Wealth management: where tech innovation adds value

If wealth managers want to retain clients and their top relationship managers they need to embrace digitization and IT modernization, writes Pierre Bouquieaux, Product Director Wealth Management at Temenos.

Pierre Bouquieaux – Product Director, Private Wealth Management

Wealth management is behind the digital curve. Retail banks know that the ability to analyze customer data allows them accurately to target products and improve service, sales and profits. While wealth managers are getting there, the sector is still behind retail banks in digital planning and implementation. Given the structural changes to the market, this is not good enough. It is costing clients, staff and profits.

The last few years, the market has been going through some important structural changes. The merger of onshore and offshore private banking, as a result of the elimination of bank secrecy and tax heaven statuses together with the transfer of wealth to generations X and Y, have opened the market and are forcing wealth institutions to offer new services in order to compete with new business players like mass affluent or retail banks.

There’s also been a lot of talk of the disrupters in wealth management – the fintechs offering new services. These include mobile banking and new portfolio management services via, for example, robo-advisor software. But should this be considered an opportunity or a threat? It fundamentally depends on how fast traditional wealth managers will be able to digitize their platform to provide attractive and competitive services.

Wealth managers have two key advantages over fintechs. Firstly, although regulation is still seen as a considerable challenge by wealth institutions (according to 23% of respondents of the 2015 Temenos survey*), their ability and experience to cope with it provide them with a significant advantage over fintechs. Secondly, it’s the relationship they already have with their customers and the amount of data they hold on them. This has been built up over many years, sometimes generations, and is a highly valuable resource.

A customer-centric model supported by a strong digital offer will allow them to leverage this data and provide a better service. The data will have whole histories of transactions, preferences, risk analysis, acceptable levels of returns and more, and can be used by the relationship manager to offer the most tailored and appropriate service. The fintechs will struggle to have this resource, which is probably why according to Temenos’ survey 28% of wealth managers still consider their traditional competition as the main threat. Customer loyalty is also seen as the most important priority and retaining experienced relationship managers to liaise with them also ranks highly for 26% of the respondents.

That is because loyalty is a two-way street. When relationship managers change jobs they take with them on average a third of their clients and they often move when a rival can offer better products to their clients. Given the above priorities and perceived threats, it means wealth managers must address the needs of these managers. They need to give them the best tools so they can offer the best service with up to 27% of wealth managers in the survey agreeing that IT modernization (equally in core and mobile systems) is a key investment priority shifting significantly previous years’ views.

Just as digital is helping retail banks improve services, revenues and profits, so it will help wealth managers. The longer they wait the more they risk losing in terms of staff, clients, revenues and profits – to disrupters of course, but more likely to their existing rivals. It’s catch-up time.

Shifting Sands: Banking in the Digital Era (Temenos, 2015).

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Pierre Bouquieaux – Product Director, Private Wealth Management