JUN 30, 2022

Forecasting the future: How and why will technology enable change in the Wealth Management sector?

Tariq Khan

Director Of Client Services at Objectway

Reading time: 2 min


Objectway was proud to sponsor Compeer’s recent flagship Yearly Review conference, which decision makers rely on to discover the key business performance trends.

The wealth management industry is expected to undergo an unprecedented amount of digital change over the coming 12 months with the majority of firms intending to change at least part of their IT architecture. This change has undoubtedly been accelerated by the pandemic, and according to research with senior wealth managers conducted by Objectway, investment in IT change is predicted to remain above pre pandemic levels over the next 24-36 months.
Technology is being viewed as very important or critical in enabling Wealth Managers to accomplish their main business objectives of achieving scale, improving front office efficiency and attracting new clients.

Objectway’s in depth research with firms highlighted the chief priorities for technology change – in line with their objectives above – in the near future with the most important being a focus on replacing legacy technology.

Firms are trying to simplify their IT and ‘future proof’ the business, make it ready for future integrations in an open platform architecture in case they offer new products and solutions without the need for a complex overhaul of systems and without the need for many manual interventions.
Client demands have changed, and their digital experience is now a real differentiator between firms and a personalised experience is seen as a reason to stay with or choose another firm by at least 60% of clients. As a result, firms will try and ensure that their digital channels are fit for purpose when it comes to delivering a great overall client experience. In this regard, there is also a focus on improving client portals to offer a personalised experience to clients where they can access tailored information at any time on any device as well as having secure messaging, chat, video, to collaborate with their advisors. Client suitability is also seen as an area that requires improvement and firms want to be able to offer real time risk alerts when suitability is/could be breached as well as real time rebalancing to ensure client mandates are met effectively.

So what does the current state of the industry look like and where are we headed?
Data shows that most firms in the industry are not scalable year on year. One of the main reasons for this is inefficient IT and Operations. IT costs as a % of total revenue vary significantly across the industry. The median is close to 10% however the range is from <6% to >30%! Indeed, there is a negative correlation between IT spend and profitability in general. As firms are addressing the issues of legacy IT causing inefficiencies, this relationship is likely to inverse to a positive one in the years to come. Interestingly and somewhat of a relief is seen in the existing relationship between IT spend and front office productivity. Here we can see a positive correlation which suggests that investment in client engagement and investment management solutions are producing positive outcomes. Again, with all the activity in the coming months one would think that this relationship will become even more pronounced in the years to come. There is also a shift in the market to consider flexible modular architecture as opposed to a one size fits all approach which may lead to shorter, less painful change programmes where the ROI can be felt more rapidly.
Overall, there is a massive opportunity in the sector to improve efficiency and scalability through digital change and we are likely to see this translate into much more positive industry statistics in the future.Read the full research in collaboration with Compeer identifying the key changes in wealth management firms’ digital strategies and their impact on client services.