A Researcher’s Warning to the Wealth Management Industry

“Digitize or die.”

(Illustration by RIA Intel)

(Illustration by RIA Intel)

The longest-ever bull market has padded the pockets of wealth managers who charge clients a fee based on a percentage of the assets they manage, a popular way to bill for their services. Now, a report suggests they consider spending some of that money before it disappears.

Just as wealth managers’ revenue has grown in tandem with client accounts during the bull run, it will shrink alongside a downturn. The market giveth and the market taketh away.

Wealth managers need to acknowledge coming changes to their industry and use excess capital while they have it to position themselves for the future, according to a recent report by Refinitiv, formerly Thomson Reuters Financial & Risk.

The report, titled “The Transformation of Wealth Management,” identified five trends from its research. Aite Group, a global research and advisory firm, conducted executive interviews with leading wealth management firms around the globe that contributed to the report.

“Wealth managers should take heed of these as they strive to position themselves as profitable, client-centric, agile, and compliant industry players,” Christopher Sparke, global head of Front Office and Digital for the Wealth Management group at Refinitiv, said in the report.

Every firm that took part in the research considered generational wealth transfer one of the top three concerns and said they are tailoring their businesses to better serve younger generations. The companies that have invested in digital self-service platforms said those platforms are helping them better understand how certain generations and segments prefer to be helped – they want customization; an experience and solutions tailors to them. Wealth managers that don’t have digital services are missing out on those insights.

Digitization does not necessarily mean replacing human-led investment management with some form of automated advice, or robo advisor. The report showed wealth managers are focused on using technology to improve client services, including client onboarding, account opening and e-signatures – 86% labeled those capabilities “high importance.” Improving the portal through which clients can review their account and other information was also highly important, relative to tools to engage clients or self-directed investment management.

Wealth managers seem to know what they want to improve but haven’t made much progress in achieving that. When asked how satisfied they were with their digital capabilities, no one in the same group was “very satisfied” and only 23% were “more than satisfied.” An overwhelming 71% were either only “satisfied” or “partly satisfied.”

In addition to operations, investing in technology can also help wealth managers garner insights from internal and client data.

“Data is increasingly becoming the lifeblood of wealth management firms. While data used to be a byproduct of conducting business, it is now moving to center stage. Those firms that take their data seriously and harness its power will be more successful, agile, compliant, and in a good position to best serve their clients,” according to the report.

More than half (60%) of firms are developing advisor analytics tools and advisors are also using data to peer into where clients work, live, and play, and then to prospect for new ones, like never before.

One section of the report plainly stated it’s “time to digitize or die.”

“As the song goes, ‘times they are a-changing’ and the time is now to take the proverbial bull by its horns, reposition business models and technology architecture, and get ready to face our future,” Sparke wrote in the report.

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