Wealth management industry lagging behind other financial services in adopting digital technology

Globally, wealth management is one of the least tech-literate sectors of the financial services industry, and is falling well behind non-financial services industries, according to a report published by Strategy&, PwC’s strategy consulting capability. What is currently on offer is sharply at odds with what their clients, high net worth individuals (HNWIs), expect.

PwC’s report, ‘Sink or Swim: why wealth management can’t afford to miss the digital wave’, which draws on interviews with wealth managers, CEOs and Fin Tech innovators, and insights from a survey of 1,000 HNWIs worldwide, reveals just a quarter of wealth managers offer digital channel beyond email. Africa is producing more wealthy individuals and a growing emerging middle class. According to PwC, the wealth management sector – in Africa in particular – is in the every early stages of the first ecommerce-focused wave. Very few wealth management firms have automated and digitised their back office and administrative functions. Only a handful of wealth managers use social media to interact with their clients and some only now are investing in web portals and basic mobile apps.

“In Africa there is a demand for technology among both younger and older HNWIs. The report shows that HNWIs possess a high degree of literacy. They make use of a wide array of digital devices for their financial and wealth management needs, such as online and mobile banking means to review their portfolio or investment markets.

“They believe it is important for their wealth manager or financial advisor to have a strong digital offering. Ignoring this state of affairs is no longer an option. If firms do not respond now they will not survive in the medium to long term,” says Jorge Camarate, Strategy& Partner.

South Africa is a model for many other African markets, with an industry worth R7 trn. Traditional asset management, in particular the mutual fund industry is growing significantly across the continent. This is being driven by a number of factors: economic growth and the subsequent rise in wealth, which is boosting the demand for pensions and life insurance products – the widespread adoption of technology is also expected to make the delivery of new products cheaper, bringing more consumers into the formal financial services sector. This large, growing industry has promoted a competitive environment with many different players, all with relatively low market shares, targeting a relatively low number of HNWIs (approximately 0.1% of the South African population) through a variety of very different strategies.

Regulation, digitisation and changing customer needs are shaping the future of wealth management in South Africa. Treating Customers Fairly (TCF) regulations are intended to promote fairness to customers in the financial services sector. The Retail Distribution Review (RDR) regulations are aimed at regulating fees and promoting transparency, while recent amendments to the Financial Intelligence Centre Act (FICA) are intended to reduce instances of financial crime.

“Significant challenges lie ahead for the wealth management industry regarding the implementation of the new regulations and legislation. Customer expectations continue to evolve and intersect with new technologies. Wealth managers will need to understand the necessary changes across channel, product and operations to meet changing customer demands. Many will need to fundamentally change their business models to operate in this new world” adds Camarate.

Given the complexity of their financial affairs, HNWIs pay for professional advices in many aspects of their lives. Savings and investments, tax and legal affairs are the key areas for seeking professional guidance. They are also likely to seek expert advice for non-financial matters such as health and fitness, their careers, family life or security.

The report shows that the demand for digital technology relating to financial services is surprisingly, similar across both younger and older HNWIs, the exception being portfolio management, where under 45s are more interested in managing their investments online. Moreover, 47% of those who do not currently use robo services would consider using them in the future.

Globally, only a third of wealth management clients claim to be very satisfied with their chosen firm’s service – and among clients with assets of more than US$10 million this drops to just 22%. “This is indicative of a customer segment that is particularly demanding and hard to please,” adds Camarate. But given the sector’s reliance on one-to-one service and personal recommendation, such modest levels of client advocacy should ring alarm bells.

In PwC’s view to survive, wealth management firms must:

• Accelerate efforts to adopt a comprehensive digital infrastructure that integrates every aspect of their activities, from the back office to how they service clients and market to new prospects;
• Harness the potential of digital to realise greater efficiencies, manage costs and extend their core client proposition beyond pure money management by drawing on a much wider range of available data;
• Be willing to partner strategically with Fin Tech innovators to deliver technological solutions at the speed the market expects.

Realising the possibilities of digital will require wealth management firms to go beyond a standalone digital strategy; they will need a business strategy built on technology to meet the needs of future HNWIs.

Firms that implement a digitally-enabled business model will be able to deliver winning propositions combining the ‘human touch’ that many institutions pride themselves on with the wealth of opportunities opened by digital.