Private banks, keen to get ahead in the digital race, are embracing technologies such as artificial intelligence. Yet wealth management remains a people business.
Five years ago, advisers working for wealth managers and private banks were on their way out, with future promises of robotised, digitalised platforms. Yet good advisers are now once more at a premium. Although the Covid-19 pandemic gave technological transformation a massive kick, it also helped convince wealthy families of the value of personal interaction with relationship managers.
“We believe humans will always want to connect with humans when facing uncertainty or fear,” states Doug Fritz, co-founder of US wealth tech consultants F2 Strategy.
“What the robo trend, and the current AI trend, got wrong is an assumption that a computer could replicate the amount of detailed industry, legal, regulatory and behavioural knowledge that an adviser has,” he adds.
Mr Fritz, whose firm conducts regular dialogue with major wealth managers, believes demand for advisers will continue to grow, but with one major caveat.
“Advisers must be able to augment their advice and perspectives with better content, insights and engaging digital experiences for their clients between the times when they speak directly to their clients,” he affirms.
Wealth Tech Awards 2024
Crucial to this transformation is dialogue which wealth managers have with clients and other stakeholders about developing innovations. The most recent study from F2 with top chief technology and chief operating officers at US wealth firms shows that while the need to build a compelling digital client experience is very high (average score of 8.24/10), the level of stakeholder dialogue is woeful (average 3.84/10).
The two top mechanisms firms use to gain insight into digital needs of clients and investors are ‘informal adviser feedback’ and ‘adviser interviews’. Only four out of 38 firms surveyed consistently interview clients about client-impacting technology initiatives.
Moreover, there is a key differential between different business models, according to F2, with ‘homogenous’ firms offering frequently similar client expectations and experiences poised for the best digital outcomes. In other words, the client experience must be equivalent whichever adviser the customer goes to.
This is not the case with many banks, where the journey depends on the client’s relationship with a particular adviser, rather than a centralised model. “The least-suited firms are those where the client experience is based on the individual adviser’s value propositions and as-such, any firm-wide digital experience will be either watered-down, or run counter to the values an adviser wants to translate.” This means adoption will be low.
Operational efficiency
Rather than truly putting clients first, as they claim, most wealth firms are still using digitalisation and the advent of AI to cut costs and increase efficiency as their first goal.
“We’re still seeing operational efficiency and asset or risk transparency as the key drivers of ultra-high net worth tech investment,” confirms Mr Fritz.
But there are also encouraging signs across the industry, he says, with increasing numbers of tools to evaluate assets and facilitate relationships with several generations, including the “Holy Grail of combined assets and liabilities for a true balance sheet view of a family’s wealth”.
Even though he sees potential, there is still a long road to be travelled. “Both alternatives and ESG [environmental, social and governance investments] specifically have suffered from a data and transparency problem,” suggests Mr Fritz. “We don’t see digital as a path forward until company reporting and standardisation metrics can be improved. Both data sets suffer from lack of standardisation in both reporting and interpretation. In both cases, this has led to a slowing of their roll-out and more frustration for clients and advisers.”
There is also a view that the wealth industry can get carried away with certain trends, such as the latest private markets craze and the previous ESG love affair, of which many clients are already beginning to tire.
“Whenever there is a new trend or innovation in technology, wealth management and private banking seem to take an ‘all or nothing’ approach, which isn’t right when serving huge cohorts of disparate clients globally,” comments April Rudin, New York-based founder of The Rudin Group, a marketing strategy consultancy for wealth managers.
“People are people and should be offered freedom of choice, rather than one offering versus another. Naturally some people would still want self-serve platforms and others prefer or need more robust, human advice.”
She also cites this polarised approach in the “culture war” around ESG classifications. “It seems to me that the entire ‘movement’ was a way to help investors choose investment types that they felt more passionate about or connected to and avoid investments that represented products or ideals that they did not want to support,” reflects Ms Rudin.
Unfortunately, the industry ran away with this trend, as it often does with new innovations. “The level to which this has been assigned has moved past its original intent,” she says. “The numbers and categorisations and formulas are so complex plus multi-national firms with diverse investments are not easily untangled,” she admits.
