Increasingly aware of the need for good technological prowess and supporting architectures, wealth managers and private banks are more open than ever to the advantages of collaborating with third-party technology providers. Indeed, an EY Parthenon report says: “Working with a FinTech to access innovative capabilities can be faster, cheaper, and more commercially viable than building or buying. At a time when many FinTech firms’ market capitalisations have declined, partnering can equally be a good way to kick the tires on potential acquisition targets.”

The report goes on to say that 55% of banks expect partnerships to play “very important” roles in their strategies by 2025.

Within banking, the wealth management industry has all the more reason to take a collaborative approach. Not known for its innovation when it comes to technology, the industry now faces increased demand from clients for a differentiated service in terms of both value proposition and its delivery. That means having the solutions and architectures in place to deliver!

“The WealthTech marketplace is renowned for the number of players it contains. The specific challenge for vendors is that it is very hard to differentiate in what is a crowded market.” Michael Walford-Grant, Founder, MDWG Consulting

Ceruilli’s report agrees. It says that: “Portfolio accounting (75%), financial planning (58%), and tax optimisation (56%) are the top three applications licensed from external vendors by wealth managers, and that three-quarters of firms aim to enhance their technology capabilities by licensing market-leading vendors and maximising integration of tech tools.”

But despite the willingness to work with FinTechs, there seems to be a disconnect when it comes to the procurement process. FinTechs often have a hard time getting the attention of wealth managers.

Procurement processes
This is partially due to banks’ procurement processes where the shortlisting is done from a whitelist of approved firms, making it impossible for smaller firms to get noticed.

Chand Sooran, Founder and CEO of EdgeworthBox, explains: “The procurement department is often skewed in favour of larger, more established companies. It is much easier to deal with somebody you have dealt with previously because you have already vetted them. That is why incumbency is such a powerful attribute for a lot of these suppliers.”

“A small company coming in with a newer approach is already disadvantaged against someone with a proven track record - even if that 10-year track record in itself tells you that the product is likely to ossify - at least in part.”

In addition, the amount of time that the decision makers on these larger purchases are spending with suppliers is actually diminishing as a proportion of the overall project time.

Indeed, wealth managers are spending more time doing independent research than they would have done in the past. They might then have a short, almost perfunctory conversation with the vendor to test certain assumptions that they might have developed during this independent research phase and then decide on which vendor to work with internally. So, the biggest challenge for vendors is to make every interaction count.

Fragmentation
The other difficulty in being seen lies in the fact that the FinTech market is a fragmented and crowded one. This acts as a disincentive for wealth managers to pick out the needle in the haystack and for FinTechs to stand out and differentiate themselves.

Michael Walford-Grant, Founder at MDWG Consulting, comments: “The WealthTech marketplace is renowned for the number of players it contains. The specific challenge for vendors is that it is very hard to differentiate in what is a crowded market. But by selling yourself as a trusted partner able to collaborate with the wealth manager to identify key issues, describe a desired business outcome, and set out how to work in an iterative manner to reach the desired endpoint, a WealthTech can make themselves a more attractive proposition than one selling on function alone.”

Taking this approach also solves the problem of often competing interests within a wealth management firm. Firms buying technology want something risk-free and at a good price. CTOs want to innovate and are thinking about the overall architecture and tech stack. The end users set to benefit from a new solution, meanwhile, just want to be able to do their jobs in a way that is friction-free.

Sooran describes this as ‘daily hand-to-hand combat of competing interests’, saying that a good vendor will find the means to satisfy the needs of all. Meanwhile, Walford-Grant points out, “In most cases where there will be change, a key consideration is disrupting internal systems and people. If a vendor can work in a way that is likely to be less disruptive, then that, too, is a valuable attribute to have and will please all stakeholders.”

Indeed, wealth managers come in all shapes and forms. Some are very professional and specific about what they want and need, and others are more about the direction of travel. In each case, the vendor must show they can tailor the service on offer and fit into the crevices and cracks of a wealth manager’s infrastructure - both in the offering and culturally. The more open and honest the wealth manager is about the issues they face and need to solve, the easier things are for the vendor.

In that sense, there will always be an element of acting like a soundboard and being able to verbalise and contextualise the issue so that everyone is on the same page with what is being proposed and why. Wealth managers ultimately want the vendor to listen, to help define and articulate critical business issues, and establish a level of trust there so that they can openly discuss issues and challenges and talk without compromise - they need the in-depth discussion and knowledge of the market as well as the specifics that the vendor can offer.

Walford-Grant comments: “Vendors need to be very vocal about their partnership ethos to be seen and make the shortlist. Furthermore, it still astounds me how lacking some vendors are when it comes to their positioning and USP. The lack of consistency around sales messaging, marketing, and general communications is alarming. If they cannot get their core values and messaging to align with what wealth managers want, i.e. a trusted partner, they will not succeed.”

In the end, selecting the right vendors for wealth managers is about more than finding a supplier of goods or services. It’s about finding a partner with whom they can collaborate to achieve business goals and provide support along the entire journey.

An innovative mindset and looking to the future are thus key parts of any vendor culture and can prove infectious within the wealth manager if communicated effectively and to the right people. Indeed, a large part of the challenge when it comes to new integrations is cultural resistance to change. Being enthusiastic about the positives goes a long way to alleviating this issue for wealth managers.

Walford-Grant comments: “It is all about knowing the market, knowing, and understanding the problems that wealth managers face, and knowing which bits fit with which element of an ecosystem. It is then being able to describe and contextualise the specific issue or issues that the wealth manager is facing and come up with a plan that is achievable, explainable, and will deliver return on investment results. Being able to articulate this is the challenge, but at the end of the day, it is this capability, that makes a vendor stand out.”

Interested in reading the full report? You can read this edition of the WealthTech 2024 Annual Report online here.