Client expectations still outpacing wealth firms' digital capabilities

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The global Coronavirus pandemic has accelerated the need for wealth managers to address the gap in meeting their clients’ digital expectations, according to the latest Wealth Management Digital Readiness Survey from asset and wealth management consultancy Alpha FMC.

The study, which surveyed some of the largest wealth management and financial planning firms, collectively managing over GBP1 trillion in AUM, finds that firms are now acutely aware that they must swiftly accelerate their digitisation agendas in order to be relevant to their clients in the post-Covid world.

An overwhelming majority (75 per cent) of firms now consider digital a top or high priority area and just under half (38 per cent) predict that their firms’ digital spend is set to increase over the next year. This represents a significant shift compared to 12 months ago, when Alpha FMC’s 2019 study showed that 64 per cent considered digital a top priority and just over a quarter (27 per cent) were increasing budgets.

Reducing the cost-to-serve, increased client expectation, and the push for scale are seen as key drivers of digitalisation across the sector, and the impact of Covid-19 has exacerbated existing demand as firms report widespread adoption of their digital channels.

Secondary drivers are the threat of competition in the industry, new technologies, and the regulatory burden. Pressure on fees, whilst important, is not top of firms’ priorities at present.

Two-thirds of firms (67 per cent) say their main digital focus is to improve the client experience.

Firms recognise that the biggest benefit of further digitalisation will be improving the client experience and consequently improved onboarding, smoother annual reviews and a more personalised service are their top ranked areas of focus. Firms also highly rank the client retention benefits of digitisation and recognise the increasing importance of the efficiency gains and scaling capability that digitisation can bring with it. Prime areas to benefit from greater automation are highlighted as client reporting, suitability/goal setting, KYC and client servicing.

Despite improvements in digital strategies over the past 12 months, the pandemic has stress tested the digital capabilities of many firms, highlighting to some that they might not be as far along their transformation as they previously thought. As firms take stock in the wake of Covid-19, less than one quarter (23 per cent) think that their existing digital capabilities meet client expectations.

Alpha’s research shows that part of the cause might be confusion or a lack of clarity around the responsibility for Digital in a firm. Nearly two-thirds (61 per cent) of firms indicated that the digital agenda was owned by Technology & Change, only 8 per cent had a dedicated Chief Digital Officer, and in no firms did Marketing & Customer Engagement take the lead.

While the pandemic has put digitalisation at the top of the agenda, legacy technology continues to be seen as a barrier to firms achieving their digital goals, closely followed by the culture, organisation and governance of firms not being sufficiently supportive of the transformation.

Once underway, the biggest threats to making good progress with digital initiatives are a lack of good quality data sources; 81 per cent of firms do not have a single source of data for key items and 66 per cent feel they rely too much on Excel and email to process data.

Commenting on the findings, Kenn Taylor, Head of Wealth at Alpha FMC, says:  “It is clear that firms have had to react fast to the increased remote client servicing forced on them by the Covid-19 pandemic, and it is to their credit that they have managed to step up so quickly. However, our research reveals that, despite the priority that firms put on improving the customer experience, there is a long way to go. It is clear there are fundamental building blocks which need to be tackled by wealth managers if they are to make better progress to close the gap on their client’s expectations.

The digital focus for firms continues to be the frequent client touchpoints of client reporting, annual reviews and servicing, but they have also worked out that there are significant cost benefits in digital automation, although this is largely front office orientated at present.

“Firms have long struggled with their legacy technology estates and we see most of the leading wealth managers making progress with large investments to address the issue. However, tackling the uncontrolled use of Excel and getting better discipline into their data mastery and governance will enable the industry to make further progress to close the yawning gap between their own capabilities and their clients’ needs.”