Client demands and the way to deliver financial advisory and services have radically changed during the pandemic, embracing digital technology. These changes are now persisting, to become a new standard in the wealth management sector.

But digital change, in itself, is not a kind of magic bullet for a ready-made solution. However, as Objectway discussed recently with industry CEOs, it is the most effective enabler of wealth managers’ business objectives of achieving growth and operational scale in a tailored way.

Indeed, 3 out of 4 clients believe that improved digital engagement will make them want to see their wealth manager even more. Clients’ digital experience is now a real differentiator between firms: a personalised experience is seen as a reason to stay with or choose another firm. As a result, firms must ensure that their digital channels are fit for purpose when it comes to delivering a great overall client experience.

Achieving Hyper-personalisation

Wealth managers are at various state of progress in developing their own hyper-personalised strategies. Most firms would like to be able to offer personalised portfolio construction based on client preferences, and 4 out of 10 firms are currently implementing this. Some firms are using personas to target prospects and also make suggestions about products and other services to existing clients. The take up for this is very encouraging and firms have seen a significant improvement in client satisfaction as a result. Personalised reports, portfolios, and investments aligned with values are a main priority for clients, and firms realise that this is where digital change can really add value.

Achieving Operational Scale

So, what is preventing wealth managers from delivering personalisation?

One of the major hurdles is the state of data in wealth firms. This is often wide spread in multiple legacy systems and manually inputted, leading to duplication and errors. Firms are aware and realise the importance of addressing this as they look to change or upgrade their systems.

The vast majority of firms in the industry are not scalable and haven’t been for many years. One of the main reasons for this is inefficient IT and Operations. IT costs as a percentage of total revenue vary significantly across the industry. The median is close to 10%, however the peak is over 30%. Currently, there is a negative correlation between IT spend and profitability in the market. Firms appreciate that changing and simplifying their IT estate will be a major challenge.

The value of an incremental approach

While large bank-owned Wealth Managers have found greater success leveraging upgrades in managing their data, IT and Operations more effectively, smaller independent firms have had more budget constraints in adopting new technology and infrastructure. They don’t have the capacity or time to think of other – potentially more efficient – solutions. In addition, the risk of wholesale change to business operations is a major concern and many firms are looking to make incremental changes by adding the best bits of technology together in a modular approach. Outcomes from some of Objectway’s clients has shown this to be a successful approach.

Furthermore, many firms aren’t aware of the capabilities that technology will allow. For example, it is possible to construct portfolios based on client preferences and rebalance them in real time. The technology to do this is already tried and trusted, it just needs to be adopted.

There is a shift in the market to consider flexible modular architecture as opposed to a one size fits all approach. Overall, there is a massive opportunity in the sector to improve efficiency and scalability through digital change.

Indeed, Objectway discussed examples in the industry of firms who have successfully managed to grow at scale post digital transformation.