As an industry, wealth management is pretty resilient. Assets hover around the £1 trillion mark, and pre-tax profits are generally in the region of 23% or 24%, hence a cost-to-income ratio of around 76%, according to Compeer.

However, there are significant variations across the industry, and the figures are skewed somewhat between the different ends of the scale. 20% have a pre-tax profit margin of 10% or less, while some report a figure in the region of 45%. But this variance is not correlated to size; it is more about how a firm orchestrates itself, and this has a direct impact on its operational efficiency.

There is also variance with the cost of operations as a proportion of revenue varying from 5% to 30%. The spread for the cost of IT as a proportion of revenues is between 7% and 20%.

Indeed, it is well known that wealth management massively varies in terms of operational efficiency. One of the biggest influences is the extent to which they grapple with legacy systems that do not speak to each other and often end up creating more issues than they actually solve.

The result is that operating with these legacy systems is time-consuming, prone to human error, and creates a whole efficiency drag. The effect can be seen on the business as a whole and the individual adviser. An inefficient firm means inefficient processes, time-consuming manual administration tasks, prone to error and taking the adviser away from the primary job of nurturing relationships and providing a value-added customer experience.

Our own research bears this out. It showed that one-third of all administrative tasks could be or should be automated and that advisers were spending up to two-thirds of their day doing mundane administration tasks. Clearly, this is inadvisable at best and a total waste of time at worst.

Operational efficiency frees the adviser to spend more time with clients, and we have seen an increase in productivity as measured by the front office being able to manage 25% more in AUM without increasing headcount. In addition, having the right technology also incentivises attracting and retaining advisers and managers. If an adviser can better serve more clients at a time, then the AUM should increase, which adds to the firm’s bottom line and the adviser’s incentive package.

Indeed, we see a current focus on the gains that can be brought to the front office by the effective use of technology. In particular, the interaction with the end client is seen as important due to increased client expectations around experience; clients want to see data and information at the click of a button rather than going back through emails. They want a personalised and hybrid experience and demand this as a standard from their wealth manager.

Technology is the enabler
But efficiency is not just at the front end; it relies on the systems and data underneath to serve up data and information, as well as suggestions on what to do next, whom to contact, and what to say. Thus, middle-and-back office efficiency when it comes to process and data are also critical.

Technology can play a massive role in solving these issues, providing straight-through processing, automation, data management, process integration, and streamlining.

Wealth managers know this, and they are starting to act on it. We think up to seven out of ten of wealth managers are now actively changing systems either by prioritising areas of the business that are in need and can be most efficiently and effectively changed or by adopting a big-bang solution.

We believe that an iterative approach is the best as it causes less disruption and brings about quick wins. The most commonsense way of doing it is looking at what is not working and what is most pressing and then prioritising the overlap as the first port of call for change. However, much of the success of this depends on the firm’s resources and culture towards change, transformation, and disruption. Technology vendors can, and should, also play a vital role in partnering on this, and share their expertise and best practice experience.

Spending both time and money on IT in a targeted and task-specific way to bolster operational efficiency is worthwhile. If change is implemented with specific, measurable goals, a positive correlation emerges between spending and profit levels.

This is well known and, indeed, one of the main reasons for so much interest in wealth managers from private equity firms. They know that there is so much scope for improvement regarding technology and operational efficiency and that it will add to an already healthy bottom line.

In summary, the wealth managers that make the best use of technology can significantly add to their bottom line through operational efficiency. An efficient business can expand and grow by attracting and retaining clients and advisers alike with a winning proposition supported by operationally efficient orchestration.

Case study - how to become a leading digitally-enabled wealth manager
Our client was on a mission to become a leading advicefocused, a digitally-enabled wealth manager in the UK. The objective was to expand the target market by prioritising and accelerating the digital agenda to meet the new generations’ demand and increased digital expectations.

Key strategic priorities included developing an operationally efficient, and client-centric online experience that served and connected anytime, anywhere; increasing adviser efficiency with more client face-time and increased share-of-wallet; building a scalable and flexible platform for sustainable long-term growth.

The three phase process started by deploying the portfolio management component to serve advisers with insights, and relevant and actionable information to respond to client preferences with a personalised advisory service. The following phase focused on empowering clients to access investment information through an omnichannel digital experience platform. It comes along with holistic support of client lifecycle management and onboarding, including ongoing service delivery with suitability reviews and periodic and ad-hoc events.

The end result was that the firm was able to increase AUM by 25% and improve adviser capacity by 25%.

The customer now has the opportunity to achieve the desired goals in terms of growth, relevance, and efficiency and to continue developing their client experience, providing more choices for more clients, and enhancing a culture they are proud of. To access the full case study, click here.

You can read and download the full WealthTech 2023 Report here.