Alpha FMC

Digital in Wealth Management – Cutting Through the Hype

Tobias Henry

Over the last 5 years there has been a growing pressure on the wealth management industry. Increased regulation, fee compression, changing customer expectation and the maturation of new technology has created an environment where firms are exploring their long-term strategy, and the role digital services will play.

We are at an inflection point within the Wealth Management industry. A recent study by Alpha surveyed 14 of the top UK Wealth Managers, with 93% saying Digital Transformation is their top priority.  We have ridden the wave of hype around digital and are beginning to better understand how new technology and ways of working can be introduced to augment and improve customer experience, increase efficiency and drive profitability.

In previous years, digital advice firms such as Nutmeg, Wealthify and Wealthsimple were seen as direct competition to large Private Client firms and Private Banks, offering digital-first wealth management services, at a lower price point leveraging cost effective ETF based portfolios. Although these new entrants have struggled to gain market share, they have highlighted to the incumbent firms how digital services can be used attract new client segments, utilising automation and data to provide a customer focussed service through a digital channel.

What are firms doing?

Many firms have dipped their toes in the ‘digital’ waters, some with greater success than others. Some firms have built bespoke solutions, while others have opted for partnership/acquisition models to bolster their digital offerings. However, most organisations are still at the start of the journey; in our survey, 50% of respondents stated they were “getting organised’ regarding their digital agenda.

Most organisations are in the process of validating their current operating model, technology, client segmentation, propositions and product/pricing strategy, determining to what extent they are setting themselves up for future success and the role digital plays within their future business.  This can seem like an onerous task at the outset, with many firms not knowing where to start. This is compounded by the fact that, as an industry, our business model is predicated on in-person interactions (building trust), lots of paper-based manual work (regulation and technology), and the management of large sums of money (an emotive topic for most).

So where do you start? This will be different for every firm, however here are some guiding principles to help navigate the digital landscape.

1. Have a clear vision and purpose

A key success factor when launching a digital proposition is a clear understanding of what digital means to your business and brand. The most successful firms have a clear vision and and apply this filter as a decision-making criterion across everything they do.

Having a clear sense of why you’re developing digital services, the gap in the market and the target client needs are critical. In addition, creating a realistic business case and understanding factors such as technology cost (implementation and ongoing), cost of customer acquisition, life time customer value and product offering are all critical.

2. Understand the value of digital to your business

Digitisation should not be applied as a blanket approach across your business. Firms should spend time identifying their core functions and understanding which are high value (to the business and to their client), and which are low value. A lens can then be applied to determine which use cases/functions could be digitised, providing efficiency and capacity to the high value areas of the business.

3. Think big, start small, scale fast

The ultimate goal for Wealth Managers should be to create an open, micro services-based architecture, transitioning away from a traditional monolithic design. This may seem like an impossible task. The key to facilitating this type of change, and overcoming the inertia, is to start small, create value, prove the methodology and scale this across the business, guided by your vision and definition of where digital should be applied.

The need for the Wealth Management industry to evolve has been talked about for the last 5 years. In reality, very little has changed. We are now in a position where socio-economic drivers, advancement in technology and changing customer needs have created an opportunity for Wealth Management firms to evolve their operating model, technology and customer offerings.

About the Author

Tobias Henry
Principal

Tobias (Toby) Henry is a Principal at Alpha. Toby has extensive experience working with wealth management firms globally in defining and delivering digitally focused strategy and transformation initiatives.