While the wealth management sector has been something of a laggard when it comes to technology and innovation, changes in the financial services world related to regulation, compliance, competition, and client expectations mean that the sector has reached a tipping point, and the time to evolve has arrived.

At a fundamental level, wealth management is inextricably tied to the client relationship, and historically, this need has been met effectively and without the demand for drastic innovation. Covid-19 has brought the inadequacies of this approach to the fore, as wealth managers were no longer able to service these relationships in person.

This unprecedented situation of having to conduct meetings with clients over Zoom was a first for many clients, but it proved to usher in a new way of thinking about how wealth advice can and should be delivered.

The pressure to evolve is evidenced in the strong appetite for consolidation within wealth management firms, and while significant untapped value remains, efforts to offer an updated portfolio of products and services are hamstrung by firms’ legacy technology stacks. These systems simply aren’t fit to address the needs of clients in the modern world.

There is a risk that wealth management clients may turn to industry newcomers such as fintech firms instead of traditional providers because they can offer a similar, or in some cases, a better and more convenient service, at a fraction of the cost. Neo-banks, as well as fintech investment apps, are starting to close in on this space.

Several organisations have also identified that there is an underserved group in the mass affluent category. This group’s needs are beyond what a high street lender can provide, but also not at the level in either sophistication, education or size of investment that would require the expertise of a private banker. Where once high street banks filled this gap in the market with in-branch financial advisors, since the Retail Distribution Review (RDR) regulation came into force this segment has been left unserved as it became unprofitable.

Innovation at this intersection is required.

This piece explores the key themes and discussion explored in a virtual roundtable led by Finextra and Cognizant, titled ‘Innovation in Wealth Management: Recipes for success’. The roundtable was conducted under Chatham House Rule.

Understanding the culture of wealth management

Despite Covid-19 being an accelerator for evolution within wealth management, there is definite resistance to change within the notoriously traditional industry – predominantly from the advisors, many of who are IFAs working under a wealth management firm’s umbrella. Most relationships were built over a number of years – and in many cases multiple generations – before Covid-19 put an end to the old-world approach. Advisors are now accustomed to the use of technology within their client relationships and see the value it brings in terms of efficiencies.

Since Covid-19 restrictions began to ease, some advisors have committed to continuing with a remote approach by carrying out their meetings over video conferencing platforms. However, this isn’t unanimous, and many advisors have shown enthusiasm about getting back on the road to manage their client relationships face to face.

This presents a challenge for the industry going forward, because the way these once high-contact relationships will develop remains unknown.

On top of this, the industry is beginning to see a nuanced difference in the approach taken between existing clients and the onboarding of new clients. New clients tend to find it difficult to develop trust over a new fully online platform, while existing clients who have an established and trusted relationship with their wealth management firm are more comfortable shifting to a digital approach.

Data is the bridge for crossing the Covid-19 divide

There is no turning back on the digital progress set in motion throughout the Covid-19 pandemic, however, harnessing this momentum requires a considered approach to deploying new technologies and models for client interaction.

Adapting to this new world rather than falling back into traditional patterns is essential, and one key to success here is building and maintaining an in-depth understanding of the client. While it is important that advisors don’t disregard the strengths that made them successful originally to build their trust and reputation, there is space for evolution.

Fostering a culture of experimentation, and accepting that it is okay to fail fast, is a valuable mindset for firms to adopt in order to successfully innovate.

Also, while some clients will continue to demand a high-touch relationship model, others will be happy to adopt a more digital, remote approach. To achieve both, firms must become comfortable with managing a hybrid model which can be tailored to the individual preference of their clients.

This hybrid approach, which is driven by the client’s expectations and needs, but facilitated by the way in which the provider delivers that service, is vital for survival.

The final ingredient which binds these forces together is clean, accessible data. Well managed data can assist the process of prioritisation, which means that in the early stages it is possible to begin crafting a service that the client will appreciate, and therefore pay for. As has been seen in the progress made by Open Banking and its evolution into Open Finance, this increase in data accessibility has enabled a comprehensive understanding of client needs and their risk profiles to be assembled. Doing so places the user at the heart of financial decision making, and equips financial institutions with the information they need to better serve their customers.

This is particularly valuable where there is an overflow of change demand and normally a limitation around change capacity – whether that’s financial or from the perspective of human resources.

As was explored in Cognizant’s recent impact study, ‘Don’t go extinct: How Wealth Managers can remain relevant’, data has the potential to help wealth managers completely reframe what they know about their clients. More efficiently analysing the data that is already available to develop useful insights for clients, means that the time spent managing each client is put to better use than merely collecting information.

Time is money: How to smooth and expedite data capture

It is natural that face-to-face meetings with human advisors are better suited to grasp the nuance or detail of a situation than any CRM system input form does.

