As I stated in my previous blog, the wealth management industry has experienced decreasing profit margins, despite overall growing market volume in terms of assets under management (AUM). In reaction, many institutions have launched extensive cost-cutting programs, oftentimes with significant impact on their IT budgets.
As a wealth management CIO, you are surely feeling the mounting pressure: While firms are pushing to increase revenues and improve risk management, the growing relevance of digitalization has created a greater reliance on efficient and effective support from IT. Consequently, you are expected to enable these business imperatives by finding cost-effective technological measures. The question is, what is standing in the way?
The obstacle: Fragmented systems in an increasingly disaggregated industry
According to the leading IT analyst firm Gartner, “Most investment firms have complex, siloed multivendor and multiapplication environments connected via customer or point-to-point integration.” As a result, they are “very expensive to maintain and don’t give them the flexibility and scalability they need to adapt to changing market, customer and regulatory requirements.”
As we highlighted in our webinar “How to Create the Building Blocks of a Sustainable Digital Wealth Management Platform," internal fragmentation of operations and systems—and consequently of data—is only part of the problem; the industry-wide increase in dynamic disaggregation also plays a role in hindering firms’ efforts to connect with the current environment. We see this disaggregation happening in four different areas:
- Channels: Typically, wealth management is a high-touch business, yet more and more customers want to interact with their firms at their convenience, even if their advisor is not physically present; this includes real-time communication via modern digital channels. Digitalization has increased the number of these channels, and their prevalence and scope of application is likely to expand in the future. Many wealth management firms are struggling to support this evolution, not only due to lack of technical capabilities, but also because of concerns related to compliance and security.
- Value chain: The volatility of the current macro-economic environment has led many investors to diversify their portfolio, and enter into relationships with multiple wealth management firms. At the same time, pressure to reduce costs and new business models enabled by digitalization have led some firms to become increasingly specialized. As a result, the value chain has become more fragmented than ever.
- Regulatory requirements: Since the global financial crisis, the role of regulators has taken on a whole new level of significance. Preventing “too-big-to-fail” scenarios and achieving better customer protection in financial services have been key calls-to-action in the post-crisis landscape, but these incentives are subject to change in line with ongoing shifts in political dynamics. For example, the current administration in the United States has a different political agenda than the previous one, and this contrast extends to its regulatory agenda. Further, a looming Brexit and the implications for the regulatory situation have created a haze of political and economic uncertainty. As a consequence, banks and wealth management firms—especially those that operate in multiple countries and jurisdictions—have been struggling to keep pace with these developments and the resulting regulatory changes.
- Systems and data sources: It goes without saying that customers’ data are of crucial importance to financial services firms. Today, however, as customer data is spread across multiple systems—both inside and outside of a given firm—it is no longer feasible for a single firm to manage and control all relevant customer data alone. Firms must adapt, as the data disaggregation trend will only continue.
In FSI, particularly wealth management, all stakeholders—from customers, to advisors and relationship managers, to backoffice and compliance, to IT—have been experiencing the impact of this fragmented and disaggregated landscape. The unprecedented situation makes it particularly difficult to have a full overview and transparency re data, and, moreover, to make informed decisions that not only reflect the current conditions but also anticipate future developments. As such, many are looking to technology to tackle said challenges; this, too, will put the spotlight on CIOs.
The solution: Intelligent orchestration
No matter what terminology is used to describe the current state of affairs in FSI—fragmentation, disaggregation, disintegration, or disintermediation—it all boils down to one thing: missing connections.
One might wonder why this is still an issue in an era when the Internet allows for a massive opportunity to connect people, businesses, and even things. As firms realized that they could not solve every challenge by themselves, they sought to create synergies with third parties, which led to the establishment of integration standards like web services to achieve the technological common ground necessary to facilitate these connections. Over time, applications, systems, and even businesses have become more open and able to connect with third-party applications and systems; but pure technical integration alone will not create these synergies. Integration needs to happen in a meaningful way on every level—technology, offering, and partnership—in order to achieve the connections needed for success in this digital age.
Increasing digitalization has also brought a shift of focus when designing applications, from being application-centric to user-centric. Applications used to be built in a “one-size-fits-all” fashion, without accounting for the distinct needs of separate stakeholder groups or the end-to-end experience. Following the success of businesses that were built on a digital green field, the focal point of the Digital Age has become user-centricity, a philosophy that acknowledges the fact that different roles have different goals and different requirements when using an application. The concepts of user journeys and customer journeys have emerged, as well as new methodologies like Design Thinking or Jobs To Be Done (JTBD). They all recognize that applications need to be embedded into the user context with processes that allow specific users to achieve their specific goals.
This is where orchestration beyond pure integration comes in. In order to achieve user-centricity, allow for effective synergies, and reach one’s goals conveniently, one must adopt a holistic perspective of given scenario, and intelligently connect people, services, systems, and data sources across organizational boundaries in a meaningful way. This “orchestration nirvana” would mean that all relevant producers, consumers, and components are brought together to collectively deliver greater customer value at lower coordination cost.
Intelligent orchestration, then, is your only viable solution to counter the ongoing disaggregation and fragmention in FSI. It enables coherent customer and employee journeys, and thereby improves decision making, increases the productivity of all users, and allows for leveraging third-party best-of-breed services rather than replicating them internally (e.g. background checks, identification/e-signature, account aggregation, etc.). At Appway, we believe this presents a clear call-to-action for CIOs like you: With intelligent orchestration, firms can expect to see their overall efficiency increase, which then empowers them to focus on their ultimate goals: increasing revenue and creating value, all while actively managing risk.