Automation and Digitalization of the Wealth Management Space

There is no doubt that digital innovation has raised the bar in terms of customer experience and expectation across the banking industry. The increased popularity and adoption of social, digital and mobile channels has transformed the banking space, particularly in the corporate and retail sectors, and created an opportunity to provide a broader, more innovative, customer-centric set of products and services.

In a recent paper on trends in digital wealth management, independent research firm Forrester found that investors check their investment account balances on the Web three times more often than on a paper statement; they trade stocks on the Web nearly three times more often than over the phone with a person; and they communicate with a financial advisor online nearly as often as in person. However, while digital touch points have become the channel of choice for most investors worldwide, in the wealth management space few firms have dedicated necessary resources to digital touch points and automating parts of the wealth management process.

This is shortsighted.

With traditional wealth management models geared towards older investors, who are typically the wealthiest, digital disruption has arrived later to this part of the market than in other industries. This however is changing as an increasing number of young entrepreneurs and digitally native investors come into the market and are looking for a similarly digital and multi-touch experience that they get through interactions in other industries. The consumer and retail worlds for example have grappled with the challenge of digital technologies and multi-touch point experiences and as investors increasingly adopt mobile and social technologies wealth management firms must catch up. Additionally, digital disruption is affecting diversified investor groups across the world in different ways. Migration to the digital world is faster in South East Asia, and the western markets of the UK and US by comparison to continental Europe or the Swiss market, which are more conservative by nature.

Coupled with this, the wealth management industry is structurally changing, with technology as the facilitator for breaking down the multiple tiered systems that previously existed in the space. The boundaries between ultra high-net-worth, high-net-worth and private banking clients are blurring. Fast rising client expectations and costly implementation of infrastructure, expertise and skills are increasingly putting firms under pressure to deliver leading advisory services across their entire client base, irrespective of their value as an investor. Private banking clients for example increasingly request access to products that were traditionally only available for really sophisticated or ultra high-net-worth investors. As these smaller sized investors are demanding a greater variety of services wealth management firms need to find a way to offer a more tailored service to those investors who are lower down the food chain.

Diversification away from traditional investment products is also changing the wealth management ecosystem. New types of investment vehicles are arriving to the market, such as social investment platforms, kickstarters and secondary markets like crowedsourcing are all entering the fray and lend themselves to a more digitally active user group.

Here, technology solutions can help. In a highly digitized environment, customers – irrespective of size – can have access to the majority of wealth management products and these products can be made available to a larger population of investors. On the fund management side of the business, automation of specific wealth management services can also be realized in areas such as managing accounts, portfolio analysis, and trade and settlement. Digital advisory also provides a cost-effective solution to deliver personalized services to investors at the lower end of the investment scale whilst minimizing the cost impact for wealth management firms themselves and, in many cases, provide a service that is better than traditional advisory.

Wealth management firms must not rest on their laurels however and need to quickly evolve. Once wealth advisory services are replaced with digital advisory and technology that can stimulate certain parts of the investor experience traditional wealth management firms risk being disenfranchised by smaller players that can target their smaller clients and utilize technology to provide a broader, more affordable service offering. Start-ups such as Nutmeg in the UK, and Betterment and Wealthfront in the US, for example, are already utilizing technology to remove the exclusivity in wealth management and provide automated investment services at a fraction of the cost of traditional financial services firms. Unbound by regulatory restrictions due to the stripped-back portfolio management services they offer, rather than being custodians themselves, these startups have more flexibility and can quickly scale to a global level.  

Currently, too many wealth management firms still see digital as a threat to their business models that still rely heavily on person-to-person relationships. However, the smart firms recognize that the integration of human and digital is imperative, and the most effective strategy for sustaining business in the future. The problem however is that it takes time to build infrastructure, skills and expertise. Therefore the most effective way for wealth management firms to truly realize the benefits of a digital and multi-touch investor service offering is to work with technology partners that can provide solutions and services that enable them to untangle and streamline their core internal systems, and create a consistent, rich digital backbone without starting from scratch.

The role of technology partner however also fills a valuable role in brand protection. Once the transition to digital happens, a firm’s brand becomes associated with the software product it is offering so the technology partner relationship can be used to ensure that the software product that is delivered lives up to expectations and provides a different experience than just an off-the-self package, which lacks the benefits of unique values and brand association.

Digital technology will increasingly support the relationship between advisor and client, and wealth management firms need to acknowledge this shift. The greatest value will be found where digital and traditional channels coexist and unite to provide an omnichannel experience for investors; taking advantage of technologies like videoconference and chat channels. Only once this happens will the traditional wealth management industry be able to provide true digital, multi-channel capabilities that meet the ever-growing expectations of investors who are used to a sophisticated digital experience through on line shopping, music, and app store channels.