The onset of new-age technology and emergence of fintechs have resulted in one big change in the wealth management industry: more power in the hands of customers

T he wealth management industry has always seen itself to be at one of the most personal-touch driven ends of the services spectrum, with super-trained wealth-relationship managers dealing with ultra-high network individuals, providing an experience that is custom-made, personalised and exclusive. No longer. Self-directed investing is quickly becoming the order of the day, and the demand for digital tools, with a transaction-based fee structure is evidently the new age mantra. Online AuM penetration rate is estimated to be more than 40% in the US alone, providing a clear indication on where the winds are headed.

The change is holistic, and is palpable in more ways than one:

  1. Financial Greater transparency in pricing, and digital enabled straight-through processing and increased competition from fintech start-ups has an inevitable impact on the need to work on margins.
  2. Customer The target customer segment is fast moving from high net worth customers demanding end-to-end services, to convenience-driven, price-sensitive mass-affluent segments and also a new-age group of millennials. This also means greater agility in the distribution models, as wealth managers look to serve all segments and their evolving needs.
  3. Product The customised and complex product portfolio is giving way to simple, standardised and transparent products that are much more simple. There is also a visible growth in passive products, that is pushing players to look for promoting platform enabled vanilla products that are less complex.
  4. Channel Platform-enabled approach also means greater efficiency, and higher emphasis on outsourcing areas that are not of core competencies. Automated portfolio management, adjustments and rebalancing, customer life-cycle based product innovation, all driven through artificial intelligence, Big Data and IoT is a serious shift from the traditional process framework adopted by large players.
  5. Process The target customer segment is fast moving from high net worth customers demanding end-to-end services, to convenience-driven, price-sensitive mass-affluent segments and also a new-age group of millennials. This also means greater agility in the distribution models, as wealth managers look to serve all segments and their evolving needs.
  6. Technology Perhaps the foundation layer for all of the above, being the advent of mobility, robots and devices that enable higher convenience, greater transparency and increased efficiency. End-toend integration from front to back office on a digitised value chain is very much the holy grail.

Talk to any wealth manager and the conversation invariably gravitates towards the industry buzzwords – wealthtech, digital wealth management, robo-advisory and third-party wealth management. There is reason to worry if you have not got the pulse of what this implies to the margins, and the profitability of the enterprise. A fundamental shift that is silently revolutionising the industry is the transparency in pricing and fee structures. Historically, wealth managers tied-up with institutions, whose products were then promoted and sold to customers – the commission for the sale was contributed by the product manufacturing institutions. The advent of digital platforms has turned that on its head: it is the customer who buys the product using the digital platform, for which a service fee is being levied by the wealth manager. Basically, that is a serious shift – from being a supply-driven model to that of a demand-driven model.

Digital penetration evolves from pure onboarding and AML validations, to self-serviced transaction models and technology and analytics enabled advice that is trustworthy. There are essentially three core tenets of a digital customer engagement: accurate information, flawless execution and personalised engagement. The fine balance that digital startups are looking to strike is to maximise client satisfaction while keeping the cost structure low. The balance that established players are looking to draw is that of driving an interaction that is both digital and personal. The increase in focus towards regulatory compliance – be it GDPR or MiFiD II – has also its cost implications, and a fine balance between protecting the profit margins without compromising on regulatory compliance needs is also the need of the hour.


It is also interesting to see how the emergence of new-age technology has helped across different dimensions of the wealth management value chain. Artificial intelligence, for instance, has made the product portfolio construct better through intelligent investment research. Big data has driven better asset volatility prediction, cross-selling and AML measures. Social media-driven Big Data has also enabled monitoring of digital conversations to drive more proactive responses to emerging client demands. Wealth managers such as Wealthfront and Nutmeg reportedly use robo-advisory algorithmic models for automated portfolio creation and transaction execution. Interestingly, having a human-robot combined approach – as adopted by leading players – have enabled a higher degree of sophistication not only for better asset allocation and risk control, but also for more effective KYC and enhancement of customer experience. Another interesting example is China Merchants Bank, which has reportedly fused its fund research and wealth management offering with a robo-advisor, that enables a Big Data-based mobile advisory service. And this is just one example of what most banks around the world are looking to adopt.

The impact of the above has manifested itself in several ways, within the wealth management industry. Historically, advisor onboarding was challenged by issues including limited visibility into processes, manual data entry with no consolidation of data and limitation of integration. The self-service models with new-age digital models have made serious inroads in driving a silent transformation. The essence of this transformation, ultimately, is empowering the customer towards selfservice, better quality investment decisions and a superior experience. Here are a few innovation examples that are not uncommon anymore:

  • Digital onboarding: even allowing for opening accounts over a video conference
  • Omnichannel content: driven over tablets or internet or mobile collaboratively
  • P2P investments: Disintermediation through peer-networks, engaging directly
  • Personalised health-check: Review portfolio with remedial recommendations
  • Robo-enabled advisory: Investment advice on product performances
  • Platform approach: Simplification of products into a platform-based offerings
  • Digital market places: Enable online trading, also for family offices

Industry estimates peg 5-10% of customers already preferring an automated self-service approach, even while another 30-40% are looking for a hybrid approach to personal and digital combination in interaction. The implications of the above are not difficult to decipher. Successful wealth managers would do well to drive a hybrid approach to servicing customers. Providing an automated platform, that helps with easy investment decisions on a low-cost basis is now a hygiene factor. Yet, enabling access to a physical, trained advisor to deal with complex investment scenarios is a must-have, too.

The wealth management world has changed, and for the better. Emergence of newer players, increase in regulation and adoption of technology have helped reduce opaqueness to the product construct, pricing models and processes adopted to a much higher degree of transparency. More importantly, customer loyalty in the wealth management world is longer driven purely by relationship, but by consolidating the benefits of digital technology through self-service channels and ease of engagement, simplified products and straight through processes that lower cost of transaction and well-tested digital advisory models that do not compromise on the reliability, but rather enhance the accuracy of advice.

The shift in the age group of wealth customers, and more specifically the millennial segment, are looking to drive their decisions directly, and the wealth management player that addresses this demand the best would inevitably be the winner. What that means, in simple terms, is more power in the hands of your customer. If you are not in the game yet, it may be time to reset!

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