For many wealth managers, technology-driven change is now a fact of life. As the demographic makeup of High Net Worth Individuals (HNWI) continue to evolve, and the new breed of private banking clients (mostly millennials) are quickly on the rise, successful wealth managers must clearly distinguish themselves in order to survive.
In its Financial Services Technology 2020 report, global consulting firm PwC, painted a vivid picture of a likely scenario in a not-so-distant future: “Imagine that you are competing against a truly global, multi-service, low-cost, digital bank: customers accessing their accounts through their mobile phones, paying with a tap on their wearables, sweeping savings to an ETF portfolio (designed by an AI (artificial intelligence) engine based on their savings goals and risk appetite profile) offering no-fee, cross-border payments. Imagine if you faced a competitor bank like this, with a low and nimble footprint, prototyping new services quickly, managing regulatory compliance transparently, using an AI system to limit fraud losses, and hedging currency risk using cryptocurrencies.”
Of course, no such competitor exists today. And for many HNW clients, having an overwhelming amount of technology with little or no human interaction involved is not the ideal picture of an effective wealth management. The key is to attain a certain level of adoption of these newer technologies and to leverage it to develop a more nuanced and personalised service that truly adds value.
It is important for any wealth manager to understand the expectations of the client – HNWIs and mass affluent investors – both of whom demonstrate a certain degree of sophistication and familiarity when it comes to dealing with technology.
To this end, it is important for any wealth manager to understand the expectations of the client – HNWIs and mass affluent investors – both of whom demonstrate a certain degree of sophistication and familiarity when it comes to dealing with technology. Technology, from a client’s perspective should bring about more active portfolio management, quicker turnaround, better insights and analysis of opportunities and enhanced customer experience.
Digital platforms – the foundation of successful wealth management
Looking at current trends, mobile and digital platforms are set to be the dominant business model for private banking and wealth management. By enabling clients to connect to their service providers in real-time, anytime, the quality of relationship between a client and a relationship manager becomes far deeper and richer.
Because of digitisation, processes such as onboarding are better streamlined resulting in efficiencies for both clients and advisors. Access to information also paves the way for a more productive conversation around financial goals and portfolio management. In a recent interview with Global Private Banker, Evy Theunis, Executive Director – Head Customer Segment and Customer Science at DBS Bank, illustrated the huge impact of digitisation and automation on private banks: “The digital push has enabled greater transparency, which in turn transformed the nature of customer activity and widened the gap between those that can provide customers with such transparency in a simple way, versus those that can’t.
Source: Forbes Insights
With the Internet at their fingertips, today’s clients are much more aware of the options available to them and can easily check, evaluate and compare prices in real-time – pushing private banks to go beyond the price game, and differentiate themselves by focusing on providing quality advice more than ever before. Services, offerings and the way we engage with customers, have also evolved as expectations of, and the need for, convenience and ease of access become increasingly key.”
In its report titled “The Next-Generation Wealth Manager,” where over 300 wealth management executives and over 100 high-net-worth individuals (HNWIs) were surveyed about their views on technology, Temenos and Forbes Insights also affirmed this fact: “Just three years ago, only a quarter of wealth managers believed digitisation was essential for them to do business. Now, almost seven in 10 say that a virtual platform is an essential way to enhance the client experience.”
Robo-Advisors – transforming wealth management
Robo-advisors are digital platforms that provide automated financial planning services using algorithms and data. Requiring no human supervision, a robo-advisor can collect information from a client, perform certain functions and analysis, and offer an unbiased advice and invest client assets automatically.
According to estimates, assets under management in the Robo-Advisors segment amounts to US$ 1.4 trillion in 2020, with an expected annual growth rate (CAGR 2020-2023) of 21%. While mostly used by passive investors who may not want or cannot afford an ongoing personal monitoring of their portfolio by a professional portfolio manager, Robo-Advisors are increasingly becoming popular in the HNW segment too as it provides a great complement to the bespoke services provided by tech-savvy relationship managers.
This phenomenal growth can be attributed to the fact that technology has advanced in significant terms that traditional market analysis can now be incorporated with real-time variables, enabling better decision-making and more efficient management of capital. Within seconds, hundreds, or even thousands, of portfolios can be optimised, generating value far beyond what human advisors can accomplish.
In the end, the big winner will be the customer. As the robo-advisory sphere is just getting started, advantages such as lower fees and better-quality data insights and analysis will be adopted in the overall wealth management strategy employed by the wealth managers of the future. As only humans can provide a truly 100% personalised experience, this time of digital transformation can be used as a time to improve and tailor fit the financial product or service specific to one’s individual investment appetite.
Artificial Intelligence – revolutionising wealth creation and management
With the wealth of customised and personalised value-added services currently in demand today such as succession planning, wealth restructuring, wealth protection and diversification, philanthropy, family governance, alternative investment opportunities, and more, there is arguably a short supply of capable wealth managers to meet global demand. However, artificial intelligence (AI), with its immeasurable potential to augment wealth managers’ capabilities can help win the day.
Insights gained through AI and analytics serve as a key differentiating factor in personalising a service, no matter the volume of clients being served. Simply put, AI and analytics open up opportunities. It empowers wealth managers to be more exceptional.
According to the same survey by Forbes Insights quoted earlier, “the value seen by wealth managers in AI technologies has increased. Less than seven in 10 saw AI as important in data analysis and forecasting in 2018, but now more than 80% see its importance in a range of areas, including risk management, operational efficiency and client experience. We can say definitely that AI has arrived and that its value as a driver of key business objectives is fully recognised.”
Insights gained through AI and analytics serve as a key differentiating factor in personalising a service, no matter the volume of clients being served.
In addition, AI’s impact will not only be felt in data analysis and operational efficiency. It will also be fully embedded in many areas that are ubiquitous in the investor’s daily life.
Source: Forbes Insights
Mobile apps integration through open source software
Thanks to open source software, the barrier to entry in AI is lower than ever before. Nowadays, there are a number of open-source tools to choose from, including Keras, Microsoft Cognitive Toolkit, and Apache MXNet. Before these, Google has already warmed the market when it released its TensorFlow machine learning library as an open source back in 2015.
Natural language processing for business applications
Natural language processing for the purpose of language translation accurate enough to respond to business needs has always been a challenge. Thanks to companies such as Google and Baidu, this might be a thing of the past. With much resources being poured into improving translation frameworks, expect great improvements in language capabilities, allowing wider adoption across industries.
Online safety and Cybersecurity
The financial industry has been rocked with multiple cases of breach in cybersecurity. It resulted to an immeasurable amount of loss in revenue, not to mention the trust and confidence of many customers in these institutions. With advancements in computing power, proactive hunting of threats using machine learning is now possible and will continue to grow as more businesses realise its intrinsic value.