A change in investor demographics. A new generation of clients who expect more than convenient, functional, and seamless experiences. Years of underinvestment in technology that’s resulted in an urgent need to create a digital ecosystem that will propel differentiation in the market. Cybersecurity threats that keep relentless pace with emerging technological innovations.
These are but some of the challenges facing wealth management firms as they seek to advance the wealth technology (wealth-tech) they need to serve personal and institutional clients. For those who are able to keep up, such developments in wealth-tech have been creating winning market opportunities.
The wealth industry has undergone changes through waves of innovation. The earlier insular, product based, in-house technology has given way to a DIY investor era, focused on more involvement and interactions by wealth firms with their clients, different client segments and providing them with digital, self-serve solutions.
With rapid advances in technology over the years, as wealth-tech’s influence and adoption rate by wealth firms increases, the time between each new wave of wealth technology innovation decreases. This makes it imperative for wealth managers to focus their efforts on initiatives that help them capitalize on these innovation waves, and that starts with keeping informed of current wealth-tech trends.
To help industry leaders stay current and position themselves to succeed, we have identified five strategic initiatives they may want to pursue.
The five strategic initiatives
The client experience has been the prompt for the digital transformation journey of wealth management companies. Digital leaders have typically invested in making the experience one that is convenient, functional, and seamless, qualities that have become staples of client expectation.
Next-generation clients, however, are looking for more. They want:
Clients these days expect an exceptional experience that’s tailored to their needs, regardless of the channel or area of the organization with which they’re dealing. To earn a few quick wins, wealth-tech leaders could consider enhancing the following areas:
With a technology debt caused by underinvestment by both vendors and wealth managers, there’s a real urgency to create a technology ecosystem that will help wealth firms compete and differentiate themselves in the market. This is especially the case for internal systems, which cannot be quickly established without significant upfront investment.
The ability to form partnerships with vendors, businesses, and clients beyond a wealth manager’s domain is a true driver of digital transformation. It can help managers simultaneously achieve multiple goals, such as filling product gaps, strengthening distribution, and exploring new value streams. As an example, values that have previously been too challenging to reach can now be unlocked thanks to next-generation wealth-tech, which can extract more meaning from existing processes and data.
While many wealth-tech ecosystems are currently available on the market, no single one suits all purposes. Wealth managers need to implement the right network for their organization. This decision starts with some key questions:
Trending core technology considerations include:
Firms are evolving their performance measures and incentive structures due to the importance of advice-based wealth management, leading to advisors being measured by whether they meet clients’ goals rather than beat market benchmarks.
The long-term relationship between clients and advisors is also changing, becoming less transactional and more like a partnership. Advisors have a great opportunity to strengthen these relationships by stripping any bias from their advice quickly and consistently through advanced data- driven intelligence, thereby becoming trusted partners. This would create options for clients, such as portfolio optimization, that would not be possible without data and advanced intelligence and modelling capabilities.
With the help of various third-party systems, wealth firms are now developing more descriptive and predictive analytics that combine internal and external structured and unstructured data to create more complete, insightful client profiles. This enhanced insight will allow firms to assess the propensity of existing or potential new clients to purchase various products and services, a client’s lifetime value, investment style, and risk tolerance.
To date, the industry has identified only some of the benefits these new analytical capabilities could hold.1
Most WM core processes will be impacted by advanced analytics
Business performance management
Client acquisition
Client retention
Client sales
Client advice
Supervision
Cybersecurity is one of the biggest challenges facing wealth-tech firms today, with cybersecurity concerns evolving as quickly as the tech innovations themselves and testing best practices in the industry. Meeting cybersecurity requirements and managing security risks must be at the heart of everything.
As the digital channels used by wealth managers become more global, firms’ technology platforms must be able to provide secure access to information anytime, anywhere, and on any device. They need to ensure that whatever solution they implement, its associated cyber risks are understood and its safety measures are used across the whole enterprise.
To successfully mitigate these cyber risks, attention and investment needs to be made in both technology and people. That can be done a variety of ways. Employing advanced AI and machine learning to help deflect threats are some of the most common practices, as are adopting cloud-based delivery models that promote greater consistency of controls. Organizations can also start cultivating cyber talent for key roles, such as defender or strategist. Biometric solutions, advocated by many wealth firms and financial institutions, use technology such as voice and face recognition as well as fingerprint and wearable-technology scanning to not only provide an added layer of security, but also customize the experience for the client.
Most crucially, the priority should be on ensuring risk-sensitive assets are at the centre of cyber protection measures. Asking forward-thinking questions about cyber risks is usually the best preparation for the unknowns that are likely on their way.
Wealth managers are starting to put an equal amount of attention on the human element of a transformation journey in technology. This trend is being spurred by the level of disruption caused by new technologies, new business models, and, most recently, the impact of COVID-19 on workers.
Managers who recognize the need to reskill and upskill their talent will reap the most benefits by not only retaining the existing clients but also attracting new ones. The key questions they need to think about include:
We believe wealth-tech firms that will see the best returns will base their skills-enhancement program on a twofold strategy: delivering a blended experience of online learning and a social-experiential apprenticeship and building lasting capabilities through learning based on solving real-world challenges.
This is a time of significant change and disruption in the wealth-tech industry. To stay ahead, firms will need to continually work on their people, process, and technology initiatives. Building for the future will require wealth managers to define strategic choices, surface constraints and gaps, and align their leaders on the ambition to lead the market and the way to do so.
Radhika Bansal
Senior Manager
Large Transformation Leader
Deloitte Canada
Vithal Ketkar
Manager
Wealth Tech Leader
Deloitte Canada