Long ReadMay 4 2022

How technology is changing wealth management

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How technology is changing wealth management
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Clients’ attitude to technology is changing, according to the latest research from the CFA Institute. 

The organisation runs an annual survey among clients of professional advisers and wealth managers looking at trust within the industry. It found that a majority of clients now value “access to technology” as being of greater importance than access to a human, for the first time since the question was asked four years ago. 

Rhodri Preece, senior head of industry research at the CFA Institute, said: “We are seeing that clients view technology as increasing transparency, and so it increases trust in the industry as a whole."

While every other sector of the economy and society has been uprooted by the adaption of technology, the wealth management space has been something of a laggard, with processes based on telephone and letter still common.

But Jonathan Warren, head of innovation at consultancy Altus, says the pandemic and also general cost and regulatory pressures have caused companies to embrace technology, something which he says is already impacting both the companies involved and ultimately the clients. 

He says: “The effect of regulation in recent years has been to increase transparency around costs, which has created a price-conscious consumer, and consumers such as those are more likely to switch.

"That has led to wealth firms becoming more conscious of costs, and we are starting to see greater use of robotic process automation to perform simple but repetitive tasks such as taking data out of statements.

"But in addition to the cost efficiencies, there is also an element of improved service to the client, because using machines takes away the element of human error. And ultimately, clients want that first of all, they want the thing they are using to work as it is supposed to.” 

Personalisation

The second area where Warren says technology is having an impact is in terms of “personalisation.”

He says this impacts the client experience in two ways; the first is through the use of client management systems to live chat clients, and also set reminders of events such as client birthdays.

But also, he adds, “to have notes on a client's vulnerabilities and, for example, to have a note that says maybe that a client who is in a high-risk portfolio has a tendency to get worried when markets fall, and to be able to contact the client in real time about their concerns.” 

Preece adds that creating very tailored environmental, social and governance portfolios based on a client's specific interests in the ESG universe is made a lot easier by technology, as has the ability to buy securities that may be quite niche much more quickly and cheaply than has historically been the case, helping to drive the growth in this sector.  

He says this is one of the reasons why his survey found that trust levels in the industry have risen, as clients feel the investments they have now are more in tune with their own priorities. 

John Wilson, UK managing director at technology consultancy Avaloq, and who has worked on some of the largest re-platformings and other major technology projects in the wealth management space, says: “There is a tipping point where the additional processing power of the cloud and of machine learning creates new opportunities, particularly in portfolio creation and optimisation. 

"A combination of processing power and analytics can take on board a client's preferences and make real-time suggestions based on events in the market. There can be hyper personalisation of portfolios and in terms of what the client sees, the client interface." 

But he notes that human oversight of the machines remains an important priority, and this will remain the case in future for regulatory reasons, even as clients become more comfortable with technology. 

As evidence that clients are becoming more comfortable with it, he says: “A survey we ran recently indicates that around 70 per cent of European investors are comfortable with the use of artificial intelligence in advisory.”

Small pot problem 

Philip Milton, who runs an advice and discretionary management company in Devon, and has done since the 1980s, says technology has certainly meant costs have fallen for a business such as his, and enables his company to “effectively subsidise” new clients that have smaller portfolios.

"For example," he says, "we have some simple but sophisticated investment management and dealing systems that enable us to look after smaller clients so they receive the same care and attention usually reserved for larger ones, and with percentage-based costs without minima, so if we end up trading even, say, hundreds' worth of an asset, it is a piffling charge to them but it is part of a bigger deal. 

"I suppose too we discovered the benefits of a ‘platform’ well before that word was used, creating a system in 1987 and one which has evolved and improved ever since so we can use it as our tool to help us.”  

Warren says the ability to use technology to create a “hybrid” model, where AI can be used to risk profile and place clients in basic portfolios, but also have some element of human advice, will become the norm. 

He says the next stage in the evolution of technology in financial services could be the adoption of the principles of open banking into the wealth management space, with all of a client's financial information, including bank accounts and so on held in one place, allowing the wealth manager to provide a holistic service, as all of the financial information is readily available.  

Preece says technology has also served to mean individuals can have low-cost portfolios and trade using apps, which both serves to heap cost pressure on wealth managers, but also to mean the investors with small pots of assets have a new, alternative, route to building up a pot of assets. 

But Wilson says that technological advances can also help incumbent wealth management companies solve the small pots problem.

He says: “I think there can be cost efficiencies that will help firms work with a broader range of clients.” 

David Thorpe is special projects editor of FTAdviser