Go digital or die: wealth managers don't have a choice

Technology has a role to play as a service to advisers and their clients, but that role will not replace human interactions entirely.

Technological advances are set to transform the role of wealth managers, whether they are ready for the brave new digital world or not.

Go digital or die a slow death. That is the stark choice facing wealth managers as they contemplate rapid change on many fronts, including evolving client expectations, disruptive technology innovations and the emergence of robo-advisers that use artificial intelligence (AI) to take on or team up with existing market leaders.

Few wealth managers have witnessed more market changes than 200-year-old Citi. David Zammit, head of banking and wealth management distribution for Citi’s wealth management business in Australia, says many high-net-worth investors are embracing new technology.

“Digital innovation is undeniably important,” he says. “The rapid adoption of mobile and other digital channels has transformed how Citi’s clients bank, sign up for cards or loans, pay their bills or use the bank’s wealth management services.”

Citi has responded by rolling out innovations such as a digital currency account, video banking, mobile apps and tools that provide a holistic digital view of clients’ investment portfolios. 

While Citi and some other progressive wealth managers are investing in new digital platforms, the industry more broadly stands accused of being a tech laggard. A 2016 PwC and Strategy& global wealth management survey, Sink or Swim: Why Wealth Management Can’t Afford to Miss the Digital Wave, called the wealth management market one of the “least tech-literate sectors of financial services”, and stated that just a quarter of wealth managers offered digital channels beyond email. 

PwC suggests wealth management firms can survive only if they speed up the adoption of digital infrastructure that integrates the back office and how they service clients; harness the potential of digital technologies and data to better realise efficiencies and manage costs; and partner with fintech innovators to quickly deliver technological solutions.

“The progress of technology has outpaced the evolution of the offers of the wealth managers,” says Anthony James, the asset and wealth management leader for PwC Australia. 

“… the wealth industry is very much stuck in the 1980s and ’90s, with calls and emails and face-to-face meetings.” Chris Brycki, Stockspot

At the same time, he believes advisers and their clients are becoming less convinced that technology is “an all-embracing solution” for their respective needs. Yes, wealth managers want to offer clients the advantages of clever and well-conceived new technologies, but they are also focusing like never before on building trust with their clients and helping them achieve their financial goals.

“Technology has a role to play as a service to advisers and their clients, but that role will not replace human interactions entirely,” James says.

More than half of high-net-worth individuals (HNWIs) interviewed by PwC believe it’s important for their financial adviser or wealth manager to have a strong digital offering. That number jumps to almost two-thirds for HNWIs in Asia. Similarly, compared to respondents in North America and Europe, it’s HNWIs in the Asia-Pacific who are the most enthusiastic and confident in their engagement with technology.

In a volatile environment, where wealth management revenues have often been disappointing, big banks in Australia and the US have been winding back their interests in wealth advisory services. Such moves will increasingly see the independent owners of the big financial advice networks slug it out.

“Asia is bucking the trend seen elsewhere in the world, but that’s not surprising when the growth in wealth in Asia has now outstripped the rest of the world, and the opportunity to scale up and build on recent successes remains strong,” says Justin Ong CPA, partner, asset and wealth management industry leader, Asia-Pacific at PwC in Singapore. 

“In general, while some banks have sold off their wealth businesses in Asia in the last decade (including ING, Societe Generale, ABN Amro, and Barclays) due to scale issues and head office re-prioritisation, by and large private banks have been growing their business across Asia.  

“In particular, DBS and Bank of Singapore have been the more aggressive in pursuing acquisitions in Singapore. We’re aware also of a number of Chinese private banks and wealth managers looking to increase their wealth footprint in the region.” 

Smart moves

Not all wealth managers are stuck in the past. From services allowing clients to open accounts using video conferencing, to biometric authentication of accounts and the creation of social marketplaces where clients can trade stocks and funds online, the wealth management and digital worlds are colliding.

For example, UBS has launched a robo-advice service that caters for clients not willing to stump up the £2 million usually required to open a private account with the Swiss bank. European bank BNP Paribas has received praise for a three-channel service approach using mobile, website and social media technology. 

In Australia, 140-year-old wealth management firm Perpetual is using new digital tools – including a revised website based on Sitecore’s personalisation platform – as part of a strategy to expand beyond its core products in Australian equities and move into global and multi-asset investments. Perpetual customers can now get instant access to their portfolio’s performance, and investment insights delivered through their preferred social media channel. 

Vanguard, one of the world’s largest investment companies, takes the view that technology can liberate advisers. For example, rather than manually rebalancing a client’s portfolio, a technology surrogate could do the job. That means the adviser can devote more time to advanced financial planning talks with their clients, including behavioural coaching whereby they encourage investors to make portfolio decisions based on data and logic, rather than emotions.

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Aidan Geysen, senior investment strategist at Vanguard Australia, says his group has invested heavily in technology to globalise critical functions across human resources, IT, legal, investment management and fund accounting. It has also implemented a “follow the sun” plan that sees its trading teams manage global portfolios and serve clients throughout 80 countries. 

He says technology that has proven popular with clients in Australia includes an interactive index chart, a currency impact calculator, a fund comparison tool and a portfolio builder tool that lets financial advisers create model portfolios based on their clients’ risk profiles and asset allocation needs. In addition to email and newsletter correspondence, clients engage with Vanguard’s distribution teams through webinars.

“We also make use of our social media presence to update our clients and stakeholders on news, research and insights,” Geysen says.

