EY has once again partnered with this publication on our must-read annual report "Technology Traps Wealth Managers Must Avoid." Here, two of its senior consultants highlight key issues for decision-makers to consider in 2022 – and looking far ahead.
Rahim Nota, Senior Manager, Wealth & Asset Management, and Sharon Chen, Senior Manager, FinTech and Wealthtech, at Ernst & Young LLP, give a panoramic view of the technology landscape for the sector and signpost the potential traps wealth managers need to be paying attention to.
This piece forms part of the 2022 edition of "Technology Traps Wealth Managers Must Avoid", which is available for complimentary download now.
1. The evolution for wealth
The needs of clients across the wealth management industry are evolving with a shift towards a new generation of investors who have preferences, which stem from interactions with new technologies and organisations. There are opportunities to secure and grow the client base by understanding client personas, needs and solutions; and acting as agents of change in order to service the multi-dimensional needs of the client landscape. Wealth managers will need to place greater emphasis on building a future operating model, focusing on holistic and tailored client experiences.
This is at a time where technology is driving change at pace, but not only requires firms to shift from leveraging technology to deliver business and shareholder value; but also to deliver client value. To explore this further, we can think about client needs across the following three themes:
a) Service: Clients are demanding more from their advisors, with their needs shaped from the same seamless experiences and compelling propositions that they get from their non-financial services providers. This means more personalised products and services, across multiple channels and on-demand, at competitive pricing points. New competitors in the market have already demonstrated the art of the possible, driving the need for incumbent wealth managers and banks to invest in their solutions to meet and exceed client needs. Where wealth managers and banks can partner to integrate services and offerings, they can unlock gains in wallet share.
b) Engagement: Client behaviours are shifting, creating demand for new methods of digital engagement whilst maintaining interactive relationships. They want to be engaged at the right level, time and place, with wealth management integrated into their daily lives rather than an annual appointment or chore. To better understand client needs, firms will need a data strategy that enables them to appropriately develop analytics to understand their client personas, and how, when, and where to reach their clients throughout the client lifecycle.
c) Purpose: In addition to financial goals, clients expect their advisors to help them achieve values-driven objectives, such as addressing their carbon footprint or supporting community values. They not only favour, or even expect the organisations they patronise to share these values, but would prefer providers that help them achieve against these values. Our research shows that 63% of UK wealth clients have sustainability goals, but only 44% believe these goals are understood by their advisors (“EY Global Wealth Research Report” 2021). Priorities also vary between different demographics, with millennials and Gen X particularly concerned about air/water pollution and deforestation, while boomers worry about data protection/privacy and governance issues.
These three themes and the rapid pace of change, are challenging for current operating models to deliver, necessitating wealth managers and private banks to transition to a new model designed for clients, and delivered through technology. They will need to conduct a customer-led review of their business model, expect to invest in technology and data across the entire estate, and develop an ecosystem partnership strategy that allows them to access the right solutions and tools to best serve their clients.
2. What strategic advice should wealth
Technology is a significant driver for change, and an important tool in how to respond. However, building upon complex technology landscapes can also quickly become a rapidly ballooning expense, without delivering the expected or desired result.
Here are some considerations to keep in mind for wealth managers and private banks:
Be fascinated by your client’s needs, delivered through technology.
A common trap for senior executives today is to become excited by the latest advances and overlook the primary purpose of servicing their clients. The technology landscape is a fast moving and exciting place, where advances ranging from biometrics to cloud computing have opened up numerous possibilities and permutations that previously may not have existed, or were not readily “off the shelf.” Firms may be tempted to adopt some propositions for the purposes of “branding,” so that they are seen associated with modernity and innovation, rather than for the contribution of the technology towards improving business value or client experience.
New innovations and technology should be adopted strategically where it directly or indirectly benefits the specific demands of a targeted client segment or proposition. For example, many recent new entrants to the industry leverage technology to produce low-cost, self-service propositions, as a means of competing with established players. Yet the 2021 “EY Global Wealth Research Report” found that 40% of UK clients are willing to pay more for better service, including 93% of millennials and 74% of very or ultra-high net worth clients. Wealth managers targeting this space would be well-served focusing their technology strategy to enabling features such as multiple-account consolidation, omni-channel experiences, and messaging and communications.
Know-Your-Customer has a new meaning.
Building a technology strategy around the client requires developing and regularly updating an understanding of the client, beyond an assessment of their income and assets. There is an increasing expectation of hyper-personalisation; moving away from simple demographic or thematic segmentation of clients to understanding how financial ambitions, background, values, interests and even personality traits create unique goals and needs for each client. After all, 68% of UK clients are willing to share their data with an advisor for a more personalised experience, with millennials leading the way (“EY Global Wealth Research Report 2021”).
Here, technology can be an enabler or a distraction. A common example is the prioritisation of collecting customer data, with the assumption that simply being able to claim possession drives value. However, there is a large difference, for example, between a database and a functional Client Relationship Management (CRM) system dashboard where data is stored, processed and analysed for client and operational insights.
Your ecosystem partners should be an extension of
Few firms have the capability to develop all technology innovations and solutions in-house, or the scale to make it cost-effective. Indeed, most firms have always relied on third-party technology providers; the difference now is the extent to which technology has become a core enabler of the entire wealth business, necessitating subscription to not just a core banking platform but also numerous “plug-in” modules all evolving at a faster rate of change.
Ecosystem partners who provide solutions such as digital identity verification or chat functionality, need to harmonise with the wealth manager or private bank and with each other in order to create a seamless environment, collectively delivering the desired proposition to clients. Successful ecosystem partnerships align several fundamental organisational elements to create a value proposition that will influence how firms service the client. Thereby, wealth managers and private banks need to connect with their ecosystems not just technically, but also on behalf of the shared customer goal, and mutually aligned purpose.