How Wealth Managers Can Embrace Digital Disruption Within the Investment World

Por: Yuryi Ferber - 14/11/2019

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Disruption in a business context is innovation that radically alters the way things are done. Often, it’s for the better, even if it means redundancy and obsolescence. But what could this look like for the financial services industry and the wealth management sector in particular?

When usually sluggish banks and insurance companies are getting in on the action, it’s a sure sign that things need to change. The wealth management industry is at the precipice of this change. FinTech companies are attracting more and more investment and business models are shifting as forward-thinkers adapt.

What’s Holding the Industry Back?

With cloud computing and big data, disruption is not unaffordable. So what’s holding the industry back from enthusiastically adopting fintech? There are a couple of factors that are giving decision makers pause.

For the longest time, the industry has revolved around personal interaction between wealth manager and client. Building relationships has been a key aspect to operating successfully in the sector. Moving away from that seems counterintuitive to some.

Although research suggests otherwise, there’s also the concern that fintech and powerful algorithms will render wealth managers redundant.

Investor 2.0

Clients are not cut from the same cloth that they used to be. In the wake of the global financial crisis, investors began to question the people they were trusting with their hard-earned money.

Many individuals feel that no one will give their portfolio the kind of attention and nurturing that they can. Especially not at the low fee of zero dollars. And so you have regular folks going it alone. Downloading apps to keep a beady eye on their assets.

They stay abreast of trends and line up potential offerings side by side to see where they can get the most bang for their buck. There’s an expectation of an omnichannel experience - you can start doing something on your laptop and finish it on your smartphone.

Investing sites with robo-advisers like Betterment cater to this growing demographic. They have low fee structures and although untested in volatile conditions, they work.

It also makes sense that high-earning millenials who have grown up with instant messaging and emails would be fine with conducting their financial affairs in a similar fashion.

Those who don’t have the time or inclination to manage their own portfolios still want to outsource the job. They want sounding boards and they’re not cutting financial advisers out of the equation. They’re just trimming the frills.

Some are concerned with investing ethically and this needs to be addressed with ESG options. It’s wealth management for a new generation.

Moving With the Times

Technology is actually helping to make asset management more efficient. Many professionals recognize this and are choosing to work for companies that utilize digital tools. Not only is there automation of tedious parts of the job, but incorporating fintech makes real-time information and useful data and analytics readily available to wealth managers.

Technology is not threatening job security. Rather, it’s improving the ability to do the job and provide more value to clients. It’s giving firms that employ the tech an advantage. Big data helps investors figure out what various contingency situations might look like.

People’s online footprints are informing product development, the timing of marketing and cross-selling. You can really hone in on user profiles to determine how best to meet the needs and wants of clients.

Investors are no longer just high networth individuals. They’re people who want to save money in the best possible way. Low fees are offset by scalability and bigger numbers of clients, as well as lower operating costs.

In addition, when a client’s financial information is in one place, it provides a better user experience. It allows wealth managers to optimally tailor recommendations based on a holistic understanding of a client’s equity and liabilities. Digitization also helps with regulatory compliance and risk management.

Shaking Things Up

Making a move towards digital tools requires a change of organizational culture. It’s not a simple case of paying for software and then carrying on with business as usual. This is disruption - it necessitates an overhaul of traditional, conventional ways of doing things. Not doing so could mean an inability to compete, and jeopardizing the longevity of a firm.

Game-changing transformation involves a number of things. To begin with, companies need to consider how the client experience will change and plan a digital strategy accordingly. To what extent will robo-advisers with low thresholds for initial investments be deployed? What security measures need to be put in place? What does best practice look like?

If wealth managers are to successfully embrace digital transformation they need to take a holistic approach to building a client ecosystem conditioned for the modern era.