We are both very happy to be introducing the UK WealthTech Landscape Report. The look and feel of the wealth sector has changed tremendously due to the Covid-19 pandemic and ongoing technological change. The two have dovetailed to boost the means of wealth managers to operate more efficiently through a greater scope for automation and far better front-end tools that allow them to meet and exceed the needs and desires of an increasingly expectant clientele.

One element that has come to the fore, in particular, is the interest in and requirement for wealth managers to incorporate ESG, impact investing, and philanthropic activities into the everyday conversations with clients.

This is partly due to a seismic cultural change resulting from the pandemic and partly due to a new generation of wealth coming through. They want products and services that fit with their values and causes. Millennials, Gen Z, and women of wealth, in particular, expect, as a minimum, that their wealth managers will look into a company’s commitment to its values before proceeding to invest. They also want to look at impact investing and want the means to measure how their contribution has made a difference. Lastly, they want to be involved in philanthropic activities and want their advisers to be able to facilitate this for them.

This is important for wealth managers. Millennials and Gen Z generations will be the most significant asset holders within the next ten years or so. The measurable impact of investment on ESG and impact investment factors will hold a similar level of importance to financial return and risk level sooner rather than later. Not being able to meet these requirements, weave them into the everyday, and deliver it as part of a first-class service proposition is a risk in an age where client retention is paramount.

Regulation
There is also regulatory interest. In March 2021, European Union rules aimed at addressing ESG and impact investment concerns - the Sustainable Finance Disclosure Regulation (SFDR) - came into effect. They aim to make the ESG and impact profile of funds more comparable and better understood by investors. While the UK has not adopted these rules, they have set a benchmark of sorts. The FCA is widely thought to be thinking about how the integration of ESG, impact investment, and philanthropy influences the risk and suitability conversation. There will need to be a framework to shape the discussion around values, missions, and priorities and how to support that within the risk framework and within the portfolio construction phase.

The Consumer Duty Act, due to come in at the end of July this year, will further this too. It is a set of measures that require firms to act to deliver good outcomes for retail customers.

Being able to carry out the nuts and bolts of ESG, impact investment, and philanthropic activity and weave them into the everyday will be highly reliant on technology. Indeed, technology will be a key enabler, facilitating investment discovery and ideation, needs around adviser-client interaction, the actual investment requirements, and the critical risk and reporting framework (as well as reporting capabilities).

Developing metrics to score potential investments will be key. The trend is to move away from a best-in-class approach and instead look to ‘ESG Momentum’, where companies are scored on their progress. There is also the need to identify the potential and actual impact of an investment, so developing metrics around that will be needed, too, with some benchmarking as a bonus.

Wealth managers will also need to be able to integrate ESG and impact investments into the overall risk and suitability conversation. The means to do that via robust onboarding, review, and reporting processes will be key – all the more so given that this is an area subject to increased automation and efficiency.

Harnessing technology to do all this also impacts the front end. By liberating the adviser of administrative tasks, technology can facilitate a better relationship between the client and adviser. Moreover, front-end tools that serve up data and insight to the adviser make for deeper relationships at the point of client demand and over the channel of choice – further enhancing the service provided.

Although integrating ESG and impact investing into a risk management framework across the client lifecycle can be a challenge for investment firms, an integrated ESG-ready solution will increase operational efficiency and client engagement.

In particular, the means to take in a variety of data, both structured and unstructured, and turn that into a series of personalised recommendations is important. If the technology can be harnessed to take into account not just causes, missions, and values but also the client lifecycle, then the relationship deepens, and the client is not just satisfied but delighted. This means they are less likely to go elsewhere and, crucially, more likely to recommend their wealth manager to their peers.

But in a market where solutions are increasingly plentiful, as well as being more honed to the specific needs of wealth managers, how does any wealth management business know which providers are out there, which can meet their specific needs and are also willing to work in partnership with them to achieve their goals for today and tomorrow. That is where this report and TWM’s supporting online Solution Provider Directory comes in – not just for the ESG, impact investment, and philanthropic sector but over the wealth management sector as a whole.

Indeed, the move to a component-based approach has meant a proliferation of providers and a culture of collaboration - where vendors can play on each other’s mutual strengths to each provide their own part of the ecosystem and be fully aligned with each other. More flexible they might be, but someone still needs to knit it all together!

This third UK WTLR aims to help any wealth manager make sense of it all; to promote their understanding of what is on offer from the many (and growing) band of vendors in and targeting this market, and providing insights and ideas as to how that fits into the overall ecosystem to meet future business needs.

This article is from The Wealth Mosaic’s UK WealthTech Landscape Report 2022. Access the full report here.