Earlier this year, we launched the Market Map, a new evaluation methodology for software solutions. The first report we wrote was on the wealth management market. We did so because we saw a clear disconnect.

On the one hand, the criteria for evaluating wealth management software hadn’t changed for decades. But, on the other, the market for wealth management services had been – and continues to be – transformed by digital-age technologies.

Nowhere is this disconnect bigger than in the Asian market. The Asian market is the world’s most dynamic wealth market: growing faster, catering to more digitally savvy clients, and experiencing more creative destruction than anywhere else. What happens in the Asian market presages what will happen elsewhere and helps other wealth managers to prepare. But for Asian firms, without that foresight, the key is having the optionality to change direction as the market moves.

The phases of disruption
Like other financial services markets, wealth management has been undergoing phases of disruption.

The first was about opening up digital channels: giving existing wealth customers access to existing services, but through their browser or their phone, which introduced more interaction and convenience (and, to some degree, more self-service).

The second phase was about starting to use the native properties of internet technologies to deliver a different product or experience. The most common example of this to date has been robo-advice, which leveraged internet distribution to significantly lower the price of managing a simple, diversified portfolio. But these models in wealth management have typically suffered from the same challenge. It is difficult to acquire customers cheaply enough to make money in the absence of high lifetime value (that comes with a wider product set). This has left the door open to a new wave of disruption.

As part of the third wave of disruption, it is likely we will see more aggregation business models, as well as a move to embedded wealth management – and to some extent the two are not mutually exclusive.

Embedded wealth management
The internet era is not really about technology per se, it’s about routes to customers. As services digitise, they become abundant - which leads to scarcity elsewhere. As Nobel Laureate Herbert Simon famously said, a wealth of information leads to a poverty of attention.

Against this context, it stands to reason that more financial services will become embedded. In an attention-deprived world, it costs a lot to acquire new customers. In an attention-deprived world, it is hard to upsell and cross-sell (or reduce churn) where your service does not enjoy strong engagement.

Figure 1: Consuming banking where and when it’s most convenient

Financial services are therefore likely to be consumed through channels which already have customers and, in particular, where these channels enjoy high engagement. This is why aggregation and embedded models might not be that far apart. Financial services can be tightly integrated into a customer proposition, like offering point of sale credit. But they can also just be added to existing super apps. When we look at the wealth management market in Asia, we see both happening – wealth management being embedded into health insurance, for instance, or employee wellness apps – at the same time as it is being embedded into super apps, like GoJeck.

Adaptability is key
With financial services undergoing multiple phases of disruption, the critical capability for sustaining competitive advantage is adaptability.

The sourcing, distribution and operating models that made wealth and asset management successful to this point are unlikely to be the same as those that make it successful now, or the same as will make it successful in the future. Change is the constant.

Nonetheless, when a wealth manager turns to industry reports to help with system selection, the implicit assumption is that the status quo will prevail.

Firstly, the selection criteria have not changed even though customer needs – and technologies - have radically changed.

Secondly, the criteria are increasingly anachronistic. For example, they prioritise functional breadth. Functional breadth was critical when software systems were hard to interface with each other. Then it made sense to have broad and vertically integrated applications. But in an API first world, functional breadth is likely to be more a hindrance than an advantage. Working with thirdparties for sourcing or distribution is not only easy but, as discussed, it is likely critical to future business models and ongoing viability.

Instead, the key attribute of a software solution today is orchestration. That is to say, wealth managers need to select systems that will be able to orchestrate between many different applications and participants in an increasingly ecosystem-based business model. Systems that, like themselves, become the concentration point for information flows and that, critically, are able to draw insights from those flows to facilitate the many to many interactions (making recommendations, optimizing portfolios, etc.).

Figure 2: Best WealthTech Vendors 2021

In our Market Map, we use business model enablement and technology enablement as our proxies to determine which systems are best-placed to act as orchestration platforms.

Selecting vendors outside of the ‘transformer’ quadrant doesn’t mean that a wealth manager will suffer limitations today. But it does means that they limit their ability to adapt their business model and customer proposition over time and in time as the market evolves.

In the Asian market, change is rapid. Be prepared.

This article was part of TWM's recent APAC Wealth Technology Landscape Report (2021). Click here to access the full report.