Wealth management in Latin America is booming. And with the right digital tools, wealth managers are now reaching a far broader section of the mass affluent community than before, writes Enrique Ramos O'Reilly, Temenos regional director for Latin America.
The return of economic and political stability to most countries in Latin America has brought many dividends, not least the willingness of its citizens to invest their savings at home. The region, once a byword for hyperinflation and capital flight, now has thriving financial markets supported by local pension funds and other asset managers.
So it was only a matter of time before domestic banks and brokers began offering wealth management services to mass affluent and high net worth individuals. Why keep your money in Switzerland if you can have it closer to home?
Mostly, it is the leading retail banks that have set up new wealth management business units, with IT support from HQ, but little in the way of specific wealthtech toolkits to enable advisors to do a good job.
Like everything in tech, though, those who are catching up sometimes leapfrog more established businesses in other regions. And Latin America's private banking industry has a unique opportunity to seize the productivity-enhancing features of wealthtech suites to deliver a far better service to clients, while allowing advisors to automate time-consuming compliance and back office functions.
All the indications are that this is the right moment for the region's wealth managers to invest in new digital tools. According to Boston Consulting Group's 2017 Global Wealth Report, Latin America was the second fastest growing region after Asia Pacific in 2016, with $5.4 trillion in assets. And while the figure is still only a fraction of the $166 trillion in global wealth estimated by BCG, Latin America's share is set to grow steadily. "For the region as a whole, the outlook is bright following government actions to boost the private sector and attract investment," the report says. "When inflation is considered, wealth is expected to grow by 5% a year to reach $7 trillion in 2021."
At Temenos, we're seeing these very trends play out before us in real time. We've been advising the region's banks for more than 15 years and today the appetite to invest and harness digital technology across the region is increasing at an unprecedented rate.
But none of this is to underestimate the challenges facing Latin America's wealth managers. To begin with, there are far fewer investment products on offer than in more mature markets. This is largely due to the fact that domestic regulation often determines the asset classes on offer: local pension funds, for example, face restrictions on the kinds of investment products they can access abroad.
Given the current size of the business, it is sometimes difficult for Latin American advisors – and their parent banks - to see the value of investing in fintech. They believe the size of the market doesn't yet justify the expense of some of the fancier tools available to wealth advisors in more mature markets, such as products for assessing the volatility of portfolios, or which allow the real-time rebalancing of investments to match a client's risk profile.
There is, however, a strong demand for tools that enable wealth advisors to become more productive. They see value in technology that makes their work easier and which frees up time to see clients. This can be as simple as software that allows advisors to run client data on a tablet or other portable device, allowing advisors to meet busy clients wherever they may be – at home, on the golf course, or at an airport terminal.
There is also interest in wealthtech products that help automate certain time-consuming regulatory requirements, such as "know your client" health checks. Before digitalization, this meant filling out and processing detailed questionnaires. Automation is also being deployed to implement MiFID rules, known in the region as "prácticas de venta", or selling practices, which require banks to understand their clients' risk and investment priorities and offer products that are appropriate to their clients' needs.
For the mass affluent market, (defined as individuals with savings between $250,000 and $1m), wealthtech can help research teams design asset allocation models and portfolios to suit different groups of clients – defined by their age, risk profile, size and length of investments, among other parameters – and to bring new products to market faster.
Other advances in wealthtech, such as robo-advisors, will also come, as automated investment advice services hold the key to delivering private banking services to the mass affluent at a cost that both banks and their clients can afford.
With the return of economic prosperity and financial stability, wealth management finally has the opportunity to fulfill its potential in Latin America. And with the right wealthtech tools, advisors will be able to offer a better, more cost-efficient and more client-focused service.