Many businesses are struggling against a wave of digitisation in the wealth management arena – once called ‘one of the least tech-literate financial services sectors’ by PWC – driven by the rise of robo-advice services.
Although it is now more vital than ever for traditional wealth managers to embrace technology, historically many have, incorrectly in our view, not prioritised this essential factor for both customer engagement as well as operational efficiency.
Key Points
- Many businesses are struggling with digitisation.
- Family members of HNW individuals often ditch their advisers.
- Wealth managers can outsource to digital providers.
This reticence to adopt technology has been compounded somewhat by the fact many traditional wealth managers have viewed the failure of many robo-advice models recently as a reason not to enhance their tech proposition.
This is a big mistake in our view as wealth tech should be seen as an enabler for their operations and client relationships team, significantly improving efficiency, as well as providing a much more engaging experience for their clients.
Need for digitisation
For many years, wealth managers struggled to embrace technology in the same way as other areas of the capital markets industry.
The arrival of the ‘internet of things’, including the prevalence of mobile and internet banking, means the new generation of wealth management clients expect 24/7 access to real-time reporting, account management and portfolio overviews accessible in any location.
Despite this, due to increasing regulatory costs, most wealth firms now have a suboptimal book of smaller client portfolios. Digitisation provides a clear solution to this need for an alternative and more cost-effective way of managing client money.
Many robo-advice services bypass the issue of managing smaller client portfolios and digitisation partially by investing client funds into one of a limited range of passive-driven portfolios and providing a basic digital service.
What they do not do is offer the end-to-end service provided by traditional wealth managers.
This includes everything from hand-picked portfolios managed proactively by a team of investment experts, to detailed, customised performance reports and efficient and secure client onboarding services.
Overwhelming task
The need to bring the full wealth management experience into the modern age is apparent yet the task can seem overwhelming. However, off-the-shelf services can allow wealth managers to digitise at their own pace.
For example, many of our larger customers wish to maintain control of their clients’ investments and custody, but want to outsource some specific elements of the pure wealth technology side of their operation.
A typical example is the process of onboarding a client, something that is hugely time-consuming, expensive and generally frustrating for both the wealth manager and, importantly, the end client.
We believe that the cost of onboarding or repapering a £200,000 client account would cost around £2,000.
However, by using a quality technology provider as a partner, this cost can easily be halved by automating much of the information collection and validation and allowing the advisers to focus on the matters that really add value to the client.
In addition, regulatory risks should be mitigated by having a more consistent company-wide approach.
Digitally minded new clients
A recent report published by research firm GlobalData found that more than a quarter of high-net-worth individuals’ children cut ties with the wealth manager used by their parents when they inherit.
To avoid this fate and make the most of a clear opportunity for new business, wealth businesses must ensure they adapt to meet the needs and expectations of tomorrow’s tech-savvy and more demanding investors.
According to the report from GlobalData – titled ‘Intergenerational Wealth Transfer: Seizing the HNW Opportunity’– a mighty $8.6tn (£6.7tn) of global HNW wealth will pass down generations over the next decade.
Unlike their parents, the younger family members receiving this money are likely to have grown up in – or at least have lived much of their lives in – an era of global digitalisation.
Having matured alongside the internet, most, if not all, of these individuals now live many aspects of their lives digitally – be it entertainment, shopping, communication, or even hailing a cab.
This upbringing has also influenced the values held by tomorrow’s investors, with younger HNWIs placing much more emphasis on social media and digital channels than their parents.
Likewise, the report found that HNWIs under 40 are more likely to work in ‘new’ industries given renewed prominence by technology’s rise, such as media and telecommunications.
Just like their career choices, the next generation’s expectations have been heavily influenced by their digital experiences when it comes to their personal finances.
Specifically, the rise of mobile and internet banking means younger wealth management clients now expect a fully digitised offering.
For example, we know of one retired client who loves the chance to visit his bank to chat about markets and his investments.
However, his daughter – who will soon take control of the family account – hates the old-fashioned approach to investment updates.
While she wants the ability to speak with an adviser when required, she also demands 24/7 digital access to real-time reporting, assessments and portfolio overviews wherever she may be.
Indeed, GlobalData research found that a sizeable 28.3 per cent of HNW clients’ children discontinued the relationship with their parents’ wealth management upon inheriting.
Those wealth managers who cannot meet the digital needs of the next generation of investors risk becoming less relevant, less competitive and, ultimately, facing a client exodus.
Conversely, those companies that integrate technology into their offering not only reduce the risk of losing existing client relationships, but also prime themselves for picking up the business lost by less tech-savvy peers.
‘Off-the-shelf’ solutions
‘Going digital’ is no doubt a daunting task for wealth managers.
Aside from the high cost of developing an online service in-house – both in terms of finance and time – the rise of low-cost robo-advisers has priced many established financial institutions out of the lower end of the market.
A way of sidestepping this issue is to place the task of digitisation into the hands of a specialist wealth technology provider.
These companies dedicate themselves to creating online solutions using the latest technology that can deliver low-cost, market-leading products in a short space of time.
Typically cloud-based and accessed via application programming interfaces, these solutions can easily integrate into the wealth managers existing systems and advisory processes.
As such, wealth managers who outsource can leapfrog their competition with a product that is both more sophisticated than a robo-advice service and cheaper and quicker-to-market than one developed in-house.
As the amount of wealth being passed down to the next generation of investors continues to rise, wealth managers cannot afford to get left behind.
Simon Clarke is chief commercial officer at Tiller Technologies
