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Tech in wealth: sector starts to play catch-up

Clients are demanding greater, cheaper and more immediate access to their investments and more control to manage their finances according to personal preferences without taking on additional risk.

Tech in wealth: sector starts to play catch-up

The latest statistics from Ofcom demonstrate the ubiquity of technology in the UK home: 96% of households have a mobile phone, 58% have a tablet, 42% have a smart TV, and UK consumers are spending a total of 24 hours a week online, more than twice as much than in 2011 (Ofcom UK Communications Report 2018).

Technology has become part of everyday life and is expected rather than desired. While financial services may be behind other sectors in digitising their approach to consumers, a wave of transformation in retail banking is already well in play, as evidenced by the recent news that Lloyds Banking Group will be carrying out a drastic restructuring plan centred around transferring a bulk of its  operations to online and digital banking.

Wealth managers cannot ignore this change in consumer expectations. Clients are demanding greater, cheaper and more immediate access to their investments and more control to manage their finances according to personal preferences without taking on additional risk.

Wealth managers can learn from other sectors and industries that have already had to transform to differentiate. Ultimately the legacy firms in these sectors, that are still thriving, have done so by using technology to enhance what they were already good at. The key value within a wealth management firm lies in their knowledge and understanding of their clients and the strong and long lasting relationships that this creates. Achieving differentiation within the sector may not be about having technology per se, but how it is used to enhance these strong relationships.

Wealth managers must step up to the plate to deliver more personalised services, taking into consideration unique preferences, including thematic, ethical and religious beliefs. The choice of assets available to clients has also expanded into areas such as hedge funds and alternatives, allowing wealth managers to service clients’ increasingly complex needs.

Get ahead of the game

The competition is clear. Retail adviser platforms now offer discretionary models and model portfolios, while the significant growth in our own robo advice clients supports the market’s assumption that robos’ assets under management is expected to grow worldwide by more than one third annually between now and 2022. This growth would take assets to nearly £1.2 trillion by 2022, according to Statista, and if the UK takes its share, domestic robos could also grow substantially.

For those investors with fewer liquid assets, these emerging offerings can provide them with more access to financial advice than ever before. The competition may be increasing but traditional wealth managers can differentiate themselves by offering something different – using technology to enhance, not replace, their relationships and personalising, not necessarily digitising, their interactions. 

To stay ahead of the game and differentiate themselves, wealth managers need to embrace advanced technologies that are central to adding value by managing clients’ assets in the most tax-efficient manner across tax wrappers aligned to life stages. There is a significant opportunity in this area for wealth managers in the retirement and post-retirement market. Regulatory changes  and a shift from defined benefit schemes has created both an ongoing need for institutional advice and guidance to be delivered in the most cost-effective way and a desire for personalised solutions that take into account different goals and life stages.

Ability to tailor

Technology can be used not only to enhance longer-term financial planning decisions, but to enable wealth managers to make specific, tactical investment decisions for clients with complex financial needs. For example, tobacco stocks can be screened out, but the portfolio can remain within the overall asset allocation, while delivering on the clients’ long-term goals. This ability to tailor provides wealth managers with the tools to be flexible, while still adhering to a firm’s investment philosophy. The end-client’s goals, circumstances and preferences, such as ethical or social requirements, can be met without taking on undue risk simply by implementing and utilising the relevant technology to enhance visibility into their portfolios and environmental footprints.

Personalisation is important. The more complex a client’s needs and the more granular the solution, the more wealth managers will need the technology behind their businesses to operate in a cost-effective, compliant way.

Despite the opportunity presented, many wealth managers still see technology as a significant challenge. Thomson Reuters reported in its 2018 Digitalization of Wealth Management report that 68% of global wealth managers find keeping up with technological change as their number one challenge.

The reality is that technology is a double-edged sword. While it could feel like a challenge that is hard to overcome, wealth managers should seize the opportunity to enhance what they are already good at, using the latest technology and innovation to tailor and significantly enhance their propositions while remaining compliant.

By upgrading technology and choosing partners to keep them relevant, wealth managers can deliver the comprehensive solutions that will meet investors’ present and future financial goals.

Brett Williams is managing director at SEI Wealth Platform and Private Banking

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