EY has once again partnered with this publication on our must-read annual report "Technology Traps Wealth Managers Must Avoid." Here, two of its senior consultants highlight key issues for decision-makers to consider in 2022 – and looking far ahead.

Rahim Nota, Senior Manager, Wealth & Asset Management, and Sharon Chen, Senior Manager, FinTech and Wealthtech, at Ernst & Young LLP,  give a panoramic view of the technology landscape for the sector and signpost the potential traps wealth managers need to be paying attention to. 

This piece forms part of the 2022 edition of "Technology Traps Wealth Managers Must Avoid", which is available for complimentary download now.

1.    The evolution for wealth managers     
The needs of clients across the wealth management industry are evolving with a shift towards a new generation of investors who have preferences, which stem from interactions with new technologies and organisations. There are opportunities to secure and grow the client base by understanding client personas, needs and solutions; and acting as agents of change in order to service the multi-dimensional needs of the client landscape. Wealth managers will need to place greater emphasis on building a future operating model, focusing on holistic and tailored client experiences. 

This is at a time where technology is driving change at pace, but not only requires firms to shift from leveraging technology to deliver business and shareholder value; but also to deliver client value. To explore this further, we can think about client needs across the following three themes:

a)    Service: Clients are demanding more from their advisors, with their needs shaped from the same seamless experiences and compelling propositions that they get from their non-financial services providers. This means more personalised products and services, across multiple channels and on-demand, at competitive pricing points. New competitors in the market have already demonstrated the art of the possible, driving the need for incumbent wealth managers and banks to invest in their solutions to meet and exceed client needs. Where wealth managers and banks can partner to integrate services and offerings, they can unlock gains in wallet share.

b)    Engagement: Client behaviours are shifting, creating demand for new methods of digital engagement whilst maintaining interactive relationships. They want to be engaged at the right level, time and place, with wealth management integrated into their daily lives rather than an annual appointment or chore. To better understand client needs, firms will need a data strategy that enables them to appropriately develop analytics to understand their client personas, and how, when, and where to reach their clients throughout the client lifecycle.

c)    Purpose: In addition to financial goals, clients expect their advisors to help them achieve values-driven objectives, such as addressing their carbon footprint or supporting community values. They not only favour, or even expect the organisations they patronise to share these values, but would prefer providers that help them achieve against these values. Our research shows that 63% of UK wealth clients have sustainability goals, but only 44% believe these goals are understood by their advisors (“EY Global Wealth Research Report” 2021). Priorities also vary between different demographics, with millennials and Gen X particularly concerned about air/water pollution and deforestation, while boomers worry about data protection/privacy and governance issues.

These three themes and the rapid pace of change, are challenging for current operating models to deliver, necessitating wealth managers and private banks to transition to a new model designed for clients, and delivered through technology. They will need to conduct a customer-led review of their business model, expect to invest in technology and data across the entire estate, and develop an ecosystem partnership strategy that allows them to access the right solutions and tools to best serve their clients.

2.    What strategic advice should wealth managers heed?    
Technology is a significant driver for change, and an important tool in how to respond. However, building upon complex technology landscapes can also quickly become a rapidly ballooning expense, without delivering the expected or desired result.

Here are some considerations to keep in mind for wealth managers and private banks:

Be fascinated by your client’s needs, delivered through technology. 

A common trap for senior executives today is to become excited by the latest advances and overlook the primary purpose of servicing their clients. The technology landscape is a fast moving and exciting place, where advances ranging from biometrics to cloud computing have opened up numerous possibilities and permutations that previously may not have existed, or were not readily “off the shelf.” Firms may be tempted to adopt some propositions for the purposes of “branding,” so that they are seen associated with modernity and innovation, rather than for the contribution of the technology towards improving business value or client experience.

New innovations and technology should be adopted strategically where it directly or indirectly benefits the specific demands of a targeted client segment or proposition. For example, many recent new entrants to the industry leverage technology to produce low-cost, self-service propositions, as a means of competing with established players. Yet the 2021 “EY Global Wealth Research Report” found that 40% of UK clients are willing to pay more for better service, including 93% of millennials and 74% of very or ultra-high net worth clients. Wealth managers targeting this space would be well-served focusing their technology strategy to enabling features such as multiple-account consolidation, omni-channel experiences, and messaging and communications.

