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FEB 28, 2023

Innovation in Wealth Management: a cure for Troubled Times

Alexander Cassar

Objectway Chief Business Operation Officer

Reading time: 2 min


A Q&A session with Dr. Alexander Cassar, Chief Business Operation Officer at Objectway.

Why in troubled times? Isn’t innovation more productive and flourishing in good economic climate (while survival is a priority in crisis)?

Innovation is, indeed, easier in a good economic climate – with sufficient resources, including development budgets, and more freedom for strategic thinking. This is valid across industries, not just in WM, but ironically doesn’t always work as expected. With less pressure comes complacency, and with businesses doing well there is a reluctance to change, there is no urgency. As a result the average pace of innovation slows down – relatively, but enough to be considered a missed opportunity.

Downturns and recessions (not to mention more complex crisis periods with political and social aspects) often encourage bold, drastic actions – as ‘no change’ for most businesses means decline, and for some – even extinction. The ‘burning platform’ metaphor is a good example for the imperative to change and change radically.

Wealth management, in particular, is more prone to ‘change allergy’ and complacency, due to comfortable profitability in good times and inorganic opportunities to grow assets under management (though not necessarily a scaled profitability increases with AUM growth). Tough periods polarise decision makers’ behaviour: the cautious majority tend to stick to the status quo in survival mode, but a progressive minority grasp the need for change and boost innovation thus driving forward the entire sector.

How about disruptive innovation and ‘challenger’ players that recently flooded the fintech arena?

In the past several years we saw countless fintech startups, some becoming household names, but the disruption, ironically does not come from the ‘tech’ in fintech (most use widely known technology stacks and methods). They try to challenge (often disruptively) the incumbent financial institutions, by obtaining regulated status of financial service providers, from simple payment processing and online low-fee brokerage, to full “digital banks”. Some successfully challenge the traditional players with efficiency and customer experience, but – as in every boom (some already call it ‘bubble’) failures outnumber successes and recent news brings more ‘another one bites the dust’ headlines.

Traditional institutions take notice and respond proactively: some with rapidly building their own in-house digital capabilities and offerings, others practicing the cunning “If you can’t beat them… buy them!” approach and acquiring successful digital challengers to bring them under their branded roof.

Wealth management is, again, somewhat different from the rest of the industry.o Cynics would say that, being conservative, they are always slow to adopt trends and lagging behind. The reality is, however, that in the early days of ‘challenger’ fintechs the mushrooming ‘roboadvisors’ were not a threat to traditional players. They were quite primitive in their model and offerings, mass-consumer oriented, and were nowhere near the sophistication and personal touch of experienced wealth advisors and investment managers. This should be no reason for complacency, though, as things are changing: both fintechs are becoming more advanced, and traditional clients – more demanding for digital services, especially with the generational wealth transfer).

We are closely monitoring the fintech – and wealthtech – space, and there is a marked trend of targeting upper, more affluent, consumer segments with increasingly sophisticated products and services. There is even already a handful of digital private banks showing up. Incumbent players can only rest on their laurels at their own peril.

What kinds of innovation might be best for the current state of the Wealth Management industry?

In my view there are two distinct dimensions:

  • Innovation culture and history, and
  • Technology vs business innovation

In the first one, companies who have missed previous opportunities and remained unchanged for a long time, must now urgently catch up. They are on the proverbial ‘burning platform’ and have the courage to jump into the cold stormy waters, or else vanish in the flames and smoke of the crisis. In practical terms this means to end procrastination about long-overdue replat forming, and adopt modern technologies as an urgent priority. Many have been ‘thinking about it’, examining possibilities and even evaluating solutions – but made no decisions. Their last chance is NOW.

Technology, however, is not the only way to innovate – and in my personal opinion, not the main one. Business innovation has much more potential and generates the real value and growth. For so many years the WM industry has kept offering the same products, addressing the same asset classes, in the same formats and packaged services. The world is changing – and changing very fast in front of our eyes. The ESG ‘movement’ of recent years is an example, and it’s not going anywhere, here to stay and grow. But there is more to business innovation: addressing the changing meaning of ‘wealth’, the changing HNWI demographics (where are your NextGen products and offerings?), addressing the unstoppable volatility of financial markets or diminishing returns from traditional asset classes… The possibilities are endless, it takes insight-driven imagination and the courage to try new things.

Here I must return to the Technology dimension, in case someone thought it’s not important: it is indispensable as an enabler of the business innovation! You might have a great idea about a new product, but your ageing mainframe systems just can’t handle it – just like the dinosaurs couldn’t handle climate change or falling comets. Only with up-to-date technology can a WM business plan, test and implement new concepts and offerings.

Furthermore, some of the best technology innovations prompt and enable business innovations that were simply not possible before: think AI, distributed ledgers (blockchain), or VR (virtual reality). What those technologies bring to the table was simply impossible before their arrival.

And, last but not least, technology enables better client engagement – acknowledged as the last frontier and competitive advantage. Hyper personalised experiences, delivered over an optimal mix of touchpoints (‘optichannel’ as we like to call it), including hybrid advice with the benefits of both highly automated self-service and unparalleled interactivity of human interaction – technology brings client engagement to a new level and our company has made it central in our own innovation drive.