This is an excerpt from Finextra's Research report 'The Future of Wealth Management
2022,' and is available for download via Finextra Research.
Traditional and established wealth management operating models are increasingly under existential threat. Today’s investors do not want quarterly paper statements. They want instant access to their portfolios, a clear view of performance data, and real-time
updates on what their investments are worth. All of this can be achieved through digitisation – the benefits of which extend beyond meeting client demand.
Here are five key benefits of innovation and digitisation in wealth management:
1. Efficiency and cost effectiveness
With competition rising from lean start-up firms, cutting-edge technology offers established wealth management firms the ability to further streamline processes.
“Digitisation within wealth management has the potential to make advisors more efficient, more effective, and less prone to the sorts of errors and biases that we, as humans, typically display,” said Greg Davies, head of behavioural science, Oxford Risk.
Artificial intelligence (AI), for instance, can be used by financial advisors to aggregate multiple pieces of unstructured data into a single digital platform, and closely monitor risks and exposure. This is especially useful for large firms managing sizeable
portfolios – often resulting in a considerable reduction in time and costs.
“AI encompasses a spectrum of capabilities, from robotic process automation (RPA) to advanced machine learning (ML),” said Mayank Prakash, chief operating officer, Tilney Smith & Williamson. “We integrate AI throughout our operating model to improve operating
efficiency, provide near real-time functions, detect anomalies and underlying trends as opportunities.”
2. A consistent service
When working with AI tools, the inevitable emotional element of investing is also removed – meaning financial advice is not based on instinct or prejudice. This serves to reduce decision noise in wealth management.
Research conducted by Oxford Risk, for example, has revealed that “the same client often receives disparate financial advice, depending on which firm they approach, or which advisor they see,” explained Davies. “Driving consistency in this area is about
providing advisors with tools and technologies that can do the necessary number crunching; keep track of all the moving parts; as well as generate an audit trail.”
The most significant emotional response when it comes to investment is uncertainty and apprehension, added Prakash. To combat this, Tilney Smith & Williamson “provides clients with interactive graphical visualisations of their portfolio data – such as charts,
tables and projections – which they can explore to understand otherwise complex trends.” This gives clients confidence and clarity around the investment decisions they are making.
3. Dynamic advice
If firms want to put in front of clients solutions that are tailored to their preferences and values, at scale – while avoiding laborious manual processes – technological tools that increase accuracy of profiling are critical.
Oxford Risk’s tools, for instance, fall into three categories. The first is for behavioural profiling and interpreting clients’ risk tolerance and financial personality. Supporting this tool are a sophisticated set of psychometric statistical techniques,
which compile personality scales based on a dynamic set of questions.
The second category is around matching: gathering all the information available on a client and – combining the client's risk capacity with a measure of their risk tolerance – establishing the suitable risk level. “This is then mapped onto quantitative risk
boundaries, which reveal what the asset allocations or suitable portfolios should be,” Davies explained.
The third category is around helping deliver these findings to clients in a way that makes them feel comfortable in their new investment journey or transition. “Oxford Risk’s guidance tool, for example, has 15 to 20 different behavioural techniques that
advisers can use to encourage people to feel comfortable about deploying surplus cash,” Davies said.
Tilney Smith & Williamson also uses software tools and behavioural science to dynamically respond to customers’ risk profiles: “We use a combination of client data, internal analytics and third-party live data feeds to make near real-time decisions which
are in our clients’ best interests and within our risk thresholds,” Prakash said.
4. Customer satisfaction
Since the needs of today’s clients are polylithic, treating them in an undifferentiated manner – and without bespoke tools or standardised frameworks – is unlikely to engender high levels of customer satisfaction.
For the Union Bank of Switzerland (UBS) and its wealth management business, customer service is critical: “Our approach to digitalisation in wealth management is a hybrid one – we aim to create tools that support our client advisors in providing the best
possible solutions for customers,” said Patrick Steiner, head of F2B digitalisation, UBS Global Wealth Management. “We enable our client advisors digitally so they can build new and better relationships with clients. Automation and digitisation allow them
to focus on the relationship itself and providing advice.”
Digitisation can also improve transparency around costs and fees associated with financial advice – further driving customer satisfaction levels. “This needs to be done better across the industry,” argued Prakash. “Clients often do not realise that headline
fees do not represent the total cost, with other fees up and down the investment stack. We are totally transparent with our colleagues and clients about these fees and make them available in clear, understandable tables.”
5. Responsible investing made easy
Achieving high levels of customer satisfaction, however, is increasingly about giving clients more visibility around where their money is being invested. Once again, digitisation plays a significant role in this mission.
“Technology gives clients more choice around how their investments are deployed,” said Prakash. “Environmental sustainability, social value and ethics are increasingly important to the new generation of investors as, in addition to achieving growth, they
want to invest in good causes which make a difference to their communities and the world.”
Davies agrees that robust, digital wealth management tools are key to supporting sustainable investment: “Today, many advisor firms do not know how to separate ESG questionnaire tools that are built on deep foundations, from the ones that are peddled alongside
a standard technology offering.” Going forward, it will be important for advisers to ensure their tools accurately measure preferences and are built on data from thousands of individuals. This is the key to optimal client satisfaction.
Click here to download your copy of the new Finextra Research report 'The Future
of Wealth Management 2022' now.