The Difference between Signal and Noise that you must understand

Amar Pandit , CFA , CFP

Amar Pandit

A respected entrepreneur with 25+ years of Experience, Amar Pandit is the Founder of several companies that are making a Happy difference in the lives of people. He is currently the Founder of Happyness Factory, a world-class online investment & goal-based financial planning platform through which he aims to help every Indian family save and invest wisely. He is very passionate about spreading financial literacy and is the author of 4 bestselling books (+ 2 more to release in 2020), 8 Sketch Books, Board Game and 700 + columns.

One of my favorite blogs is Signal versus Noise (by the makers of Basecamp). They say that the blog is about “strong opinions and shared thoughts on design, business and tech”. Though the blog has nothing to do with our wealth management or the advisory business in general, the name itself “Signal Versus Noise” has a lot of relevance for all of us.

Can you think about some of the signals that you are exposed to? Take a minute or two and try to come up with some answers. I am confident that most of you should get it, but I am not sure how many actually follow the signals. Let’s first figure out the real signals that you are exposed to.

The pace and nature of regulatory change is one of the biggest signals. Just look at where the industry was before August 1, 2009. Think about all the changes that have happened since then. This has not only impacted your strategy, but also business models, organizational structure, skill sets required and so on. It’s no rocket science that the pace in this area will continue and thus there is an urgent need to look at this signal seriously and think about how you are going to handle this. Imagine the year 2030 and what would your firm look like? What do you think are the changes that would have happened on the regulatory front and which firms would come out as winners? Are you one of them?

The second biggest signal is the technological progress that is happening in this space. We are seeing many Robo Advisors, Hybrid Advisors (People + Tech) and many other innovations such as Artificial Intelligence, Machine Learning Algorithms and Chatbots coming into this space. The pace of this change will be much faster than the Regulatory Change and once again impact your strategy, business model, organizational structure (the type of team that you need to have), etc.

Every business WILL have to adopt Digital Strategy as a key component of their Business Strategy… I strongly believe that the correct formula for True Digital is as follows:

True Digital = Human Intelligence + Artificial Intelligence (HI + AI)

Yes, it’s always cool to talk about AI, Machine Learning, Deep Learning, Neural Networks, Blockchain, Cryptocurrency (I, at least, know the names ☺) but the real value of technology comes from how we utilize it in our business. The point is that you will at some point of time be forced to think about digital /technology (Change or Become a Dinosaur) and ways to adopt it in what you do.

The third signal is changes happening in consumer preferences because of all the experiences they are having because of brands such as Apple, Starbucks, and Amazon to name a few. Consumers are experiencing global products and services and are willing to pay a premium… Let me illustrate this with an example. Think about Starbucks Coffee and a local Udipi restaurant. Both serve coffee and in fact the Udipi restaurant serves better coffee… Where do you pay more? Like I have said previously, clients want a world class experience and preferences are changing.

Some of the other important signals are the nature of competition (Who is your competition?), the rise of the millennial customer, the rise of the industry SIP Book and the rise of our middle class (By 2030, India will have the largest middle class purchasing power well ahead of China and Europe in the second & third place respectively. Yes, I know China will have the highest GDP, but our middle-class purchasing power will be higher than that of China).

I am sure there are many other signals, but the point is not just to list all signals. The point is that you must take some time and reflect on these signals.

Now what do advisors do? They are “Obsessed with Noise”.

What is Noise? I have listed a few:
1. Markets Going Up and Down.
2. Wasting Time on Fund Manager Meets.
3. Large Cap, Mid Cap, Small Cap, Multi Cap and Other Caps.
4. Active versus Passive, and Benchmarks.
5. Products, Products and Products.
6. Returns, Returns and Returns.

The list is by no means exhaustive, but I am sure you are getting the drift of what I am saying. It is very easy to obsess and focus on noise but let me guarantee you one thing. This noise will make you feel Busy and Important but it will lay the seeds of IRRELEVANCE in the Future.

Stop this stupid obsession with Noise and Focus on the Signals. This one thing will help you to make prudent choices about building the firm of the Future. A firm that your clients love and is well respected by everyone in the industry…