Digital transformation in wealth management has been an important theme for a long time, but its adoption has been relatively slow.
The wealth management industry is dealing with challenges such as changing business models, fintech disruption, increasing client expectations, and revenue and fee compression pressures. The pandemic has further accentuated a VUCA (volatile, uncertain, complex, and ambiguous) environment, and digitization has become extremely important.
To explore how digital transformation is driving the wealth management industry’s priorities in these disruptive times, my company recently hosted leaders from a cross-section of the wealth management industry. We invited leaders from a leading independent broker-dealer, a top turnkey asset management provider (TAMP) and a large institutional investment management firm.
Each leader represented a slightly different end of the wealth management value chain. They discussed the challenges and priorities for their firms and shared many common themes that resonate with the entire wealth management industry.
Below is a summary of the key themes discussed in this very insightful session.
Advisor Enablement Is The Key
As the financial advisory industry pivots from a transaction-led model to a relationship-based one, advisors need to provide personalized advice tailored to the client’s goals and life events. Digitization has been at the forefront of the evolution of the advice-centric model. Financial advisors want tools and insights to offer hyper-personalization, get a holistic view of clients, and efficiently service clients at scale. The advisors want a unified experience and functionalities such as account aggregation, client portals, and CRM and client servicing tools. Digital advisor enablement assumes greater importance in the wake of a pandemic, and firms are doubling down on these initiatives.
Improving Scale And Omnichannel Servicing
Advisors want to focus on delivering client value and want to digitize time-consuming and error-prone tasks. Digitization of account opening, account transitions, and e-signatures has helped in reducing errors and NIGOs and improving operational scale. During the pandemic, these initiatives received a tremendous boost, with both clients and advisors calling for straight-through processing using workflow-based tools.
With volatility and uncertainty in markets, the need for investment information and client servicing improved dramatically. A firm’s investments to provide an omnichannel experience to advisors and clients will help them service their stakeholders effectively. Technologies such as Zoom have helped manage disruption by enabling close collaboration and putting clients at ease. Business leaders should expect these digital collaboration channels to further evolve, while digital laggards may lose clients to their more digital-savvy counterparts.
Even though client-facing initiatives get more attention, digitization has had a massive impact on improving operations. Many firms grapple with inefficiencies introduced by legacy platforms, workarounds and customizations built for supporting business. Business leaders must decide between building focused-point automation and large-scale transformation. Operations transformation requires firms to also redesign their legacy processes to eliminate inefficient and non-value-adding activities. Without applying digital design principles, the results of such transformations can be underwhelming
Many wealth management firms were already on their cloud adoption journey to improve flexibility, scalability and resilience and reduce infrastructure complexity. The pandemic has not affected the cloud strategy of organizations; rather, given how firms scaled with increased trading, volatility and application usage, it provided validation for resilience and scalability offered by the cloud.
AI/ML Usage Will Grow
AI/ML in wealth management is gradually shifting from drawing boards to practical usage, but the use cases are still limited. Robo advisory continues to be the most notable use of AI/ML, and firms have rolled out these tools to attract younger investors.
Lately, firms have started using AI/ML in other areas such as improving lead conversion and unstructured data ingestion using OCR and character recognition. AI/ML has been used for algorithmic high-frequency trading, but its use in long-term financial planning is still limited. As the firms’ data ecosystems mature and their ability to consume alternate unstructured data increases, AI/ML’s usage will expand. In the future, AI/ML will be used for recommending next best action, chatbots, stock analytics and ranking (already underway), and generating alpha, thereby complementing wealth managers in client servicing and investment decision making.
Central Role Of Data
Leaders view data as central to the execution of initiatives for providing high-touch services for operational transformation or using AI/ ML for client servicing and investment decisions. Harnessing data, especially in the digital world, to offer insights and personalized services will remain a key priority for wealth managers. Dealing with data growth, ensuring data quality and integrity, harmonizing disparate data sources, and putting good data governance practices are essential to ensure data lakes do not turn to data swamps and generate actionable insights for decision-makers.
Impact Of FinTech And Fear Of Disruption From FAANGs
FinTechs have helped in expanding the technology choices for advisors and pushing the digital agenda forward. The desire to capture more customer wallet share and industry consolidation is resulting in overlapping services of various players.
Schwab and Vanguard have started offering automated planning and advisory solutions. Morgan Stanley and Goldman Sachs entered the retail space with their acquisitions of E-Trade and United Capital, respectively. Empower Retirement will start offering financial planning services with its acquisition of Personal Capital.
In the future, expect tech titans such as Facebook, Apple, Amazon, and Google to foray into wealth management. The adoption of digital technologies and the harnessing of data will stand the incumbent firms in good stead against such competition, and new players will help the industry move forward.
To summarize, the wealth management industry adapted well to the Covid-19 disruption. Remote working will be a new normal but does present more challenges around information security. Digital transformation was already underway in wealth management, and the pandemic gave a big push to its implementation and adoption. The success of digital transformation requires orienting the organization toward a digital mindset. How wealth management firms shape the organizational culture for such transformation will determine the success or failure of these initiatives.
Article written by Nitin Seth, Forbes Councils Member
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