Behavioral Finance for Private Banking, 2nd Edition

CHAPTER 12Fintech

We have already seen in chapters 10 and 11 that IT‐solutions can help to facilitate the advisory process. In this section, we give a general overview of an important transformation through which the financial advisory industry is currently going.¹ This transformation, called fintech, has a huge impact on the way financial advisors structure their wealth management processes. Fintech is an acronym for financial technology. For a long time, financial technology has facilitated asset management.

12.1 HISTORY OF FINTECH

Optimization problems like the mean‐variance optimization, for example, were defined such that they could be solved with the computers of the time. Note that solving the mean‐variance problem means to solve a linear system of equations, which was—based on the algorithm that Friedrich Gauss suggested in the eighteenth century—solved quickly given the technology of the 1950s. One might speculate what decision criterion Markowitz would have suggested if the computers at his time were more powerful! Also, the derivatives revolution of the 1970s would not have been possible without advances in financial technology. At that time, pocket calculators became available, which could evaluate the Black‐Scholes formula for option pricing. The main difference these days is that computers are regularly used not only by asset managers but also by clients. Smart phones and the internet have become commonplace. This latest stage of the fintech revolution thus ...