The wealth management industry has seen seismic changes happen over the past few years, and the next few also look very challenging.

From the Covid-19 crisis to the war in Ukraine, the cost-of-living crisis, the great resignation, quiet quitting, the fight for the right talent, and battling everchanging customer habits and wealth demographics, technology has never been so important in enabling wealth managers to respond to these dynamics.

We can add to these changes the pressures from local and international regulators on wealth management firms to comply with strict legal restrictions. From MiFID II to GDPR, the FCA Consumer Duty in the UK and BASEL II, many firms have had to rapidly increase the cost bases of risk, and compliance teams to meet, maintain, and prove compliance.

The number of products and services also now offered by wealth managers and the slow merging of service overlap from private banks, family offices, asset managers, and even traditional retail banks requires fast innovation, quicker returns on investments and increased personalisation of advice to clients.

No surprise then that in this year’s Capgemini World Wealth report, the overwhelming feedback from the global field of wealth is for the need to deliver on a customer-first strategy; to put the client at the heart of wealth management. This trend is being driven by a number of key areas:

• Market dynamics: advisers and customers need to co-exist in a digital world to embrace and react to market changes more quickly and seamlessly.

• Emerging customer segment: personalisation will be vital in addressing specific needs and enhancing customer experience by going beyond simple segmentation based on AUM.

• Chief customer officer: a new role needs to be defined to focus solely on the customer’s life stages and needs.

At a more macro level, there has been an increase in ultra-high-net-worth individuals (UHNWIs), but they also saw growth levels in their wealth pots decline.

Meanwhile, sustainable investing grew as a result of ESG driven by customer demand. Family offices also became more popular due to the more complex and holistic services being demanded. Another trend is that the next wave of lucrative investors is forecast to be women, tech wealth HNWIs and millennials.

So all of this sounds very logical and, one might say, part and parcel of all businesses going through significant change driven by digital transformation. But why have wealth managers struggled so much to react, adapt and change? Are cultural, process, technical or managerial issues stopping the wealth management industry from providing the digital tools the customers are asking for as quickly as retail banking has?

Technological enablement
On balance, probably a bit of everything. But one area that has been focused on and invested in more heavily over these past few years is the enablement of technology to digitise a business model built on personal relationship building and face-to-face meetings.

The industry has embraced a whole range of digital technologies to help them service their existing customers, and cope with the forced digitisation during Covid-19, of onboarding plus KYC and AML. They can now digitally market to and engage prospects in ways never imagined before.

But, and this is a BIG, there are still compromises along the digitiSation of the customer and adviser processes. The building of the hybrid processes needed to mix digital with human contact, which has mostly been driven by the elephant in the room: the core banking platform.

The implementation and operation of a platform require banks to adjust their mindsets in several ways. They need to reshape their organisation and ways of working around core customer experiences with customer-centric operating models and agile ways of working, which are crucial to getting the rewards of Cloud-based core banking platforms. They will also want to innovate on the platform in a targeted manner, making the customisations required to provide entirely new experiences.

Figure 1: Traditional siloed products

The challenges stem from the evolution of core banking systems. Indeed, as banks and other financial institutions evolved through the 1970s, 80s, and 90s, core banking systems became increasingly modular and all-encompassing. Unlike modern microservice architectures found in modern technology stacks, core banking suppliers successfully bolted new features and modules around mainframe technology.

This resulted in tightly-coupled, highly-dependent systems that typically focused on a particular product vertical. Silos naturally occurred as institutions favoured new business entities and separate leadership to launch products across multiple segments with different regulatory requirements.

On the supply side, core banking vendors also focused on delivering deep functionality in a particular product verticals such as credit or lending, compounding the need for multiple platforms. Despite a period of consolidation through M&A activity, the nature of legacy systems dictates that they typically co-exist independently, and customers rarely benefit from a truly horizontal core banking experience from large established suppliers.

The rise of digital as the primary customer engagement channel over the last 20 years has seen two different approaches to incorporating web and mobile solutions into the existing technology stack. Institutions with a focus on agility and customer focus have developed digital teams and solutions that sit outside the traditional physical and logical core banking boundaries.

Others have adopted digital solutions offered by existing suppliers as part of their deepening portfolio, often using systems integrators to provide customisation.

Figure 2: Different approaches to incorporating digital solutions into the existing technology stack

This has meant that many traditional banks have been able to offer some of the frontline product development, but they are not fully integrated into the core banking platform. As such, they are data-poor, which means that their ability to understand customer needs is limited and, at best, resource-hungry.

There seems to be a common set of trends in the marketplace over the last three years, partially driven by the rise of FinTechs and a fresh outlook/approach but also dictated by original core banking platforms reaching the end of their serviceable life. Whether working with well-established banks or FinTech start-ups, the following desired state/guiding principles are common.

Digital, CRM and servicing must span all product lines:

• Often developed in-house to reduce licence costs and drive differentiation.

• Product design still requires market-specific features/transactional capabilities.

• Institutions are looking for flexibility, extensibility and open APIs.

• Payment rails should be accessible to all product lines.

Figure 3: Customer-centric product model with digital, CRM and servicing spanning all product lines

There is no question that wealth management leaders realise they must adopt new ways of doing business to capture growth opportunities and address client needs. They accept the idea that core systems are the heart of their businesses. They need to upgrade and want the agility to continuously integrate the latest technologies.

They also understand that decisions about the core systems can no longer be relegated to the IT department – and that these should involve management and the board. The challenge is how this can be achieved within their existing framework and at a time of rapid change and flux across global markets.

SaaScada provides such a platform and is already working with our customers to allow them to have the flexibility of a core banking engine. This will provide them with the data to build invaluable customer insights, and the flexibility to quickly launch products and services at a more granular level to better serve different customer segments as they mature.

To find out more about how we can help meet these new digital challenges, release the trapped hidden value across your organisation and allow you to technically future-proof your business, please visit www.saascada.com

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