Know-Your-Customer has a new meaning.    
Building a technology strategy around the client requires developing and regularly updating an understanding of the client, beyond an assessment of their income and assets. There is an increasing expectation of hyper-personalisation; moving away from simple demographic or thematic segmentation of clients to understanding how financial ambitions, background, values, interests and even personality traits create unique goals and needs for each client. After all, 68% of UK clients are willing to share their data with an advisor for a more personalised experience, with millennials leading the way (“EY Global Wealth Research Report 2021”).

Here, technology can be an enabler or a distraction. A common example is the prioritisation of collecting customer data, with the assumption that simply being able to claim possession drives value. However, there is a large difference, for example, between a database and a functional Client Relationship Management (CRM) system dashboard where data is stored, processed and analysed for client and operational insights. 

Your ecosystem partners should be an extension of yourself.   
Few firms have the capability to develop all technology innovations and solutions in-house, or the scale to make it cost-effective. Indeed, most firms have always relied on third-party technology providers; the difference now is the extent to which technology has become a core enabler of the entire wealth business, necessitating subscription to not just a core banking platform but also numerous “plug-in” modules all evolving at a faster rate of change.

Ecosystem partners who provide solutions such as digital identity verification or chat functionality, need to harmonise with the wealth manager or private bank and with each other in order to create a seamless environment, collectively delivering the desired proposition to clients. Successful ecosystem partnerships align several fundamental organisational elements to create a value proposition that will influence how firms service the client. Thereby, wealth managers and private banks need to connect with their ecosystems not just technically, but also on behalf of the shared customer goal, and mutually aligned purpose.

Plan for the future – it is cloud-based and API-enabled.    
There is a huge opportunity for firms to integrate a full range of financial services including banking, insurance, wealth, and investments into single client relationships, unlocking gains in wallet share. The 2021 “EY Global Wealth Research Report” shows that 62% of UK clients prefer to, or already, use one single financial provider, taking advantage of regulatory regimes such as open banking to simplify how they engage with their financial providers.

Furthermore, adopting cloud-first and API-friendly design enhances the usefulness and reduces the costs of data collection, as well as enabling faster and cheaper partnerships with third-party providers. Strategic investments to establish the future technology architecture would lay the groundwork for future innovations.

3.    Opportunities and priorities: 
There are opportunities to evolve and future-proof business models to meet the needs of clients, now and in the future. Firms will be well positioned to keep and win greater market share with a future-focused strategy, built off a comprehensive understanding of their target client bases and experience they want to deliver, relevant investment into their technology and data infrastructure, and a clear approach to ecosystem partnerships. This will allow firms to create assets and build unique client propositions, addressing their needs on service, engagement, and purpose.

There are clearly priorities across the industry depending on which client segment is being served:

A)    Private banks have an opportunity to elevate their service model and become comprehensive digitally-enabled financial advisors, providing holistic financial advice that truly engages their clients along their values and goals. Key differentials going forward would be being able to seamlessly transition between a digital and analogue service as needed, and personalised multi-generational engagement, provided at speeds only feasible through technology today.

B)    Wealth managers should identify opportunities to increase access and service across their client base in cost-effective and compliant ways, including embedding their products and services into non-wealth customer journeys to help clients meet broader goals and ambitions. Establishing the correct technology infrastructure is essential, as it positions them to partner with third-party providers and leverage capabilities across their ecosystem.

C)    WealthTechs should continue to build upon their solutions with a client-centric lens and leverage technology innovation as the means to democratising access to wealth and investing in the mass market and underserved communities. Often working in partnership with wealth managers and private banks, as well as other FinTechs, WealthTechs should make one or more of the three themes (service, engagement, and purpose) part of their proposition and their go-to-market differentiator.

Important information     
This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Member firms of the global EY organisation cannot accept responsibility for loss to any person relying on this article.

About EY   
In our wealth and asset management work today, not everything is innovation; a lot of it is evolution. And it’s important to know the difference. FinTech disruptors continue to shift the rules, newer investors aren’t flocking to older channels and cost pressure is relentless. From data and AI, to tech platforms and partners, the questions have never been bigger, and the stakes have never been higher.

At EY, we help clients re-think everything from pricing and operating models to coopetition and convergence. We bring critical questions into focus, which lead to bolder strategies, simplified operations and sustainable growth. Our sharp understanding of the state of play allows us to shift discussion from reacting to change, to helping shape it. Ultimately, we work with clients not just to stay competitive, but to change investing for the better.
For more information, visit ey.com/fs or email rahim.nota1@ey.com or schen@uk.ey.com. 

Download your complimentary copy of "Technology Traps Wealth Managers Must Avoid 2022" now.