Wealth Management must use modern tools

The old joke says an economist is someone who wanted to be an accountant, but lacked the personality.

In financial services, a new joke could say: A wealth manager is someone who wanted to be a banker, but didn’t have the personality for it.

Which is a long way of saying that wealth managers need to catch up to modern technology.

Relatively speaking, even as bankers increasingly and aggressively embrace the need to employ new technologies to remain competitive, members of the wealth management community seem to have just recently recognized the need for new technological approaches for what they do—in order to stay competitive.

Of course, I say this in the most general sense. Certainly many wealth managers are well aware of this now and are taking appropriate steps—which also kind of makes my point.

More of them should be. Recent industry reports underscore the need in dark lines.

World won’t wait for you

Celent recently issued two related reports on the subject. In one, titled “Automating Advice: How Online Firms are Disrupting the Market for Online Advice,” the firm notes that “the emergence of digital technology and a post-baby boomer generation of investors have unsettled the dynamics of the wealth management business. Traditional providers of financial advice must change the way they do business or face radical disruption.”

More specifically Celent says, “Over the last five years, online firms have gained significant market traction, most notably in the domain of investments (where the fragmentation of traditional delivery models and the adoption of passive investing strategies have created fertile ground for disruption), but also in the areas of personal financial management and financial planning.”

In a second report, “The Future of the Advisor,” Celent says that in the next 18-24 months, “the inherent tension between technology as a tool for advisors and technology as a disruptive force will be greater than ever.”

Here the firm discounts those claims that current wealth managers, even those who point to some recent tech upgrades, have done enough. Also, the paper’s authors view simply repositioning to richer client bases as short sighted.

Regarding the first point, Celent says, “Firms that have made long-term investments in front office advisor tools, front-to-back office platforms, and multichannel management have adapted best to previous drivers. However, they would be unwise to consider their work complete.” [Emphasis added.]

Regarding the second point, Isabella Fonseca, research manager for Wealth Management at Celent, states that:

“The most common refrain from wealth managers in response to challenges in the advice market is that advisors will be repositioned to focus on the [high net worth] and [ultrahigh net worth] customer segments, while the young, mass market, and mass affluent will use self-directed and hybrid technology. However, as comfort with online grows, there will be an increasing expectation that firms offer services in the channel that the client prefers, regardless of [assets under management].”

In other words, the haves and the have-not-quite-as-muchs will both expect to be served when and how they wish, irrespective of the providers’ wishes. Wealth managers will face what the retail banker has faced for years—the necessity to maintain a full buffet of ways to do business.

Wealth management in face of rising costs and rules

SunGard Financial Systems, which provides a variety of financial services technology, recently surveyed 129 wealth and trust company executives from North American community banks, regional trust banks, large global banks, family offices, and registered investment advisors. The survey explored the different perspectives and methodologies for how firms plan to balance the continued rise of operations costs and regulations against the need to grow their businesses.

Key findings include:

• Service & Innovation. 36% said that enhanced client service and front-office innovation were their key priorities for growth.

• Competition. 50% said comprehensive wealth management planning will help them stand out from competitors.

• Aids to client accommodation. 36% cited robust data aggregation services, and 32% cited smartphone and tablet applications, as the most important new requirements for servicing clients.

• Technology investment. 38% plan to increase IT spending on integration, workflow, audit trails, and automation.

• On-the-go know-how. 36% said their clients are asking for financial planning scenarios to be provided through online or mobile channels.

“Wealth and trust firms must offer comprehensive services that drive a client-centric approach and bolster their competitive positions, as well as improve internal collaboration among front-line talent. A firm’s ability to operate smarter could also play a larger role in advancing customer-engaged business models through integration and improved enterprise data management,” says Eileen Van Scoy, executive vice-president, SunGard.

Robust client reporting reigns

The Deloitte Center for Financial Services also has looked into this issue and in a white paper looking at trends in the wealth management industry for 2014, specifically lists new technology as a priority.

The research paper notes that new technology is necessary not only for investment performance and tax reporting, but that “while great advances have been made in recent years, there is still a strong desire for robust functionality to provide even more timely and accurate reporting.”

“Historically,” the Deloitte paper states, “reporting has included several manual steps, which can add to expense, slow the overall process, and lead to data entry errors.” Other notable trends in progress, it says, include digitalization of paper records and the use of tablets to monitor investments and performance reporting.

Still, it seems that a recurring stumbling block is the attitude, adopted to one degree or another, that “this is the way it has always been done.”

Breaking through legacy thinking

Archway Technology Partners, which provides software to wealth managers among others, takes specific aim at mental ruts like that: “Even when you are sure a new technology is worth the investment, it can still be challenging to convince other stakeholders and decision makers in your organization. How can you make the case for change?”

And Archway answers its own question:

 “A good action plan to follow: Document the process or workflow today, noting how much time it takes to complete; project the amount of time the technology could help improve the process by deducting time savings; don’t forget to think about an improvement in accuracy and the repetition of tasks being essentially eliminated.”

Summing this up, says William Trout, senior analyst in that first Celent report mentioned above: “Traditional advisors and the financial institutions that employ them must put aside legacy practices to deliver digitized advice and, ultimately, digital relationships. In short, they need to take a page out of the book being written by the automated providers.”

Sources used for this article include:

How Wealth Management Firms Can Make the Case for Adopting Technology

Automating Advice: How Online Firms Are Disrupting the Market for Online Advice

The Future of the Advisor

2014 Private Wealth Outlook: Championing growth; Redefining the roles and responsibilities of the evolving family office

New SunGard Study Reveals Growing Focus on Innovation, Optimization and Service among Wealth and Trust Executives