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Wealth management on verge of tech change

As economy improves, clients expect more from advisors

Wealth management on verge of tech change

Pity today’s wealth managers. No, really.

On the one hand, global private financial wealth grew by 14.6% in 2013 (15.6 % in North America). The total number of millionaire households grew to 16.3 million (7.1 million in the United States). Assets under management globally grew 11%.

But profit margins remained largely flat, due mostly to rising regulatory costs. (All these numbers come from a report by The Boston Consulting Group.)

“The road ahead won’t be an easy one,” says Daniel Kessler, a BCG partner.

It’s more than regulatory costs that are clouding financial advisor futures. New technology—or the lack of, or misapplication of, technology—plays and will play an increasing role in thoroughly reshaping the wealth management industry.

Says KPMG in a recent report: “The global asset management industry will radically transform over the next 15 years due to seismic shifts in client demographics, technology, and changing social values and behaviors.”

Tom Brown, global head of investment management at KPMG International, expands on this: “We are on the verge of the biggest shake-up the industry has experienced and the message to asset managers is clear—adapt to change or your business won’t survive. The two biggest issues that need to be addressed are the changing client base and technology, and asset managers need to get to work on these areas now.”

Key to what KPMG and others are saying is the changing nature of the advisor-client relationship and how new technology factors into it. (Technology as it applies to the technical side of trading is a completely different subject and not discussed here.)

Ernst and Young, for example, in its latest Wealth Management Survey, has this to say: “Traditional channels are and will continue to be the primary medium through which clients interact with advisors over the next three to five years. Digital channels, such as social media and tablets, will play a complementary role…Furthermore, clients and advisors agree that telephone and email correspondence will continue to be key channels, especially for convenience. While digital channels rank lower for both clients and advisors, opportunities for technology to expand and improve client-advisor interaction exist.”

The Peak Advisor Alliance surveyed its members and found 81% report meeting face-to-face with clients once or twice a year, but also increasing their client and social events, proactive email and newsletter distributions, and regular social media contact.

“Wealth management is still a contact sport so it’s crucial that advisors continue to get out of the office and build relationships face to face,” says Paul West, managing director at Peak Advisor Alliance “However, we are seeing that how and when financial information is disseminated is evolving to take advantage of emerging technologies. These practices not only deliver the quality service experience clients demand now, but they also improve office efficiencies.”

Expanding on the changing client-base point, KPMG’s Brown says: “Demographics are changing. People are living longer and taking greater responsibility for their own retirement planning. Younger generations will likely save more as they see their parents run out of money in retirement.”

A lot of these themes should sound familiar to bankers in general: The need for both physical and digital channels. The changing demographics. The focus on the customer.

And there’s more that should sound familiar: Having to deal with legacy systems; applying big data and analytics; and coping with ever-intensifying cyber attacks.

For example: “Asset managers still have a long way to go to recognize and exploit big data and data analytics,” says Ian Smith, financial services strategy partner with KPMG in the United Kingdom. “While IT is already attracting a significant amount of investment, it is not being channeled into the right areas. Many businesses are putting their efforts into trying to unpick the complex legacy of disparate systems and technologies while trying to make sure they provide the right level of control to meet increasingly stringent compliance. There is too little focus on building the architecture to meet the business needs of tomorrow. Platforms will need to be completely redesigned with the flexibility to support a much more diverse client base and deliver a step change in costs, control, and client experience.”

Celent, in looking at how wealth management firms are coping with ways to work smarter, work differently, and enable staff, points to an increasing use of virtual desktop infrastructure. Microsoft describes VDI as a way “to deploy remote desktop services architectures that provide employees the flexibility to work anywhere, while allowing them to seamlessly access their corporate windows desktop or application environment running in the datacenter from a range of devices.”

In other words, it’s a way to meet customers in person that’s more convenient to the customer but allows advisors to have instant access to all relevant and updated information.

“Wealth management firms require access to customer information and third-party data to function properly,” says Bill Fearnley Jr. senior analyst at Celent.

Meanwhile, cybersecurity is a big and getting bigger concern for wealth managers, because their clients—particularly the mass affluent and recent millionaire households—may not be as security-savvy as those already in the top categories, or they may have become complacent.

“Cybercrime has changed things for the affluent,” says Neal O’Farrell, founder of cybersecurity firm Privide. “Traditionally these targets got a free pass on most crimes because they could afford to live in safer communities and invest in better security. Cybercrime has completely flipped that. Now crooks can reach them from anywhere, they have the tools, and they have the motivation. And often the easiest point of access is a financial advisor or wealth manager.”

(His company offers what it calls a hybrid protection plan for advisors, their firms, and their clients.)

So, do pity the poor wealth managers. Their future looks a lot like that which all financial services providers face.

In short, says the Boston Consulting Group: “The continuing development and adoption of digital communication will reshape the way products, services, and advice are provided to wealth management clients. Technology can change the dynamics of what constitutes competitive advantage…As client expectations continue to rise, wealth managers must put a higher priority on developing sophisticated digital capabilities and integrating them seamlessly into their current channels and business models.”

Sources used for this article include:

Despite Robust Year, Wealth Managers Face Daunting Challenges

Desktop Virtualization for Wealth Management and Insurance

Financial advisors overlook or misread fundamental client behavior, according to EY

Asset management industry to radically transform over the next 15 years, says KPMG International report 

Peak Advisor Alliance Survey Performance Study: Face-to-face Client Meeting Going By the Wayside

As Cybercrooks Zero In On The Most Affluent Consumers, Their Advisors Are Also A Target

John Ginovsky

John Ginovsky is a contributing editor of Banking Exchange and editor of the publication’s Tech Exchange e-newsletter. For more than two decades he’s written about the commercial banking industry, specializing in its technological side and how it relates to the actual business of banking. In addition to his weekly blogs—"Making Sense of It All"—he contributes fresh, original stories to each Tech Exchange issue based on personal interviews or exclusive contributed pieces. He previously was senior editor for Community Banker magazine (which merged into ABA Banking Journal) and for ABA Banking Journal and was managing editor and staff reporter for ABA’s Bankers News. Email him at [email protected].

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