Technology in Wealth Management: Drivers for Adoption and Future Trends

  • ID: 4421307
  • Report
  • 71 pages
  • GlobalData
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FEATURED COMPANIES

  • Avaloq
  • Charles Schwab
  • FutureAdvisor
  • Julius Baer
  • Nutmeg
  • Standard Chartered
  • MORE
Technology in Wealth Management: Drivers for Adoption and Future Trends

Summary

Investing in technology has leapt to the top of most wealth managers’ agendas. The emergence of robo-advisors has triggered an interest in changing investor demographics and new approaches to client segmentation. On the other hand, shrinking margins and pressure on cost-saving have fueled organizations’ internal needs to seek efficiencies which can be achieved with the help of technology. Although ultimately the human element will remain prominent in the world of financial advice, the industry will continue its technological advancement.

Key findings included in this report:
  • Lower returns increase investors’ price sensitivity, luring them into the arms of low-cost digital providers.
  • Although the average robo-advice client falls into the mass affluent category, HNW investors will also recognize the benefits of digital platforms.
  • With millennials building up their wealth, and intergenerational change on the horizon, financial advisors need to prepare themselves for a new generation of clients, while not abandoning their existing clientele.
  • Combining the best of human and digital will lead to successful hybrid advice model development.
  • Investment in technology is focused on the front-end, the back-office being lower priority.
  • Adoption of technologies such as big data and blockchain remains low in wealth management, and the industry will wait for other branches of financial services to test the waters.
  • Despite some high-profile partnerships between incumbents and fintechs, established IT vendors remain better positioned to work with large wealth management organizations.
Critical success factors discussed in this report:
  • Understand your clients - Clients have been a major driver for investment in technology. However, launching digital platforms is pointless without understanding exactly what clients are looking for, what affects their attitudes, and how is this going to change in the future. Smart client segmentation and leveraging organizations’ strengths, such as human advisors, remains key.
  • Deploy tools to facilitate advisor efficiency - Personnel costs are a significant element in most providers’ income statements. Investing in technology that allows firms to reduce staff numbers will bring long-term cost savings.
  • Use the expertise of IT vendors - As wealth managers have not been leading in innovation, they often lack management that understands technology. Working closely with trusted IT vendors will address this problem.
The report "Technology in Wealth Management: Drivers for Adoption and Future Trends", provides a comprehensive analysis of how technological developments are affecting the wealth management industry, including both traditional providers and new digital entrants to the market. Among others, the report leverages findings from our Global Wealth Managers Survey and Mass Affluent Investor Survey.

Companies mentioned in this report: BNY Mellon, Deutsche Bank, Morgan Stanley, CalPERS, Betterment, Nutmeg, Vanguard, Credit Suisse, J.P. Morgan, UBS, Charles Schwab, CheBanca!, Mediobanca, Scalable Capital, Wealthfront, Moneyfarm, Leodan PrivatBank, PHZ Privat- und Handelsbank, Julius Baer, Moxtra, Citigroup, BlackRock, Waymark Tech, Investec, RBC, SecureKey Technologies, IBM, Australian Securities Exchange, Standard Chartered, Temenos, Avaloq, FutureAdvisor, BNP Paribas, ING, SigFig, Schroders, Gambit, FIS.

Scope:
  • Lower returns increase investors’ price sensitivity, luring them into the arms of low-cost digital providers.
  • Although the average robo-advice client falls into the mass affluent category, HNW investors will also recognize the benefits of digital platforms.
  • With millennials building up their wealth, and intergenerational change on the horizon, financial advisors need to prepare themselves for a new generation of clients, while not abandoning their existing clientele.
  • Combining the best of human and digital capabilities will lead to successful hybrid advice model development.
  • Investment in technology is focused on the front-end, the back-office being lower priority.
  • Adoption of technologies such as big data and blockchain remains low in wealth management, and the industry will wait for other branches of financial services to test the waters.
  • Despite some high-profile partnerships between incumbents and fintechs, established IT vendors remain better positioned to work with large wealth management organizations.
Reasons to buy:
  • Understand what has driven change in the wealth management industry’s approach technology.
  • Discover key drivers and barriers for technology adoption in the industry.
  • Learn about how changing client expectations and how you can prepare for the new digitally-savvy generation of HNW individuals.
  • Examine the most successful robo-advice providers and reasons for their popularity.
  • Recognize which key areas of operations within wealth management organizations can most benefit from technology, and how.
  • Find out about the industry’s approach to the most innovative technologies such as artificial intelligence, big data, and blockchain.
  • Identify opportunities for wealth managers to work with established IT vendors, as well as fintech start-ups.
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FEATURED COMPANIES

