Recent fintech trends suggest digital investment advisors will manage over $2 trillion by 2020, prompting successful banks to invest heavily in such software.
The present era is one of substantial disruptive change and transition for the portion of the finance industry involved in wealth management. Recent advancements in digital wealth management technology have yielded new ways for wealth managers and private banks to provide advice to private investors.
As this trend progresses, additional types of advice and new methods of delivering it will emerge, thereby causing some competitive positions to shift. This will change the existing face of the wealth management industry as some who embrace and leverage the new technology will win new clients, while other firms will lose them.
With recent research in the fintech industry suggesting that digital investment advice will attract more than $2 trillion in assets by 2020, many traditional retail banks are joining the trend by investing in digital wealth management platforms. They are looking to join the various standalone independent financial advisors, wealth management firms and private banks to compete for a share of this potentially lucrative market. Moving to universal banking model can enable retail banks to grow with their clients increasing affluence and provide a holistic approach to their wealth management. Nevertheless, strategic, regulatory or branding considerations may restrict the extent to which banks want to offer wealth management services as fully integrated services, or whether they should be provided independently of their retail operations.
New generations demand new products
Tech savvy millennials are especially open to fresh and exciting self-service or light touch investment management solutions. For example, the use of so-called robo-advisors that use data analytics and potentially machine learning or artificial intelligence to provide investment advice and manage invested assets. Digital wealth management tools of this type are increasingly acting as a key differentiators for banks intent on attracting customers from this influential and increasingly affluent generation.
Interestingly, recent research has suggested that 66% of millennial investors wanted a self-directed investment portal, although they also wished to retain some form of human adviser access. These important findings indicate that young investors want access to a high tech wealth management tool as a basic requirement from their banks, instead of as an optional perk.
In addition, the main reason millennials wanted to retain access to a human financial advisor was to have occasional personal conversations about their more complex financial needs. They also wish to periodically discuss strategies for dealing with major life events, such as home purchases, the education of their children, inheritances and their eventual retirement.
Benefits of digital wealth management solutions for financial institutions and their clients
Looking forward, digital wealth management solutions will become an integral technology for many banks to offer to their affluent segment of clients. Having access to this type of software is beneficial for a variety of good business reasons that include:
- Providing a better level of service: Complementing existing, human interaction, with high tech collaboration and advisory tools, will provide clients with a more comprehensive service.
- Being able to serve more clients - without associated staff and cost increases: The economics of making use of digital wealth management solutions are clear. To provide a better service to a broader audience of affluent clients, without the need to undertake a major hiring programme.
- Provide "cold" trustworthy advice: Many "robo" investment advice providers explain that their services provide greater consistency and tend to be more science based, avoiding the potential emotional "overreaction" to current news and sentiment when providing financial advice.
- Easing the administrative burden for advisors and relationship managers themselves: Modern wealth management technology aims to be seamlessly integrated, automated and pleasure to use. The complexity of managing client documents and administrative processes can be vastly reduced.
- Cater to the big baby boomer wealth transfer: As younger generations inherit assets from baby boomers, this transfer of wealth to more tech savvy investors will boost demand for the type of asset management system they desire.
- Simplify compliance: Financial regulation typically strengthens over time. It is easier to build these checks into software to keep up and comply with all the new rules, than try and handle them manually.
- Leveling the investment playing field: Digital wealth management solutions help democratize financial investments by providing a wider set of clients access to sophisticated wealth management services.
Banks are getting involved in digital wealth management
The big banking players typically have dedicated wealth management divisions, with dedicated platforms. Some of these have grown through acquisition of smaller banking operations over a number of decades - leading to a somewhat disjointed approach. The challenge has been to bring multiple platforms together, in a consistent way - and to evolve them to a digital world to be able to target the new generation of affluent clients. HSBC, UBS and DBS have all been on such journeys to bring new digital wealth platforms to their clients. The rapid rise of private wealth among a growing young mass affluent population is perhaps one of the strongest drivers for such digitalization. For example, in South East Asia alone it is expected that the mass affluent market segment will top 17 million people by 2022, according to IBS.
Find out more about how Asian based wealth managers are adapting to the rapid growth of wealth among young and affluent Asian clients: How Asian private banks are targeting the mass affluent segment?
Meanwhile some smaller retail operations, particularly around Europe, have been seen to be growing their service offerings vertically to provide holistic advisory services to differentiate themselves in an increasingly digital world - for example by providing a digitalised goal-based advisory services. And while many retail banks continue to focus their digitalisation projects around on-line payments and credit solutions, many are also realising that if they are not providing comprehensive wealth management solutions, then other specialised digital wealth managers will gladly do so instead. The question becomes one of whether to compete solely on high scale, credit expertise in a one-dimensional market of diminishing returns, or to look for new margins and grow assets under management in line with their customers's growing affluence.
While tech savvy retail investors will benefit considerably from all the investment in digital wealth management software that banks and financial firms are presently making, wealth management companies and banks of all types need to evolve in a strategic manner to adapt to the shifting market dynamics of an increasingly affluent and digitally native client base for their services.
Today’s investment advisors need to embrace the new digital advisory solutions as potent wealth management tools to assist their clients with, rather than as threats to their way of doing business.
One way to keep on top of modern trends in the wealth management industry is to read industry surveys like that recently compiled by Orbium. This survey highlights the key challenges and opportunities observed by wealth management company executives. It also shares their best ideas on how to deal successfully with an uncertain business environment. Or, you may be interested to find out what industry analysts think of Avaloq's digital wealth solutions by downloading the paper from the Aite group.