Beverly Chandler, Wealth Adviser

Wealth managers face tsunami of change in digital age


Long gone are the days when wealth managers sat in elegant offices in the more expensive part of town, decorated like gentlemen’s clubs – all leather arm chairs, hunting prints and a small snifter at the conclusion of a meeting. While this might still be what some people want from their wealth manager, and indeed can still find, most firms are realising that these days the truly wealthy want a digital solution to their asset management needs.

And the wealth management industry is proving quite slow in making this adjustment to its offering. A 2018 survey from fintech firm InvestCloud reported that the investment management industry is drastically under-prepared to cater to the digital needs of the next generation of investors – not only in the US, but also in the UK.

Their study, ‘The State of Digital Investment Management: Adoption and Usage in 2018’, revealed that the vast majority of wealth managers (68 per cent) know they need to improve their digital technology to survive.

And we aren’t just talking the occasional email correspondence. Close to half of the investors interviewed used mobile apps to manage their investments and selected a wealth manager based on a firm’s digital proposition.

InvestCloud’s findings are supported by a boom in the search for chief technology officers (CTOs) at wealth management firms. Another survey, this one from administrative service providers Intertrust, found that 53 per cent of asset management professionals predict a surge in demand for board-level CTOs in the sector over the next five years as the challenge to find senior talent to leverage disruptive technology increases.

The biggest skills gaps, according to the study, are in artificial intelligence (AI), regtech and compliance, with 38 per cent of firms struggling to keep up with latest tech innovations.

However, change is slow to happen. According to this survey, only 18 per cent of wealth managers believe that by 2023 most firms in their sector will have hired CTOs with a mandate to drive strategic change, particularly by harnessing the benefits of technologies such as AI, blockchain and robotics. A further third (35 per cent) expect that a minority of firms will have done so.

The study highlighted the growing challenges faced by organisations exposed to a technology skills gap; four in 10 (38 per cent) of wealth managers admitted that just keeping up to date with the latest technology innovations was a challenge. The biggest skills shortages are in regtech and compliance (45 per cent), followed by AI (35 per cent) and cyber security (30 per cent). 

For InvestCloud, which supports more than USD1.7 trillion of assets, their solution comes in the form of a mock periodic table of over 300 apps, each designed to aid wealth advisers digitalise their businesses, allowing various levels of entry, depending on the wealth manager’s existing infrastructure.

And the drive to digitise has its own effect in consolidation within the wealth management industry. Andy Creak, EVP Business Development, at InvestCloud believes that over the next three years around 400-500 key wealth asset management businesses will choose digital partners, transforming their businesses from largely paper to a digital automated business.

But this development is likely to be more of a complementary thing, Creak believes. 

And there is a wealth of evidence that investors still like a personal relationship with their money manager, they just don’t want reams of paper to deal with. Efficient software in the mix frees up wealth managers to spend more time on building and developing a personal relationship with their clients.

Another study comes from Vanguard, who found in their 2018 Adviser-Client Survey, that traditional adviser businesses are using technology to become more efficient and competitive. Investment services such as investment report, rebalancing and asset allocation are being automated, allowing the adviser to spend more time on a personal relationship with their client, the firm says.

Gautam Samanta, Global Head of BFS at NIIT Technologies Limited is in an excellent position to view the changing landscape of wealth management business. Within the financial services sector, NIIT is primarily focused on asset and wealth management, working on 170 plus business processes with 1200 plus strong people who have deep domain experience. 

Samanta describes the level of change in the wealth management sector, occurring at the moment, as a tsunami. Assets continue to grow on the one side but face significant headwinds, he says.

The strongest of those is a big change in customer expectation. People are used to digital experiences, he says, and they expect that level of richness of experience within their interaction with their wealth managers.

This is true of baby boomers onwards, while Millennials are ‘digital natives’ who have not known a world without digital services so truly expect a digital solution to their financial affairs.

Samanta describes the gap between the laggards in the wealth management world who haven’t embraced technology as almost ‘a digital emergency’ because the gap is widening so fast.

A digital offering can take a wide range of forms for wealth managers. The growth and success of robo-advisers has been a bit mixed in the UK, but across other geographical areas they have proved to be successfully causing disruption and challenges to established players.

The robo-adviser firm combines a digital offering with competitive pricing, which makes them a strong challenge for gaining new business from all those digital natives, not enamoured of the paper report and the odd hunting print.

And beyond the practical application of digital tools to the investment part of the wealth management function, modern firms need to use digital tools, and increasingly AI tools, to fulfil their requirements for compliance and cybersecurity.

All of the studies reveal that firms who don’t keep up with those functions are liable to underperform and face consolidation in an industry that is seeing a great deal of merger and acquisition activity.

Financial services firms feature in the top five industries spending the most to recover from cybersecurity breaches. This is partly because wealth management firms hold truly valuable data on individuals, personal information and financial information, but may well have fewer resources in protecting them.

Wealth management firms who don’t take up the digital challenge are likely to face an uncertain future. 

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