Widely available technology has even led to disenfranchisement of wealth managers, who were planning to use digital applications themselves as high-tech arbiters of morals for their wealthy clients.
“The internet and ability for end investors to do their own research and not settle for model portfolios has forever moved investment decisions to a greater extent into the hands of end investors and away from wealth managers,” says Ms Rudin.
Industrial revolution
While plenty of banks talk about ‘groundbreaking’ solutions and predict new ‘platforms’, currently at prototype stage in the wealth management laboratory, will lead to a renewed ‘industrial revolution’, sensible industry voices are calling for a sense of calm and perspective.
Describing a “rapidly changing AI landscape”, fuelled by links with external start-ups, heralding a “golden age” of tech-powered wealth management, Vinay Nair, founder and CEO of US AI specialists TIFIN, nevertheless urges wealth firms to adopt an optimistic, but calm demeanour, remaining wary of challenges and constraints to innovation.
“There is a strong desire to stay ahead of the winds of change,” says Mr Nair. “However, banks are often hit with talent constraints and lack of in-house expertise, or find it difficult to move at speed within their own organisations to drive innovation to stay on top of the adoption of AI we are seeing in the industry.”
Partnerships, such as TIFIN’s recent deal with RBC Wealth Management, are vital to innovation, he believes. The service for RBC provides access for the bank’s relationship managers to AI-powered ‘Insights’, to help explain and predict behavioural patterns.
AI technology will continue to power the industry “over the next decade and beyond”, predicts Mr Nair, a “strong believer” that AI will prove an enabler of advisers. It will allow them to be more efficient, service more clients, and find better growth opportunities than ever before, he adds.
Leaders of the pack
The key success factor in digital transformation, believes Mr Nair, is strength and quality of leadership among wealth managers.
“The most common factor we see is the willingness of leadership to drive change,” he says. “Regardless of firm size, this is the best predictor of the firms that will stay ahead of the curve. If the leadership team is aligned on the need and investment they are willing to make to adopt new technologies, the firm is likely to move quickly and make investments to modernise their technology stack.”
This ability of leaders to choose the most efficient and appealing business model is also cited by Sigrid Unseld, a Zurich-based ‘data architect’ and founder of Scilla Consulting, previously employed by both Credit Suisse and UBS.
“Due to digitisation, relationship managers and investment advisers today have access to better resources, need less time to prepare and can allocate more time to clients,” says Ms Unseld. “Robotised digitised platforms and services will become more common, especially among asset managers. What sets apart a good manager or adviser is the capability to choose the right platform or service.”
Industry consultants are united by the sense that the claims of the mega-players of digital omnipotence should be taken with a pinch of salt, particularly when it comes to engaging with clients about alternative investments, which wealth managers are so keen to promote.
“Today, alternative investments are processed very manually, from subscription to lifecycle to redemption,” says Sandra Daub, head of business development at Swiss software developer Noumena Digital. “The high manual effort prevents scaling, both from a monetary and risk perspective. If the processes are digitised, the asset class can be scaled and democratised.”
Creating trust
In addition, digitalisation can create marketplaces for secondary trading, which lowers the barrier to entry into alternative investments as the investment can be liquidated.
Similar hurdles exist to linking clients with ESG investment opportunities.
“The trend towards ESG screening of portfolios is driven by both new regulations and client demand,” she says. “However, reliable ESG reporting requires analysis of huge amounts of data; only primary data can produce meaningful ESG reports and solve the problem of double counting.”
To efficiently address this problem, large data platforms are needed to securely and reliably deliver primary data, she believes.
Wealth management, re-iterates Ms Daub, is based as much on expertise and trust as it depends on technology The analytical part can largely be taken over by the ‘machine’. But building and maintaining trust cannot.
“If we manage to relieve the good advisers of all the repetitive work and let the machine do it, providing advisers with the right tools to give their clients the best possible professional advice, then the advisers will have more time to concentrate on their clients, understand their needs and offer them the optimum solutions. This is the way to create trust.”
