clients) for the past fifty years. All over the world, investors take comfort from their investment managers’ ability to pick under-valued stocks (and bonds) and reduce portfolio risk - without compromising returns. However, whether investment managers actually achieve their objectives has fallen under the spotlight and the results are often disappointing.

Author: Matt Ricketts
Published: December 17, 2014

Lots of Questions, Plenty of Opportunities
With Christmas fast approaching it is traditional to reflect on the past year, sharing nerve-wracking stories of compliance deadlines hit with seconds to spare. But at our latest client-briefing breakfast, held in December 2014 at Capco’s new London office, we decided to dive headlong into the next big challenge looming large: MiFID II. We were joined by over 30 people from nearly 20 firms, trade repositories and vendors. The event was highly interactive, with plenty of debate from the audience.

MiFID – just how big is it?
MiFID II builds on many of the elements of MiFID I and overlaps significantly with other regulations such as EMIR, MAD 2, PRIPS and German Algo trading rules. The legal text for EMIR weighs in at a healthy 60 pages. The combined MiFID II / MiFIR text fills 550 pages (MiFID 372 & MiFIR 178 pages). As topics for conversations go, this is clearly one with plenty to discuss.

Author: Dan Jones
Published: December 15, 2014

It’s easier than you think
Creating engaging customer propositions demands an operational structure that is ¬fit to support. And the key word here is support. No operational design that credibly promotes itself as customer-centric at heart can be technology led. So what is the advantage of having truly customer centric operations? It’s a double win, for tomorrow (flexibility and future proofing) and today (true customer relevance). Tomorrow, systems designed and built with agility and flexibility in mind will be ready to accommodate the changing demands and preferences of customer without major re-engineering. Today, they predictably support service based on a deep-rooted understanding on what makes your customers tick.

This, finally, is the ‘Holy Grail’ of technology that actually reflects and enables the business that is paying for it. Often, when supporting rapid proposition development, the challenge is to implement operations quickly and without employing an army of back office staff, along with expensive new systems. The good news - in our experience, this can be done.

Author:
Alexey Sulima
Christoph Ferstl
Published: December 09, 2014

The financial industry has a great interest in estimating the equity return volatility. But given the wide range of estimation techniques available, how do industry practitioners decide which to use? And which estimator is reliable?

Estimate this!
Volatility, which gives an indication of share-price fluctuation, has a number of applications. In portfolio management, volatility is considered as a criterion to buy or sell an asset. In risk management, volatility can be used to calculate margin requirements. Volatility can even be traded as an asset itself. Financial practitioners looking to estimate the volatility of a certain stock are confronted with the following problems:

Author: Nic Parmaksizian
Published: December 08, 2014

Rewarding customer loyalty
How does a new bank (or any bank) attract and then keep its customers? Offering the lowest savings rate or the longest balance transfer deal may work short term. But can lasting loyalty be embedded through tactical attractors alone? And how does a challenger bank grow their customer base and their portfolios through the art of cross-selling? The answer is simple – create an eco-system.

At the heart of every challenger bank’s offering should be something to make that proposition ‘sticky’ - a unique aspect that represents the brand values. The brand in question could be luxury, recognised all over the world and renowned for unrivalled customer experience. It could be a local community brand that focuses on ‘down to earth’ service, based on intimate customer knowledge. In both cases, the DNA of success is the same. And the route to effective cross selling may well lie in a rewards-based customer loyalty scheme, embedded within the bank’s core.

Author: Arunima Haque
Published: December 05, 2014

Wealth management is increasingly seen as a profitable new arena for non-wealth firms. While technology companies are the obvious candidates to branch into the wealth management space, media companies that are known for their print journalism are showing signs of taking the lead. Will print journalism, seen by many as a rapidly declining industry, sustain the move into wealth and gain the status of a regulated advisor?

Both technology and print journalism have loyal customer bases and strong brands. But print journalism has the additional advantage of being able to avoid some of the privacy concerns associated with large technology companies.