21 Jul 2021

What’s on the digital horizon for wealth management?

Eden Scrivenger

Chief Technology Officer, Investec Wealth and Investment UK

From blockchain, artificial intelligence and open banking to new ways of working, discover how innovative tech trends and future ideas will reshape wealth management.

When the Covid-19 pandemic swept across the globe, it changed the way we work, live and engage with each other. Lockdown restrictions forced companies across industries to switch to digital tools and services.

These trends accelerated digitalisation across financial institutions, including the wealth management sector. It has stretched technology teams to deliver at pace on tools like digital signatures and video chat. This helped every wealth manager to work from anywhere, in a highly functioning and secure way.

Now, as well as making sure that we run effectively, we need to look to the future, and how we can leverage innovations to exceed our clients’ ever-growing expectations.

Covid-accelerated digitalisation is not the only factor pushing the innovation agenda for wealth managers. Clients are evolving their preferences and expectations around user experiences, too, perhaps nudged along by digital-first challenger banking trends and digital interaction in other sectors.

Other factors, such as shifting client demographics and behaviours, regulatory changes, and the ever-growing fintech ecosystem, are forcing the industry to transform and update legacy business models and approaches.

In this context, wealth managers need to plan for a nimble innovation journey that embraces new technology for the next horizon of financial experiences and wellbeing, while growing and protecting wealth across generations.

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High tech, high touch: Bringing the best of both worlds

Wealth managers need a deep level of empathy to truly know their clients, their goals, and what they care about. They also need to be in tune with their clients’ financial ‘wellness’ – a trend which includes, for example, the psychology of their relationship with money and whether the way they invest is reflective of their values. 

Technology can’t replace the skill and intuition of a wealth manager in this aspect, but there’s a strong argument to let it do the heavy lifting so to free up time to enhance this bond.

For example, in a context of growing uncertainly, clients need a holistic picture of where they stand financially. One way to deliver this improved experience is to combine a client’s bank account information with other data that make up their financial life – savings, existing investments and pensions. If their adviser can also see this view and be alerted to changes, they will be able to offer timely support and guidance. 

A digital interface that is intuitive and interactive gives a bird’s eye view of goals beyond just finance that extends into life organisation, coverage for unexpected events, wellness, planning, and life goals.

Future-ready wealth managers are already prioritising interaction innovation to reduce friction and create a seamless client experience. Their main approach is to blend digital technology platforms with personal engagement, whether that’s face-to-face or online through video and chat.

In our view, a hybrid model is the key to delivering the high-tech, high-touch approach that high-net-worth individuals (HNWI) have come to expect.

There’s also been a rapid rise in the popularity of do-it-yourself investing, often with young people, who are keen to make money and to learn more about markets. Some of those who have made speculative bets in cryptocurrencies or meme stocks are now looking to do more on their own.

With technology, you can certainly reach a much wider audience, and the cost efficiencies lower the barrier to entry and start to include many who have been locked out of the traditional models.

However, as the trends progress, we don’t see robo-advisers replacing human advisers, particularly when it comes to larger investment portfolios and in the delivery of complex financial planning. The more a client has to win (and to lose), the more they need the reassurance of a wealth manager, who is in tune with their needs. 

Intelligent solutions beyond artificial intelligence

To help scale the human expertise, technology should take on the traditionally time-consuming processes for clients and the tasks which are administratively onerous for wealth managers.

For example, end-to-end automation can simplify the onboarding process for clients while simultaneously addressing regulatory compliance requirements for wealth managers on the back end.

Solutions powered by artificial intelligence (AI) use third-party databases to authenticate clients in real time using data from multiple sources. This allows for personalisation and predictive suggestions. For example, if a client owned vacation properties, their wealth manager may want to share content and breaking news regarding the industry and platforms such as Airbnb.  

However, an AI application is only as good as the data it analyses. Financial institutions already hold rich client datasets across the banking value chain.

Embracing open banking models would enable wealth managers to integrate internal client information with external sources to drive data transformation within the enterprise, which can ultimately differentiate a wealth manager in an increasingly competitive market.