Nevertheless, he believes great relationships and communication still dominate the client wish list. “That trumps things like performance and fees.”

Growth strategy

With Citi’s Australian arm seeking to ramp up its wealth management business by 2020, scale and digital strategies will play an important role.

“The keys to tripling our wealth management business will be our access and insight,” says Zammit, who notes that Citi’s clients can get advice from more than 400 analysts around the world. 

In Singapore in 2017, Citi launched its first Facebook Messenger banking chatbot, Citi Bot, which gives users information on account balances and transactions, credit-card bill summaries, and rewards and points balances. While such tools will become increasingly sophisticated, Zammit says some wealth providers have made the mistake of offering only a digital platform.

“For Citi, digital is not the solution but an enabler to deliver a faster service to our clients. The human element will need to operate hand-in-hand with the digital, as clients still enjoy and appreciate the personal service a dedicated relationship manager provides. Our relationship managers are our strongest driver of growth.”

However consulting firm EY believes that, in the future, recruitment of technology experts and data scientists will become a crucial component of success right across wealth management businesses.

“IT talent, in particular, is undervalued,” EY says in its 2017 report Accelerating the Transformation of Wealth Management Through Digital Technology. “Those who ignore market trends in compensation and incentives are going to struggle to close the tech talent gap, as they increasingly find themselves in fierce competition with other industries for sought-after specialists.”

Robo rules

The jury is out on whether robo-advice is the future for wealth management, or the end. Firms such as Nutmeg, Wealth Wizards and Wealthify have been wooing clients who want digital investment services without the bloated fees, prompting some traditional players to consider developing their own automated services.

EY’s report, not surprisingly, suggests younger generations are more likely to consider robo-offerings than older age groups, with 61 per cent of clients aged 18 to 34 likely to consider robo-advisers. At the same time, more than 70 per cent of high-net-worth clients would consider robo-advice, suggesting they are not averse to using new technology.

The PwC report says that in 2016, 13 per cent of HNWIs in the Asia-Pacific actually engaged with robo-advisers, compared to 6 per cent in North America and 23 per cent in Europe.

Australian robo-adviser Stockspot, which launched in 2013 backed by Macquarie Bank, now has thousands of clients on its books. Founder and CEO Chris Brycki says the slow embrace of technology by many wealth managers has played into the hands of innovators such as Stockspot, which prides itself on low fees and no paperwork.

“Everyone is used to digital interaction now,” he says, “but the wealth industry is very much stuck in the 1980s and ’90s, with calls and emails and face-to-face meetings. That still suits some people, but a greater and greater percentage of the population doesn’t want to interact that way.”

The blueprint for Stockspot involves giving clients access to personalised digital advice whether they are in the office, on the train, or at home. Instead of face-to-face chats, it communicates via emails, dashboard alerts and push notifications. Advice over the phone is optional.

“We still have clients who do want calls, but plenty of clients tell us pretty explicitly that they never want us to call,” Brycki says.

The biggest challenge for new digital advisers, he believes, is educating consumers and building awareness of services. “We’re not an Uber with a $100 million marketing budget to tell everyone what we’re doing, so it’s just a slower process to get the word out there.”

Of course, just like any wealth manager, some robo-advisers are good and some are poor.

“We tend to group robo-advisers together, but that doesn’t mean they are commoditised,” says Geysen. He adds that it will be crucial for an individual investor or an adviser who may be partnering with a robo-adviser to do their homework. For example, if they have a financial engine helping with portfolio construction, how rigorous and refined is the model?

“That due diligence will be a critical element,” he says.

Collaboration counts

Although fintechs and robo-advisers have a crucial role to play in making advisory processes easier to understand, cheaper and more profitable for providers, James believes the focus will increasingly be on collaboration between digital players and traditional wealth managers and banks.

“This is because the innovation [fintechs are] able to bring to the table is fast-paced, consumer-focused and allows the banks and wealth managers to get outcomes quickly,” James says.

In Geysen’s opinion, it is unclear at this stage as to what particular digital or game-changing technology will truly redefine wealth management services. However, he questions whether digital advice offerings will ever be able to build the depth of trust that a physical adviser in a face-to-face relationship has been able to build to date with a client. 

“In terms of the evolution of how we use technology, that’s one area that remains an unknown.” 

PwC’s crystal ball

  • Global assets under management will rise from US$84.9 trillion in 2016 to US$145.4 trillion in 2025.
  • Instead of wealth management research teams with scores of analysts, expect to see intelligent robots that can instantly monitor and analyse every public company, and supply asset managers with invaluable data.
  • Technology-enabled investing will also lead to a blurring of the lines between asset management, banking, insurance, wealth management and technology companies, with computer algorithms creating cheap, customised solutions for clients.
Source: Asset & Wealth Management Revolution: Embracing Exponential Change, PwC, 2017

Digitally challenged?

Wealth managers in Asia, Europe and the US surveyed in 2017 say mobile is the digital capability clients value most in their wealth manager. 

  • 39% of wealth managers don’t have a mobile platform
  • Only 27% are happy with their current mobile platform
  • 72% see AI as an opportunity
  • 69% are concerned about being relevant to younger investors 
  • 53% say millennial clients expect a higher level of digital interaction and capability than older clients
Source: Digitalization of Wealth Management, Forbes Insights, 2018

Read next: Robo-advice for SMSFs: what accountants need to know

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