Get Ahead of the Digital Wealth Management Curve, Now

Two weeks ago Seismic wrote a blog post that looked at the rise of Millennials in terms of both their expansive working population and potential as candidates for advisory services. As conversations—and debates—centered on how to leverage the buying power of this massive generation continue, a sea change within the financial services industry is well underway, and its momentum isn’t solely powered by the growth of the aforementioned age cohort, nor is it a temporary pivot. In fact, several factors are redefining wealth management and the way wealth management firms position themselves as more than financial stewards and relationship facilitators by providing personalized, digital, and predictive interactions based on a client’s specific financial situation and future goals.

Blueprint for Disruption

According to a PwC report on the digital threat to wealth management, the foundation for much of this transformation already exists within high net worth individuals’ daily behaviors and current expectations, but unfortunately industry players have been slow to pivot. Now, not only are they scrambling to close this gap and differentiate themselves in a highly competitive market, but also to defend against fintech challengers who are offering a lower-cost, highly digitized service model. Consider these figures from the PwC report as further illustration:

• 69% of high net worth individuals use mobile banking technology yet only 25% of wealth managers can connect using a channel other than email
• 39% of investors would recommend their wealth manager
• 23% of investors worth more than $10M would do the same
• 47% of investors over 45 who don’t use robo-advisor platforms would consider doing so

Magnifying this necessity for change is time, as numerous environmental components are forcing firms to act now before their future becomes murkier. Beyond the traits of Millennials, the predicted wealth they will accumulate, and their propensity for a customized, user-friendly digital experience, firms are strategizing how to approach new industry regulations and offset the costs of compliance, which squeezes profit margins. Take into account that disparate technology stacks and legacy systems have become expensive to maintain and an impediment to providing a consistent, globally connected client experience, and one can see that firms need to accelerate their adoption of the digital, data-driven future of wealth management.

In that aforementioned PwC report, a relationship manager in North America was quoted as saying, “I think that we need to dust off the strategic plan and move a lot of things forward. Even with the current generation of clients, the direction they’re going is pulling forward what we thought our technology needed much faster than expected.” This advice is especially prudent considering that the traditional client relationship component of wealth management is the one most directly affected by the prior listed environmental dynamics.

William Trout, a senior analyst at Celent, believes that investors, young and old and regardless of net worth, are already asking or will soon ask the question, “Is my advisor adding value?” For the sake of answering this inquiry with a resounding “yes” while maintaining healthy client relationships and profit margins, it is imperative for wealth management firms to improve their digital literacy. Advisors that don’t offer the kind of customized, data-centric, omni-channel services and solutions that the market desires will fall by the wayside.

Not Going Quietly into the Night

While the PwC report also outlines the technological options and business models that firms have started exploring as they attempt to advance their value proposition over other incumbents and rapidly expanding entrants, one needs to look no further than financial news outlets over the past six months for specific examples of transition. Whether firms will build new solutions internally, buy them or partner with outside vendors seems to be most common point of consideration and topic of conversation. In short, is it better to work with fintech businesses or against them?

Regarding these avenues, some banks aren’t wasting any time unveiling their own solutions, like Bank of Montreal (BMO) did earlier this year with robo-advising—a first for the Canadian market. Such an early move immediately differentiates BMO from other major Canadian players in a market that, while smaller in comparison to the U.S., is ripe for a low-cost digital option.

More recently, and after a two-year pilot program, Vanguard officially launched their own robo-service for U.S. investors, lowering the minimum investment for entry to $50,000. Thus far the platform has roughly $17 billion assets under management.

Additionally, UBS recently partnered with SigFig, allowing the wirehouse’s brokers to leverage robo-advisor technology and provide clients with a broader suite of services and more dynamic relationship experience. However, what makes this move truly distinguishing is that UBS will offer the hybrid platform to ultra-wealthy individuals, proving that robos can engage more than just budding investors.

Tom Naratil, president of UBS America, detailed the firm’s overall strategy: “While other firms have chosen to build capabilities internally or buy technology companies outright, we consciously chose to partner with the right technology firm, and only take a minority stake to ensure they maintain management control to allow them to do what they do best. Our partnership also allows us to focus on what we do best, develop and maintain client relationships centered on meeting their wealth-management needs.”

Avoid Antiquation

Indeed, this sea change in wealth management is about delivering a better client experience and advisors that choose not to leave, or at least modernize, the traditional model for one more closely aligned with their target audience’s behaviors and expectations may find themselves doing so at their peril.