Digitisation is needed for wealth managers to ‘totally re-engineer their operations’ says fintech firm Nucoro.
The firm estimates that over GBP20 billion of high net worth individuals’ investable wealth could be passed on to their loved ones every year, but as many as 80 per cent of wealth managers don’t have an existing relationship with these beneficiaries, who are often millennials who do make use of technology in all aspects of their lives, including managing their money.
Nucoro estimates that on average around 84 per cent of companies fail at digitisation projects. The digitisation of the wealth management sector needs to go beyond simply moving physical into digital, Nucoro says, and fundamentally rethink products from the conceptual to execution.
The report finds that this is being driven by the rise of automation facilitating scalable growth, and the transformation of customers where their expectations, needs, behaviours and demographics are changing.
Nikolai Hack, the COO and UK MD of Nucoro, says: “As with any investment in a financial business, a central motivation should be to ultimately produce outcomes that can benefit customers. Adopting bolt-on enhancements like digital customer experiences or automations for back office functions are the best routes to upgrading the services to existing and potential clients due to their accessibility, scalability and affordability.
“Wealth managers must embrace technology. The industry is heavily regulated, and it therefore faces a large administrative burden, but technology can minimise the time and resources spent on tasks that are very basic but high in volume.”
The report says it is now realistic to consider direct to consumer robo-platforms as legitimate industry challengers. By the end of 2018, they were managing USD257 billion, and this could grow to USD1.26 trillion by 2023.
Meanwhile, while tradition still reigns supreme in wealth management, Nucoro says, there are major indications that the next decade will see technology driven services enjoy strong growth. Taking an example from another industry, looking at the banking and payments market in Europe – new entrants (including challenger banks, nonbank payment institutions and big tech companies) that entered the market after 2005 now amass up to one third of new revenue, despite only taking 7 per cent of the overall revenue.
The cost of financial advice is demonstrably pricing out large sections of potential clients, Nucoro says. A report in 2018 found that more than 40 per cent of financial advisers has been forced to review their charging structures in the first half of 2019, the report says, representing a huge threat and opportunity for wealth managers.
Beginning around 2030, an estimated USD4 trillion of wealth is going to be passed on to millennials in the UK and North America from their parents.
“However, only some 20 per cent of UK advisers currently have an existing relationship with their current clients’ beneficiaries, many of whom are millennials. This means that digital and mobile first access will become more universal as the younger generations mature. Digital finance is a highly effective engagement tool for younger generations.”
Hack says: “An unprecedented transfer of wealth is expected to be served by a shrinking pool of advisers. They will be dealing with a client base that is likely to need them to become more flexible and deliver a more modern and personal service.
“This could mean more agile tech-driven firms will need to fill the gap. Alternatively, the existing firms could push to streamline their operational functions and manage overheads – cost cutting essentially – while handling an influx of orphaned clients at the same time.
“For the next generation, their needs and expectations are centred on interacting with their finances via digitally accessible platforms that link their money, their everyday lives and their goals to the future. Greater customisation of service levels will also be key here.”
Finally, Nucoro comments that the amount of regulatory change that regulated organisations must track on a global scale has more than tripled since 2011 and good technological solutions can help wealth managers carry that burden.
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