“Thanks to pressure from fintechs, wealth management services are finally being forced to offer good products for their clients”: Novofina CEO Harald Helnwein interview

By Alex Hammond | 24 March 2017

Harald Helwein is one of the most well-known and respected wealth management figures in Central Europe, after whom an algorithm-based trading system is named.

He is also a strong advocate of clients getting a fairer deal from their wealth management services, which was the motivation behind launching investing fintech Novofina in 2013.

In an exclusive interview, Harald sat down with bobsguide to discuss Novofina launching in the UK, the role AI is set to play in wealth management, and why there is going to be a seismic shift in the way wealth managers will have to treat their clients.

Give us a summary of your career in fintech.

I’ve been in trading for over 30 years. I evolved from being a discretionary trader to a trader who relies on trading algorithms, for the last 15 years I have only conducted algorithm-based trading. In the German-speaking world world I am known as a trading system expert, the Helnwein Method is my well-known approach of how to develop a robust and practical trading system.

I always saw myself as being on the clients’ side, I was always a trader myself and I had a lot of friends who were in the same position as me. I saw a lot of people fail doing their own investments and trying to become active traders. I think I am still in business because I did it more conservatively and maybe more methodologically, not on gut feel but on fact.

Trading is not as easy as it sounds, you are not able to buy a book and become a super trader overnight. And the financial services industry is not your friend. Brokers look after their own commission and if they don’t charge commission they open their spreads. They know all the tricks and just try to hit the benchmark, even if the FTSE is down 7% and they are down 6% they’ll get a quarterly bonus and that’s all they care about.

That’s something I was really upset about, so the idea came to create something new in finance that would consist of trading algorithms offered in a really honest and transparent way with the lowest fees possible. That’s the mission behind Novofina.

Do you remember the moment that you switched from being a discretionary trader to being an algorithm convert?

When I was rookie starting to trade I bought a computer and eventually started to do some things with a little bit more of a mathematical theory. I went to the trading expert at the bank who was one of the top traders in Austria, I showed him my performance and he was impressed, he said nobody at the bank had the results I was showing him. I wasn’t even aware until then that what I was doing was so successful.

I sold the last of my discretionary portfolio in March 2000, soon after came the crash of the new economy and of the financial market. I could tell you that I foresaw everything and that’s why I sold it all, but the truth is that discretionary trading was something that I just didn’t feel comfortable with anymore. From then on I developed trading strategies, and I had good mentors as well that helped me.

What would you define as the USP of Novofina?

We are often referred to as being a next generation robo-advisor. That’s flattering but we don’t see ourselves as being a robo-advisor at all. For me what robo-advisors do is simply use online entered profiles that they then call algorithms, but are really databases that match that online entered profile with an ETF. And that’s ok as an approach, but it’s not exactly rocket science.

Just to have a database application with more or less a discretionary combination of ETFs is something that I am also critical of. They have external costs and internal costs, so it’s not just its .5% or 1% for the client because you have this other cost to add to trading fees.

We are a licensed asset management firms so we can advise clients and we do that, we have one-to-one conversations if clients want to. But then our trading algorithms trade each and every client’s accounts separately and in accordance with the trading algorithms that we have. The real brain power is in the in-house built trading algorithms.

There are no other hidden fees because we enter stocks directly for our clients so that the controller management is done by the algorithm, and the execution is done from our machines as well. We really do hard work and on a high-tech level.

And you’ve just launched in the UK?

We have now officially launched Novofina in the UK and we want to be very visible here as we personally believe that in spite of Brexit London is the fintech capital of not only Europe but actually the world.

We see that clients and prospective clients in the UK are very critical, which is extremely good. We want them to question us and question the financial system. And some of them will like what we offer, they’ll see that we play fairly, we operate at a high level, and they will see that our algorithms use artificial intelligence but not just because it is a buzzword, we have done that for ten years. We use machine learning for little filters and not for more because it’s critical to have practical systems.

AI is a big topic in fintech in general at the moment. Do you think that AI is currently not being applied as broadly as it could be to trading theory?

AI is overly-hyped in certain aspects, and in others it’s totally forgotten even though it could help. What I am sure about is that AI is a very important factor you have to consider nowadays.

What is important in terms of understanding for us is that it is difficult to find scientists who really understand what we want look to look at. A lot of scientists come to us from the world of artificial intelligence, they are great at what they do but when they build trading algorithms none of them beat ours in testing. That’s because there is something more needed to combine with their algorithms, but where it’s going to end is interesting for me.

What we always look at is minimized risk; we want to understand what is the real risk when we enter certain strategy. We would like to keep the performance at the same level and reduce the maximum drawdowns and the average drawdowns to achieve that goal. That’s one of our biggest goals. I think AI can help there for example, to take you out of a position at a better time.

I think there is a lot of things going on in AI in general, if you look at what Google and others have achieved it’s impressive, and I hope that we will also be at the forefront of AI development in terms of making it work in the financial services industry.

Sentiment analysis can be done using AI as well, that was always done in the past but there was no social media back then to run AI against. I am a little bit sceptical about how easy that seems though. Those people that have done that have not produced any good proof yet, the theory simply says if everybody talks about Apple and is bullish about Apple on Twitter for example, you can enter a position 50 milliseconds later and make money out of it.

That’s not how the financial markets work, because even if people are scared that the new iPhone isn’t any good the share price can still go up because every large fund in the world has Apple in it and pension funds buy it.

Do you feel we are on the precipice of major change in the wealth management market thanks to fintech? Will we ever reach a point where there will be no discretionary trading?

Absolutely, I’ve got no doubt about that. That sounds a bit radical, and let’s not confuse that with advice. I think that robo-advisors are not the final solution, people really want to look you in the eye and they need advice.

We need to talk to people and we are very successful at talking to people. That’s a big part. But then you have to sell the best product you can find. Today you would not sell a car without airbags or ABS, that’s the same with how things are going to change in the financial services industry. Sure you will have somebody who will explain to you that it’s time to buy a stock, or invest in gold for example, but if for a better price you could invest in something that was a gold-based algorithm that could trade gold futures for you in a much better way, even if it’s long only, that must be the preferred option.

In a couple of years investors will want to have that product, and not somebody advising them saying: “I went to an exhibition and everybody was talking about gold again.” Those days are over.

Unfortunately not everybody will come to Novofina, but companies like us will put pressure on the industry to produce better products. I believe that all the major players in the industry will still be there, they have so much money and they understand the technology, but they are now forced by the demand in the market and by the development of fintechs to produce good products for clients. That sounds strange to say it is a new concept, but for many fund managers and private bankers there has never been the sense that you had to work hard for your clients. That’s going to change.

This is why there is a huge sense of change in the financial services industry that won’t be stopped. I see it every day talking to clients, the fund managers at the big banks should talk to clients more and they would recognise it’s not a question of age, it’s not Millennials who demand more for themselves, it’s longstanding clients who are fed up with how they have been treated for decades. It’s a fantastic shift for the betterment of clients. 

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