  • Avaloq
  • Charles Schwab
  • FutureAdvisor
  • Julius Baer
  • Nutmeg
  • Standard Chartered
  • MORE
1. EXECUTIVE SUMMARY
1.1. Adoption of technology in wealth management will accelerate
1.2. Key findings
1.3. Critical success factors
2. WEALTH MANAGERS AND TECHNOLOGY: GENERAL TRENDS
2.1.1. Private banking has traditionally competed upon the basis of relationships and alpha
2.1.2. Private banks have recently awoken to the need for digital innovation in their service delivery
2.1.3. Robo-advisors have lit a fire under the industry in regards to the utility of digital solutions
2.2. Wealth managers are investing in front- and back-office tech
2.2.1. Client-facing solutions have been seen as a higher priority, but back-office is still a focus
2.3. Understanding technology is essential in order to benefit from it
2.3.1. Other branches of financial services will continue to lead in technology
3. TECHNOLOGY IN WEALTH MANAGEMENT: DRIVERS FOR ADOPTION
3.1. Drivers for technology investment have come from many different quarters
3.2. Lower fees and simplicity attract investors to digital platforms
3.2.1. Wealth managers once again need to adapt to a step-change in fee tolerance
3.2.2. Price-sensitivity fuels interest in low-cost, digital-only investment managers
3.2.3. User-friendly platforms are welcome among more hands-on investors
3.3. Intergenerational change is fueling the need for a shift in how wealth management services are provided
3.3.1. Wealth managers must incorporate digital services ahead of millennials coming into wealth
3.3.2. The current aging HNW demographic remain loyal to their advisors
3.3.3. As wealth is passed on, wealth managers’ client demographics will change
3.3.4. Wealth managers should not underestimate the utility of digital services to older clients
3.4. Large wealth management organizations struggle with costs
3.4.1. Expenses have been growing faster than revenues
3.4.2. Staff reductions require better advisor effectiveness
3.5. Regulatory requirements have weighed on the efficiency of many firms
3.5.1. Mounting compliance requirements have resulted in higher costs for wealth managers
3.5.2. The fiduciary rule in the US will encourage firms to invest in technology
4. THE NEXT STEP FOR ROBO-ADVICE: HYBRID OFFERINGS
4.1. Incumbent wealth managers feel the pressure from robo-advisors
4.1.1. Automated investment platforms will try to win private banks’ audience
4.1.2. Robo-advice platforms can complement wealth managers’ services
4.1.3. Digital players are yet to find their ultimate place in the market
4.2. Robo-advisors only really launched into the market following the financial crisis
4.2.1. Challenger brands are not able to compete with incumbents on reputation
4.3. Traditional wealth managers are venturing into robo-advice
4.3.1. Inclusion of the human element is key to bringing in significant AUM
4.3.2. Security and trust remain essential in investment management, making brand a key consideration
4.3.3. The roles of humans and technology are not fixed
4.3.4. Client segmentation and tailored targeting strategies are essential
4.3.5. There is HNW appetite for digital solutions
4.4. Hybrid human-digital offerings are the future
4.4.1. The hybrid proposition must not undermine a provider’s image, values, or core business
4.4.2. The right combination of human and digital elements will resonate with a wide audience
5. DIGITAL EFFICIENCY TOOLS
5.1. The industry invests in technology that allows savings
5.1.1. Wealth managers are investing more in tools supporting front- than back-office
5.1.2. Drivers of investment in efficiency tools have mainly been cost-related
5.2. Innovative communication platforms save time on travel and meetings, but will not replace human contact
5.2.1. Improving communication flow between clients and advisors has been the focus of North American wealth managers
5.2.2. Portfolio management software will be most beneficial in markets with low discretionary mandates penetration
5.2.3. Digital workflow tools support the administrative duties of relationship managers
5.3. Automating compliance work will trigger efficiencies
5.4. Big data analytics can help tailor products, but on the top level only
5.4.1. Analysis of investors’ history of trades provides information about their attitudes
5.4.2. Less than a third of wealth managers use big data
5.5. Blockchain remains untouched territory in wealth management
6. WEALTH MANAGERS’ COLLABORATION WITH IT VENDORS
6.1. The wealth management industry presents an opportunity for IT solution providers
6.1.1. Emerging markets have been early adopters of innovative solutions
6.1.2. Wealth managers look for support in client acquisition and gaining efficiencies
6.1.3. The opportunity for IT vendors lies in developed economies with big established firms struggling with outdated systems
6.2. Fintech startups are seeking partnerships with bigger brands
6.2.1. In an industry that requires scale, start-ups have been eager to partner
6.2.2. Fintechs will struggle to attract wealth partners in North America
6.3. Established IT vendors have an advantage over fintechs
6.3.1. Upgrading is still a fraught endeavor for wealth managers, and they appreciate the experience and capacity of established suppliers
6.3.2. IT vendors should provide not only pure IT services, but also advice
7. APPENDIX
7.1. Abbreviations and acronyms
7.2. Supplementary data
7.3. Definitions
7.3.1. Automated investment platform
7.3.2. CAGR
7.3.3. Developed (mature) economies
7.3.4. Emerging (developing) economies
7.3.5. High net worth (HNW)
7.3.6. Robo-advisor
7.3.7. Standalone automated investment platform (robo-advisor)
7.4. Methodology
7.4.1. 2017 Global Wealth Managers Survey
7.4.2. 2016 Global Wealth Managers Survey
7.4.3. 2015 Global Wealth Managers Survey
7.4.4. Mass Affluent Investors Survey
7.4.5. Level of agreement calculation
7.4.6. Exchange rates
7.5. Bibliography
7.6. Further reading

