The wealth management industry is facing one of its biggest challenges for decades.
Rapid developments in technology are changing client behaviour with increased demand for self service and personalisation. At the same time investment requirements are becoming increasingly specialised and diverse, such as wealth transfer and social impact investing, all of which pose a significant challenge to established business strategies that have change very little since the 1930s.
Technology and Intensifying Competition
Existing operational processes that are built around legacy silos coupled with the slow adoption of new technology continues to constrain the industry as existing processes can not be easily remodelled for today’s investor.
The majority of wealth management IT infrastructure has been built in an eclectic style based on operational silos and Excel spreadsheets. The underlying infrastructure often resembles a patchwork quilt of different systems and applications that have been stitched together as a result of successive mergers and acquisitions.
Fast forward to 2017 and mega indexers, which run passive low cost tracker funds, are attracting the lion’s share of new investment and are aggressively eroding market share from established incumbents.
At the same time, new digital disruptors are beginning to show an active interest in money management. Google has commissioned research on how it could enter the asset management industry. In addition, Facebook recently received regulatory approval from the Central Bank of Ireland allowing it to operate a payments service.
All this change is happening as wealth managers struggle with ever accelerating costs fuelled by an ever-increasing burden of regulation and compliance.
Increased regulation such a MiFID II is forcing wealth managers to restructure their operating models, upgrade key technology platforms as well as redesigning client fee structures.
A recent survey from EY indicated that a medium size UK wealth manager will need to spend between £3m-£5m to become MiFID II compliant.
In the face of changing customer demands and the rise of new agile competitors, wealth managers are under pressure to reinvent their business models and invest in development of new propositions.
Robotic Process Automation (RPA)
As wealth managers look to digitise their services, they are actively searching for ways to harness artificial intelligence to automate routine tasks.
RPA is an emerging form of process automation technology based on the notion of software robots. RPA can be applied to automate routine tasks, that are methodical, repetitive, and rules-based such as account rebalancing, customised portfolio reports and compliance reporting.
These tasks are traditionally undertaken by humans and by creating a virtual workforce of software robots, companies can streamline processes with a scalable and flexible back office infrastructure. In addition to increasing the quality and cost effectiveness of back office processes, RPA will free up knowledgeable staff to handle higher value tasks.
New Digital Tools
At the same time, new digital tools powered by AI and smart data analytics will enhance the customer experience and advisor productivity. New intelligent tools will be able to provide personalised advice, such as enhanced investment data analytics and visualisation tools, providing greater transparency on fees, key services and the overall investment process.
A number of wealth management firms are developing proprietary robo-platforms powered by AI to improve front-office operations including proposal generation, client on boarding and portfolio construction capabilities.
These new digital services can be accessed 24 hours a day, anywhere and on any device, dramatically improving operational efficiency while at the same time supporting client demands for new digital tools.
The wealth management industry is facing its biggest challenge for decades, fuelled by changing client demographics, new digital disruptors and increasing regulatory compliance.
To survive firms will have to execute clear digital strategies for the future that will need to focus on cost-efficient operating models. This will need to be achieved by embracing new ‘technology’ such as Artificial Intelligence, RPA and Robo Advisors to dramatically improve operational efficiency while at the same time meeting client demands for new intelligent wealth management digital tools.
Email : ian@IanAlderton.com