Digital Transformation is more than just a buzzword in the wealth management industry. It is imperative for the sector’s success as it describes the holistic adoption of digital methods to innovate wealth servicing while keeping stakeholders satisfied–a challenging balance to maintain.
But why is there an urgent need for it?
The great wealth transfer
According to a report by Deloitte, around $50 trillion in wealth will be transferred to the younger generation in the several decades leading to 2060, with 90% of heirs switching advisors as a result.
Generation X and Y will inherit this wealth from baby boomers, who spent much of their developing years exposed to rapidly advancing technologies, be it through video games, social media, e-commerce, or online streaming. Due to their collection of’ virtual’ experiences, Generation X and Y will have significantly different digital abilities and perspectives on technological integration.
As a result, these wealthy individuals not only accept digital innovation in wealth management with more openness but also demand it. They anticipate being able to rapidly communicate, make trades and withdrawals, and acquire information in a transparent, safe and personalised manner.
A survey by Ernst & Young (EY) highlighted that 53% of Middle East clients who switch advisors appreciate those who are digitally savvy, thereby highlighting the demographic shift and demand for technological capabilities. Therefore, wealth managers should use this opportunity to meet their new client expectations.
Accelerating performance
With the increasing interconnectedness of economies, digitalisation is vital as it paves the way for more efficiency, flexibility and scalability of wealth management solutions. Wealth Managers benefit in multiple ways by empowering advisors with digital tools to boost productivity, improve decision-making and increase customer bases. These tools encompass digital platforms, financial technology, advanced analytics, artificial intelligence (AI) and more. Task automation even leaves advisors with more time to spend on solving high-value problems for clients.
In this regard, a ThoughtLab study found that wealth and asset management firms that
embraced digital transformation after the pandemic increased their productivity by 13.8%, Assets under management (AUM) by 8.1%, and revenue by 7.7%, thereby showcasing the relevance of digital solutions in boosting performance.
However, wealth managers must be careful in evaluating and recovering the relatively high costs of the initial digital transformation setup, as staff need to be trained to operate the newly installed platforms and digital products while ensuring minimal disruption to services during the transition.
Democratisation of wealth
Likewise, digitisation has empowered clients to access exclusive opportunities at cheaper rates previously available to institutional investors or select groups of high-net-worth individuals (HNWIs). Digital wealth management platforms also enable simplified and speedy transactions and risk management via technology, thus preventing costly manual errors and giving clients more control over their wealth.
Service personalisation
Being a bespoke service, wealth management uses client data to offer tailored solutions and match investments with various personal elements, such as budgets, risk profiles, life stages, and more. Digital transformation has enabled wealth managers to hyper-personalise portfolios with the help of AI or robo-advisors to recommend strategies based on past interactions or answers from digital surveys while also improving risk and regulatory compliance monitoring, thus saving time and effort.
According to EY’s 2021 Global Wealth Research Report, 71% of clients are willing to share personal data with their primary wealth manager, a higher proportion than those usually willing to share with other industries. Given that over half of wealth management clients are willing to pay more for personalised service, this presents a lucrative opportunity for digitisation to enhance the wealth management experience.
Nevertheless, the growing use of digital tools is also shifting perceptions of relationships between clients and advisors. According to the same report, more than one in three clients indicate that technology has made their wealth management relationship less personal, with the figure being higher among millennial clients and those who prefer digital-led or hybrid engagement models. Therefore, wealth advisors must find the right balance between human elements and digitisation and move away from a product-centric to a customer-centric approach that suits individual needs.
The changing global demographics have led digitisation to profoundly impact wealth management. The sector has adopted more personalised experiences and must focus on making disciplined investments in digital transformation to empower advisors and clients with data, technology and expertise to enhance productivity and decision-making for critical tasks while catering to evolving client-advisor dynamics. With digital transformation in wealth management already showing much promise, its full potential is yet to be unlocked.
