Wealth Management: From Floppy disks to Robo advisor

Justin van Wyk, Proposition Specialist: Wealth Management at Refinitiv

The past decade will leave its mark as one of the most transformative times for mankind. It’s no surprise, we have witnessed a decade where self-driving cars have become a present-day reality, a drastic shift from using the 3 ½ inch floppy disks. This growth in technology has enabled and propelled the world into an era of exponential growth in technology.

Interestingly, even though there has been rapid growth and technology adoption for most industries, we have witnessed very few meaningful advances and adoption of technology within the wealth management industry. Wealth managers, and understandably so, have emphasised the importance of “the human” and client relations, fearing that technology may undo that component.

The industry relies heavily on trust - trust in the investment company, the advisor and her ability to navigate the ebb and flow of the investment market. To underestimate the value of a client relationship would be akin to setting sail without a lifeboat. As such, the adoption of technology has been seen as tool of doom and gloom for many people who fear losing relevance. However what we are also witnessing is the ability of these technological advancements to create new roles that have never existed before and simultaneously propelling wealth management into a dawn of true holistic client centric wealth management using technology.

Use of Digital Solutions

To begin with, a new dawn for wealth management sector is slowly emerging where wealth managers will soon be able to gain insights about their clients like never before. A large component of the industry’s engaging model is beginning to incorporate digital solutions to the client relationship such as social media posts, behavioural stats, data from health watches and gadgets, financial spending behaviour and the like into their financial planning practises. These advancements will pave a path of success for those firms that embrace and adopt these new digital solutions. In fact, a Refinitiv Report on Transformation of Wealth Management – five trends for 2020 and beyond, shows that 61% of wealth managers view data and analytics as very important for client differentiation over the next 12 – 18 months.

In addition, a combination of data, analytics and digital solutions is enabling firms to navigate the flurry of regulation in the wealth management space. Avoiding breaches in regulation is pivotal to maintaining relationships with both clients and regulators and can mean the difference between receiving a handsome fine, which could disrupt cashflow, the reputation and the financial security of the firm. This is the value that financial market data companies like Refinitiv have created to enhance our partner companies’ abilities to ensure the correct products are provided to clients from a regulatory perspective, such as non-embargoed funds, as well as creating a screening tool to prevent money laundering.

The Rise of Millennials

Second is the advent of a new generation of investors. Over the next 30 years, the world will face one of the largest wealth transfers ever witness. Globally, an estimated value in excess of $30 trillion will be transferred to millennials who are extremely tech savvy and have grown up in a world of economic instability. This new generation of investors have less loyalty to products and brands, are highly adaptable, opinionated and educated, and take full advantage of technology and data before making any decisions.

Millennials’ demand for new services and products will create democratisation of investments, personalisation, and a disruption of traditional roles but at the same time, a creation of new roles. A simple Google search of a product may allow the client to compare the suggested fund to similar funds and compare returns, strategies and costs for all of the funds, requiring the advisor to be more creative about their own role in the client’s value chain. For the millennial investor to be satisfied, wealth managers will need to provide holistic goal-based financial planning based on each firm’s unique value proposition. Not all is gloomy however, the creative use of big data, machine learning and various analytical tools will provide enhanced insight for wealth managers to be able to embrace this new generational demands.

Changes in Life Expectancy

The industry is now working with a generation that has a longer life expectancy than previous generations and are growing increasingly concerned about maintaining their standard of living well into retirement. This will require advisors to incorporate various new elements to the clients’ financial plan in addition to past and current considerations; including; smart living, climate changes in the clients’ area of residence, and using data and analytics for client servicing differentiation.

The industry is also facing an aging wealth manager skillset conundrum where young talent is not replacing experienced wealth managers upon their retirement fast enough to manage the growth of clients that the industry services. Refinitiv has identified this need in the creation of Refinitiv Workspace for Wealth Advisors, an innovation of a combination of data and analytics powered by technology. Workspace enables firms to increase the efficiency of wealth managers.

In conclusion, the wealth management industry is on a technological precipice, where firms will need to incorporate technology to advance how they operate. If ignored, this could be a huge set-back for an industry where globally, 66% of wealth management clients reported their dissatisfaction with their wealth manager, and only 39% indicating that they would recommend their wealth manager to friends and family. Utilising big data and analytics could mean the difference between a successful business and one that gets disrupted. Thankfully, 86% of Refinitiv clients consider servicing clients as a highly important digital capability to acquire.

The focus for wealth managers in 2020 and beyond will be about using technology to deepen the relationship with clients and providing a level of understand of their clients in ways they’ve never been able to.