A seamless experience with open banking

The open banking model helps wealth managers to realise this data integration and give clients a much smoother digital experience. It works by allowing approved third-party applications to connect directly to a client account, with their consent, via open application programming interfaces (APIs).

By understanding and leveraging this model, wealth managers have the opportunity to build out their API products and utilise third-party APIs as we shift towards Open Finance.

In wealth management, open banking can support user onboarding, account top-up and withdrawal, and account aggregation. In the future, however, Open Finance will enable clients to engage more with their finances and access much better data for decision making.

By leveraging open APIs, a firm can deliver consolidated client information across their banking and investment portfolios in an instant. Additional third-party data sources would add layers of information for more individualised insights and relevant advice in the moment. 

These capabilities all serve to create more personalised and frictionless client journeys. And advisers would receive this data in a way that is most meaningful to them, and in the most appropriate format, which would enhance the value of the advice they give to clients.

Blockchain to make processes simpler, faster and safer

Blockchain is another technology that will revolutionise wealth management and investing. By creating a decentralised database of unique, verifiable digital assets, financial services providers can simplify the transfer of assets like stocks.

This will transform the sector with trusted ‘know your client’ (KYC) standards upon onboarding, and faster and more efficient settlements. However, to leverage the full benefit potential, there will need to be alignment across the industry.

Trading shares currently requires a complex process that includes multiple intermediaries to certify ownership, transfer custodianship and keep track of who sold what to whom. But the blockchain can take care of all the bookkeeping, clearance, and settlements. In fact, the Australian Stock Exchange plans to adopt a blockchain solution developed by Digital Asset Holdings to do just that by mid-2022.

And blockchain solutions will also play a role in the age of open banking. The technology can help eliminate duplication of effort when collecting client information from different financial institutions and third-party sources. It can also digitise and securely store customer information and will help meet regulatory compliance requirements.

Distributed ledger technology also makes it possible to transfer the rights to an asset through cryptographic tokens, representing assets off-chain. Blockchain-focused fintechs are already working on ways to tokenise real-world assets, including stocks, real estate and gold.

The rise of NFTs, or non-fungible tokens, have also created a way to prove the authenticity of physical and virtual assets. The application of this technology creates opportunities for wealth managers to bring non-bankable assets, such as direct equity, residential and commercial real estate, family businesses, art and passion assets, into the bankable environment and creates a means to evaluate, store, authenticate and calibrate their value.

Other blockchain applications in the banking world include fraud and cyberattack prevention. By decentralising information storage, blockchain technology makes it impossible for a hacker to gain access to all information from a single database.

Protecting people, profit and planet

Going back to the concept of financial wellness, research shows that younger HNWIs want to remain in control of their finances with more involvement in their decisions.

They need easier access to on-demand advice, and also to a broader investment universe that includes alternative options, such as sustainable investments with environmental, social and governance (ESG) considerations.

In the immediate future, tools that offer transparency around how banks measure sustainability metrics in a way that doesn’t allow for ‘greenwashing’ will likely become competitive differentiators. Not only clients, but also regulators will be looking for that.

Digital transformation through partnerships

A few years ago, you could say that incumbents were threatened by fintechs acquiring their market. Today, and into the future, we’re seeing the power of partnerships between established banks and fintechs.

For the fintech, the partnership offers access to scale and deep business expertise. For incumbents, accessing advanced digital capabilities through partnerships with leading fintechs is one of the most effective and efficient ways to deliver innovative digital products and services to wealth clients and maintain a competitive advantage.

Bringing innovation partners into the wealth management ecosystem can accelerate the pace and scale of digital transformation to give clients access to leading digital banking and customer experience solutions and new features.

For these reasons, Investec already works with fintech firms through our open banking platforms, our multidimensional partnership model and various investment vehicles. These partnerships help to drive digital-led innovation within Investec globally and unlock new and exciting digital services for clients. As we move on our journey of digital transformation, partnering with leading fintechs will continue to be a key way to innovate.

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Disclaimer: The blog does not aim to give investment advice, but is designed to afford relevant longer-term context to investors, encouraging a broad perspective where uncertainty is high and a spirit of learning is important. The views expressed are those of the author, not those of Investec.