Wealth management industry set to evolve
Taras Rybak (pictured), Co-founder of Wealthinity and Head of Investment Solutions of Fusion Asset Management believes that digitalising the wealth management sector will come through evolution, not revolution.
In previous decades, the wealth management sector was dominated by large universal banks and institutions that used economies of scale, accumulated massive financial resources and had broad customer bases.
These were also vertically integrated businesses that had and did everything in-house, from trading, research and investment products to proprietary software and systems.
In more recent years, however, the development of technology has changed how companies operate, meaning the number of participants within the market is growing.
As a result, a new breed of smaller and more specialist firms have developed, focusing on what they do best.
They are faster to adapt to innovations than their larger counterparts, more flexible on price, can target niche audiences and open new markets, all of which has been made possible by their willingness to embrace technology.
Many today talk about the “revolution and disruption” created by Fintech, but the reality is that large and small players cannot exist without each other and must utilise technology to work together in building on the services that the sector already provides.
We at Wealthinity strongly believe, therefore, that digitalisation of the industry is not about revolution but is instead about evolution and improving the existing financial system, rather than disrupting it.
A good example of this evolution is the blockchain, a string of digital records called blocks that are connected through cryptography.
At the time of blockchain’s introduction, many predicted the death of the traditional financial system, but after several years the largest adopters of this technology had become traditional financial institutions such as banks, exchanges and clearing centres.
Technology, therefore, is empowering smaller financial advisers, wealth managers and private banks, allowing them to compete with and challenge big firms.
But how exactly has digitalisation helped to evolve the wealth management industry?
Advisers can now automate non-core tasks and spend more time with their clients, which should be their top priority.
Today, only one in seven advisers spends more than 40 per cent of their time with clients – this needs to change, and technology can help.
Many non-core activities, such as back-office, Know Your Customer (KYC), Anti Money Laundering (AML), risk-profiling, reporting or analytics are now sold as technology services, and wealth managers can use third-party providers to do all KYC and AML checks and manage all their other back-office operations.
With digitalisation, wealth managers have access to a wide range of investment products to suit their clients’ needs, ranging from low-cost exchange-traded funds to mutual funds and structured products.
They can also utilise the best asset allocation methodologies developed by academia and the largest investment houses and have an opportunity to use a pre-built range of portfolios from third-party providers or create their own using the latest portfolio construction tools.
Every wealth manager or private bank needs the type of sales-trading coverage that was historically provided by large investment banks.
Before, this presented a challenge for smaller and mid-sized firms as they were not big enough and too uneconomical for larger banks to service them.
Technology has helped to change this, and smaller firms now receive good coverage from digital players.
Wealth managers can integrate with large numbers of service providers, from large custodians to niche asset managers and technology providers can offer a wide range of services to their clients all in one place, to an extent where clients often don’t even notice which services are done in-house and which are outsourced.
As a result of all this, client experience can improve and drive business growth for wealth managers, whilst enabling clients to become more tech savvy.
The onboarding process is now automated, takes minutes and can be done via mobile, and clients have access to a broad selection of investment solutions from the very best investment houses and can still be serviced by smaller firms and advisers that they know and trust.
With Wealthinity, we are taking the first step towards building a digital investment bank that focuses on smaller institutional clients, servicing them with digital tools and offering low-cost services by consolidating flow in curated choice products.
We provide ideas on portfolio and client proposition using existing products from many providers and help asset managers and bankers to offer and run their services more efficiently and profitably.
Wealthinity is aimed at democratising wealth management and providing smaller players with a more level-playing field.