List of Tables
Table 1: Forecast growth in technology investment among US retail banks, by selected business segments
Table 2: The largest digital wealth management platforms in the US and Europe, by AUM
Table 3: Regional breakdown of countries covered in our Global Wealth Managers Surveys
Table 4: Survey data: Proportion of wealth managers investing, planning to invest, and not planning to invest in IT solutions facilitating administrative duties e.g. CRM, KYC
Table 5: Survey data: Proportion of wealth managers investing, planning to invest, and not planning to invest in digital tools for financial planning, portfolio development
Table 6: Survey data: Proportion of wealth managers introducing, planning to introduce, and not planning to introduce new digital channels for client communication e.g. video conferencing, online meetings
Table 7: Survey data: Proportion of wealth managers using, planning to use, and not planning to use big data analytics like IBM’s Watson to better understand clients and prospects
Table 8: Survey data: Proportion of wealth managers developing, planning to develop, and not planning to develop software to automate compliance work
Table 9: Survey question (2016): To what extent wealth managers agree that traditional wealth managers will lose market share to automated investment services (robo-advisors) in the next 12 months
Table 10: Survey question (2017): To what extent wealth managers agree that traditional wealth managers will lose market share to automated investment services (robo-advisors) in the next 12 months
Table 11: Survey question (2016): HNW clients are showing interest in services provided by standalone automated investment platforms (robo-advisors)
Table 12: Survey question (2017): HNW clients are showing interest in services provided by standalone automated investment platforms (robo-advisors)
Table 13: Survey question (2017): My firm has, or is looking to, partner with or acquire fintech start-ups over the next two years
Table 14: Survey question (2017): Co-operation with regtech will reduce wealth managers' compliance costs
Table 15: Survey question (2017): Digital access and channels are essential for wealth mangers serving HNW investors
Table 16: US dollar exchange rates, December 31, 2015 and December 31, 2016

List of Figures
Figure 1: Key drivers of technology adoption in the wealth management industry
Figure 2: Low fees are the major factor attracting HNW investors to robo-advice platforms
Figure 3: Entrepreneurs are likely to show demand for execution-only services
Figure 4: Price-sensitivity falls behind other factors driving self-directed investors outside the HNW segment
Figure 5: UBS has been reducing its workforce while growing AUM
Figure 6: In 2017 more wealth managers expect to lose market share to robo-advisors than in 2016
Figure 7: Barring Germany, the markets where digital channels are least important are offshore centers
Figure 8: Leodan PrivatBank attempted to build a friendly and amusing brand
Figure 9: Wealth managers are introducing new digital channels for client communication
Figure 10: The majority of wealth managers have already started investing in tools that facilitate financial planning and portfolio management
Figure 11: Digital tools that facilitate the administrative duties of advisors are most common
Figure 12: Compliance is currently more likely to be automated in emerging than mature markets
Figure 13: In markets like the Netherlands and the UK, wealth managers remain hesitant about the benefits of regtech
Figure 14: Adoption of big data is low in the wealth management industry
Figure 15: Wealth managers are not sure about the application of blockchain within the industry
Figure 16: Emerging markets are leading the way in technological developments
Figure 17: IT vendors have the biggest business opportunity in developed markets
Figure 18: Fintechs operating in the ‘product’ area attract most investment
Figure 19: China’s hot fintech market has the most wealth managers that are open to collaboration
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  • BNY Mellon
  • Deutsche Bank
  • Morgan Stanley
  • CalPERS
  • Betterment
  • Nutmeg
  • Vanguard
  • Credit Suisse
  • J.P. Morgan
  • UBS
  • Charles Schwab
  • CheBanca!
  • Mediobanca
  • Scalable Capital
  • Wealthfront
  • Moneyfarm
  • Leodan PrivatBank
  • PHZ Privat- und Handelsbank
  • Julius Baer
  • Moxtra
  • Citigroup
  • BlackRock
  • Waymark Tech
  • Investec
  • RBC
  • SecureKey Technologies
  • IBM
  • Australian Securities Exchange
  • Standard Chartered
  • Temenos
  • Avaloq
  • FutureAdvisor
  • BNP Paribas
  • ING
  • SigFig
  • Schroders
  • Gambit
  • FIS
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