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 Wealth management is on the brink of a digital overhaul


The wealth management industry has been slow to digitise: with loyal customers and tightly regulated business practices, the costs of innovation outweighed the benefits. But a new generation of wealthy individuals is emerging, younger and with high expectations for digital service, and their needs are being met by fintechs. These digital providers are now disrupting the sector in textbook fashion. How should the incumbents react?

wealth management
Digital disruption is changing the face of the wealth management sector, democratising its access and streamlining its business operations. (Photo by Austin Distel/Unsplash)

The global wealth management industry, which manages an estimated $89trn of clients’ money, has until recently been resistant to digitisation. The banks that have historically dominated the sector have not felt the need to innovate, explains Bill Packman, head of wealth and asset management consulting at KPMG. “They haven’t necessarily changed the way they’ve operated because they’ve got millions of clients,” he says. “They look after their balance sheets and they’ve got risk-averse compliance processes that probably mean that with a regulator looking over their shoulder, they don’t feel the need to experiment.”

But that complacency left the field open for digital wealth management providers to address younger investors who may have less to invest individually, but who add up to a significant market. “There’s a market segment called ‘$100,000 to $1m’ and that area has been opened up by technology,” says Ian Woodhouse, head of strategy and change at Orbium. “With new tech, you can offer a much lower-cost provision of advice or guidance to clients who couldn’t otherwise afford wealth management.”

“We are seeing a generational shift of wealth start to happen,” adds James Alexander, investment management and wealth director at Deloitte. “The first generation of digital natives are starting to have meaningful wealth in their own right and the client base and the client profile of what that industry is, that is starting to shift as well. Clearly, the younger generation of clients who have grown up in a digital world have very different expectations.”

Countless digital providers have sprung up to meet this shift in demand. The best known include Robinhood and E-Toro, which allow retail investors to buy and sell shares without the usual fees. Acorn and Stash help users round-up their spare change and automate investments. So-called ‘robo advisers’, which provide automated investment advice online, have grown their assets under management (AUM) to a combined $57bn, according to analysis released by PitchBook.

Now, following the typical pattern of digital disruption, these digital providers are forcing traditional players to adapt their offerings. For example, in 2019 all the major discount investment brokers followed Robinhood’s lead by eliminating stock trading fees for online trades. “They have been challenged to try and innovate faster,” says Packman. “It’s been a good wakeup call for the incumbents.”

Wealth management: competing with fintechs

So how can these incumbents, who are used to providing high-margin, low-volume services compete, with low-cost, digital native offerings?

Traditional wealth management providers have layers of inefficiency that are ripe for automation, says KPMG’s Packman. “Thirty percent of the front office [staff] create data for other people to look at,” he says. “They don’t necessarily generate insights from that data, just the ongoing work of creating reports, whether it’s client reports, regulatory reports or tax reports. This is just an operational burden, which adds layers of cost into a value chain which ultimately the investor has to pay for.”

Back-office functions are similarly inefficient, he says. “There are a lot of people who have to look after… your investments on a consolidated basis with some pretty arcane processes compounded by some pretty risk-averse regulation.”

The automation of these functions is already underway, according to a recent study by technology consultancy Accenture. In a survey of 100 wealth management executives, 88{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} of participants said they are “at the turning point of moving beyond experimentation and are looking to scale and deploy AI solutions”.

Does this mean wealth management will be entirely automated in future? It’s unlikely, as clients still value human interaction. Another study by Accenture found that clients use financial advisers as everything from life coaches to family planning experts; 81{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} say they help clients navigate complicated family dynamics.

Providers in the higher end of the wealth management market will therefore mix digital interfaces with in-person consultation, says Woodhouse. “Clients will do some things remotely, but they’ll still do some things face-to-face.”

Delivering that hybrid approach might entail developing their own apps, or it could involve partnership with fintechs. “A few of the big banks now have well-documented partnerships with some fintech companies,” says Anderson. “I think [this] is a good, logical next step.”

Packman agrees that the competition between fintech and incumbents is unlikely to be ‘winner takes all’: “Neither is going to outright win and neither is going to outright lose, which is why I think partnerships are going to work so well.”


Claudia Glover is a staff reporter on Tech Monitor.


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