blog from Opus Una

Drivers, status and opportunity for technology in wealth management

By Sharmil Patwa, Managing Director, Opus Una

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by Opus Una
| 01/07/2019 06:00:00

Reduced computing costs and greater internal appetite to invest have dovetailed nicely with customer expectations. The wealth management industry is now catching up on the technology front, says Sharmil Patwa from Opus Una.

Despite some recent industry consolidation, wealth management remains a fragmented market relative to other financial services verticals. For the numerous smaller players in this environment, technology has historically been prohibitively expensive. In the past, where firms did have the potential to access meaningful change budgets, they were the wealth management units within universal banking groups. However, until relatively recently, even the investment into these units was disproportionately low compared to other areas of the bank.

Now things are changing. Computing costs have reduced dramatically, and in parallel, the universals have been rotating out of global markets businesses and re-focusing on wealth management. This is making it easier for the wealth management units of big banks to access budgets and is also forcing smaller players to jump into the technology ‘arms race’ in order to stay competitive. This is one significant driver changing the role and accessibility of technology in wealth management.

To the drivers of reduced computing costs and greater internal appetite to invest, we must also add evolving client expectations. As with all other areas of their lives, wealth management clients are looking for a richer and more immediate experience with a growing acceptance (even requirement) for self-serve. Through the internet, technology has enabled clients to be more financially aware and as a result often more demanding in the sophistication of products and services that they require. Without technology, it is hard to achieve these expectations.

Where are wealth managers with technology today?
To date, technology investments have typically been to drive efficiency or improve control. This is little surprise with the ever-increasing regulatory burden and ever-increasing margin pressures. Technology has been used to allow wealth managers to retain market share or chip away at their competitors’ market share by doing the same things faster and with fewer errors.

However, it is difficult to identify areas where technology has been used to truly do things differently. What if technology could be used to open new markets to access clients that have not historically been considered profitable? What if technology could be used to understand clients better and therefore enhance their experience?

Where then are the opportunities?
Risk profiling - 
the starting point for any wealth management service must be a good understanding of the client. While existing tools and processes may satisfy the regulators, they do not provide a rich enough view of the client. What is required are the tools that enable wealth managers to properly understand and combine risk tolerance, risk capacity, financial composure, knowledge and experience to synthesise a far more accurate risk profile – which can then easily be kept up to date.

A holistic view - where clients have multiple banking or investment management relationships, there is always the risk that they cannot easily see a single view of all their assets. Therefore, they also cannot see the true risk or performance at a consolidated portfolio level. This is a particular issue at the UHNW end of the spectrum and would typically be dealt with by a family office. Below this level, historically the costs of consolidation services have made it difficult to get this view in a cost-efficient way. Open banking has facilitated data consolidation for payment accounts, we believe that when the principles are extended to investment assets this will be game-changing for the wealth management industry.

Better curation - much of our recent client work suggests that HNWs and UHNWs are dissatisfied with the frequency and quality of investment ideas that they are being presented with. Liquid market ideas are often stale by the time enough dialogue has happened for a client to be comfortable to execute and good opportunities in illiquid assets are problematic to source and due diligence. Over the last few years, there has been an increased interest in more illiquid ideas beyond the obvious hedge fund and private equity plays. Technology is now available to ‘transmit’ both liquid and illiquid opportunities much more efficiently. When wealth managers combine this capability with Augmented Intelligence, Machine Learning and a better understanding of their client’s risk profile they will be able to quickly source, curate and flow opportunities to suitable clients in a compliant way.

Broadly speaking, the benefits of engaging with technology have always been the same and in fact no different from industry to industry. They are:

  • Reduced cost
  • Increased control
  • Increased revenue

While in wealth management, technology has been well leveraged in the first two areas, it is in the third area where we believe technology can facilitate a ‘Blue Ocean Shift’ for both existing and new players. We are in an exciting time where rather than help incumbents win a fight for a share of an existing market, technology is enabling the creation of new markets altogether and participation in markets that were previously considered unprofitable. Perhaps the best example to date is the well-covered area of robo-advisory although to date the majority of robo-advisors remain unprofitable.

There will, however, be other areas of significant development.

This article features in the UK Wealth Technology Landscape Report. See that here.