Overcoming the Three Biggest Threats Facing Wealth Management

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By Christine Mar Ciriani, CEO, Private Banking & Wealth, InvestCloud

Unprecedented stock market gains have both created opportunities for wealth managers to demonstrate their value while also shining a light on the obstacles wealth managers need to overcome. Increasing demand for hybrid advice, goal-based planning and pay-for-performance fee structures have emerged because of this unique situation.

Maintaining a close relationship with customers is paramount to not only delivering the best service, but also knowing which challenges they are facing, so wealth managers know how to help solve them. The three most significant challenges that keep leaders of wealth management firms awake at night are in fact the same three topics that are also causing a wave of consolidation in the sector.

We are talking about commoditisation, fee compression and competition.

While there is no set solution to solving all these problems, technology has enormous potential in mitigating their impact.

Commoditisation and Competition

Wealth managers have been known for providing exceptional client service, tailored investment recommendation and advice. But elements of the value chain are being seen by clients as a commodity. With self-directed platforms like Robinhood and e-Toro shifting to zero commission online trading and increased number of single-family offices, clients have increasing options for growing and protecting their wealth.

As markets continue to remain strong, customers will shift to more self-directed investing and look for digital tools to manage their investments. An increasing percentage of high-net worth clients are actively using a WealthTech firm to manage their wealth. Wealth managers who are not able to provide suitable digital platforms may lose to new, digital players. In parallel, the ability to provide incremental advisory support at scale while reducing manual engagement will be a differentiator.

A compelling and empathetic client portal experience is critical in wealth management as the digital-first competition is already using it. Neo and challenger banks with a digital-first philosophy are projected to reach a $471 billion market size by 2027, with digital wealth managers expected to capture $16 trillion by 2025.

How can wealth mangers take advantage of this growth and ensure they retain these assets under management? How can they continue to provide hyper-personalised advice at scale and profitably engage clients across segments?

Harnessing digital through data analytics to learn more about clients is one step to tackling this. And technology with advanced analytics, machine learning and decision theory has opened a new frontier to being able to transform client engagement and investment performance.  

Fee Compression

The rise of passive funds and robo-adviser apps are driving down fees that a wealth manager has historically been able to charge.

A rise of regulatory changes and technology adoption has meant an increased need for wealth managers to understand how they can offer their customers additional value and show differentiation against their competitors.

Technology-driven hyper-personalisation will be critical in achieving loyalty and growth in the wealth management landscape through 2021 and beyond. Especially in a world where less than half of high-net-worth individuals – no matter their age – say their wealth management firm understands their unique needs.

Digital tools can help in capturing information about their clients that goes far beyond finances. From health and family to physical assets and life goals. This information is key in demonstrating that relationship managers understand their clients individual and evolving needs. Additionally, it has the potential to generate increased revenue as clients have demonstrated they will pay for value.

The latest developments in technology – including machine learning, artificial intelligence tools, and the application of behavioural science – automate large aspects of advice provision for relationship managers, allowing advisers to quickly and intuitively foster deep client relationships, and focus on adding value by offering personalised and relevant investment recommendations to their clients.

Technology also helps improve what wealth managers have always been known for – client servicing. Research, documentation and confirmations can be shared digitally and advisers can service multiple cilents through a shared portal. Ultimately, this inspires confidence for the client wich of course translates into loyalty; insit’s harder to change financial institution when the adviser is integral to more aspects of a client’s financial life.

Advanced Analytics, Gamification and Decision Theory

In wealth management, data has always been used to drive decisions. But now there is a much wider breadth of data to leverage, ranging from a customer’s digital footprint to alternative data sources coming from structured and unstructured data. This allows banks to use AI and Machine Learning to provide value-added advice and recommendations.

This helps wealth managers meet the rising demand for tailored investing, improving the ability for advisors to focus their time on education and support rather than on generating investment recommendations, especially when customers are looking to extend investments into sustainability, crypto-assets and direct investments. As an example, wealth managers can design sustainable investing strategies leveraging data to help provide accurate information on companies’ ESG impact and investments.

When enhancing client engagement, gaming and decision theory can also help inspire clients to interact, unlock engagement and provide additional information which can provide further personalised servicing. Embedding these practices in building out improved client digital portals can ensure clients remain connected and engaged.

A Winning Formula

The way investors interact with and manage their wealth has had to change in order to push back against the threats of fee compression, commoditisation, and competition. The driving force is increased digitisation – something still under-used by advisers. 

Wealth management remains an exclusive, highly-personalised service. But it is not possible to capture new opportunities at the same time as servicing existing customers without using technology. Digital is the key to supporting wider client collaboration, servicing, and providing highly personalised investment advice.

It’s undeniable that the past year and a half has forced businesses to adapt to technology—both spurring existing tech on, and being the catalyst for new tech to emerge and solve problems. Wealth managers who have considered transforming their digital journey to delight their customer are the ones who are future-proofing their business. Once that is achieved, the focus is then on providing value beyond investment performance in terms of service experience and comprehensive client wellness.

Combining a genuinely intuitive, personalised service, with a smart digital strategy built upon gamification and decision theory is the answer to many of the major issues facing the sector. Wealth managers that have been able to adapt and apply technology to their existing ways of working will come out on top.

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