However, wealth managers are motivated to learn about ways to improve the flow and precision of data into a centralised system once it has been collated. There is a need within organisations to spend greater periods of time capturing the right data at the outset of a relationship and putting it into a structured format which can then be more effectively exploited. Getting this data capture right can save significant time and effort down the line.

Investment managers and advisors hold a detailed and in depth understanding of their clients’ information. That data has remained with the managers themselves and hasn’t been passed on the institutions’ systems. In effect, this means that there is a wealth of detailed data which has not been leveraged in ways that can better serve the client – for instance, through the use of nudges for timely conversation.

The reason for this is that institutions’ systems have been dispersed and disconnected with multiple data points sitting underneath these systems. While the systems had a clear role and task to facilitate, these were not focused on delivering insights with the ample information at their disposal.

Only recently has the value of this ecosystem begun to be unlocked, but to do so we must ask, which data should be used, how should it be used, and what are the insights that we wish to provide?

From that point wealth managers are better placed to make adjustments to the way data is used in order to deliver a huge amount of value.

It is also important to recognise that organisations can glean insights from the data that they do not receive during interactions with the client. This can be visualised with all data collected represented as an iceberg, with the ice above the waterline being the data that an organisation does capture or can see, for example, the client’s preference for a specific product or service.

The interesting data is what sits below the iceberg’s waterline and can include comments clients make about or around services or products being offered and, information tied to what the client is not explicitly sharing in these interactions. While there is a significant amount of data which is captured, understanding the gaps in that data can help to really hone insights about a specific client.

An unexpected source of finding out what clients think about products can be achieved through review sites, because these have become de facto advice sites where individuals can source further detail about products and services they’re looking in to.

How data enrichment enhances wealth management strategy in the long-term

Not all data is useful data. Institutions can and arguably should spend time determining what is and what is not useful data to collect, store and analyse.

Building a clear picture of a client is no small feat, and this can be particularly challenging when a client bears a one-to-one relationship with a manager or institution. In order to flesh out a client’s profile, it is important to take data from a diversity of sources.

This may include data held in a CRM system, third party information flows going on in the market, information about internal fund flows, which can then be synthesised against a larger market picture. All of this requires human analysis and judgement, therefore, ensuring that the data at hand is both relevant and accurate is essential for effective use of time and resource.

Ensuring your strategy evolves with the times

A telling observation to understand the shift in mentality being seen in wealth management is that some of the biggest private banks are currently working on launching technology applications and mobile solutions, with customisations that leverage data captured on the client journey. Historically, the clients of wealth managers – high net worth individuals – have sought high-touch, relationship-based interactions with their advisors.

If the wealth management industry wishes to serve its clients and society as fiduciary representatives, it must evolve along with the population it is serving. This underscores a change in the traditional perception that technology could be used by wealth managers as a means to mass-market or fill the advice gap. Now, particularly given the rise of smartphone use and the highly digitised population, the sentiment and behaviours of clients, including high net worth clients – has evolved.

The demand for real-time service is now a very real requirement, as clients want to be able to see their account statement or the performance of their investments instantly and in the palm of their hand.

The challenge for the industry will be determining how and what clients want advice or engagement with their advisors, and at which point of their client journey. Robo advice was initially thought to be the solution across wealth management, however it was quickly found to be inadequate for the demands and queries of the oftentimes complex financial concerns raised by high-net-worth clients.

A hybrid approach may well be the solution here.

Goals-based planning has been seen to retain its value despite these new trends across wealth management, with clients expressing that they value assistance in setting out a long-term plan which outlines how a client’s objectives will be met.

When it comes to this hybrid approach, the model may split into one where the advisors remain in charge of developing a holistic plan for their clients, within which will be transactions that need to be mapped out over the next five, 10, 15 years by the technology side.

How will the role of wealth advisors develop?

Leveraging these deep wells of data through tech solutions will inevitably lead to greater control and choice put in the hands of clients, which may prompt a transformation of the role played by wealth advisors today.

A negative characteristic of the wealth management industry has been the tendency to gravitate toward low-hanging fruit – large clients with assets to manage right now – rather than taking a long-term view which would see a greater focus on education of the next generation. This is emphasised by the regulator’s focus on cost over value, which has the effect of reducing the incentive for advisors to entertain shifting or sharing their availability in the wider market.

While increased accessibility to financial tools and services has given consumers greater control over their financial decisions, it has also prompted many to take financial risks in ways that were previously not available.

In this sense, there is an opportunity to use tech as an educator in the evolution of financial services. As a tool for providing information and greater clarity around financial choice, technology can be the entrance or enabler to bring people into the wealth advisory arena. The sector should work to provide the capability to design specialised financial apps which target and assist the education of the next generation. As a business case, through the education of the next generation, customers will begin to see the value of advice and then proactively seek it out.