By Andrew Butler-Cassar, Hottinger & Co
The banking and wealth management industry has grown over the decades built on trust and long-term relationships, and this traditional approach to people’s financial affairs has stood the test of time. However, with the rise of the machines in many sectors of our day to day lives you might be wondering why Amazon Bank or Google Wealth Management doesn’t exist already?
In this article we will explore what is and will likely be adopted in the wealth management industry in the short term and whilst at Hottinger we don’t speculate, we will finish with what the next gen expects.
Full automation supported by artificial intelligence (AI) has already started to infiltrate our everyday lives, often without us really knowing. Often quoted is the accuracy of healthcare analysis produced by a computer, but who wants an app telling you that you have a life-threatening disease! Whilst the machines can help us mortals deliver better results, we still want those results to be delivered with empathy, a trait the machine hasn’t mastered…..yet! However complicated the problems that take a team of mathematic scientists to answer, with a margin of error, quantum computing can solve. Furthermore, AI can manage much of the mundane operational functions that are prone to human error. In larger retail banks that service retail customers, AI is now deciphering large amounts of ‘customer behaviour’ using algorithms to promote new products and services; “know your customer” just got a whole lot more mathematical !
Blockchain Technology is already in use in many banking transactions and billions have been invested in systems by some of the largest US institutions. A Santander report published in 2015 shows that banks and property management companies could save up to $20bn a year by late 2022. According to research by Roubini ThoughtLab, 225 out of the 500 wealth management managers it surveyed had incorporated the technology in some way. (1)
Furthermore, blockchain technology is expected to create multiple new classes of assets that will become easier to own that currently cannot be settled and are subject to abuse. . For example, shares in collectibles and property could be verifiable and part ownership easier to manage and value.
Robo Advisors is an area written about so much already in the wealth sector that it has almost become passé. Many have tried and failed take Investec’s click n invest, or, UBS Smartwealth, millions spent but neither are commercially viable today. However, the sunk cost may not have been all lost. Over the last few years, Tiller Investments, a firm well known to us, that began life as a robo advisor and white-labelled solution for other advisors, soon came to realise that in fact it was their architecture that they had built around onboarding clients that many other banks and wealth managers were interested in. Like any well run tech firm Tiller Investments understood the importance of the timing of adoption and the need to pivot when necessary. The beauty of the smaller new market entrants is that they do not have to deal with legacy systems and can design their architecture to be open making it easy to plug-in and integrate with current bank systems. The area of onboarding and compliance in general has seen millions spent on employing new staff that, instead, could be well served by new technologies working faster and more efficiently.
But will clients see the benefits of these early adoptions, afterall, none of this sounds like a flashy new portal or higher quality reporting, and is that really want clients want? Clearly faster and more efficient account opening is music to both wealth management firms and the client’s ears alike and the development of better analysis through AI and blockchain may well lead to better client solutions. However, where we have seen the greatest change in a short space of time is in the ability to spend more time with clients!
So what can clients expect from this technological revolution? A better relationship, communication and aggregated reporting appear high on the agenda. What type of relationship does a client want? Adviser led, technology led or a mix, to be determined as and when the client requires it? Clients have faster and more detailed access to their portfolios and multiple formats to contact their wealth manager including by, video conference, on-line chat, email, social media, or the good old fashion telephone. Achieving a full view of net wealth across banking, investments, debts, pensions and more has always been hard but this is changing quickly through changing regulation. “One place”, or, “One bank” are slogans banded around by bankers and wealth managers who see the value in providing aggregation for ‘free’.
“Clients expect unique, tailor-made services suitable to their individual needs. They value modern, intuitive financial management platforms, available at any time via a phone or a tablet, but they still care for an experienced professional who will translate and explain the strategies proposed by the systems and help in making the decision. They are willing to pay a premium for such a combination of intuitive tools with an experienced personal adviser” says Patrik Spiller, Partner, Wealth Management Industry Lead at Deloitte Switzerland. (2)
And so, to the future. Generation Y, or the millennial, is not as loyal to service industries as Generation X, or Baby Boomer. Younger people would rather visit their dentist than their bank manager! We believe firms need to incorporate technology to be more engaging, instead of a list of boring questions to determine your risk profile, why not an online game? Gamification, already used in the insurance industry, could be one way to improve the dull reputation of wealth management, which often struggles to persuade us that asset allocation is at all interesting. But what us oldies might find even more surprising is that whilst brand loyalty isn’t everything, solid and considered advice along with an advisor making the effort to educate and be visible is still a need for the next generation. The matter of money is still a personal one and whilst that remains the case, people beat machines at the ‘inter-coal-face’ !
References:
- Richtopia September 2020
- Deloitte paper 2019: The future of wealth management. What will the financial ecosystem look like in 2030?
Additional Source material:
Raconteur – Four top uses of technology in wealth management – July 2019
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