For too long, the formula for success within wealth management was that the relationship manager is pre-eminent and owns the relationship with their clients, and that in turn they were able to move their clients from one firm to another according, for the most part, to their own agenda and terms and conditions, rather than the needs of their clients.

This is now clearly understood to be a ‘zero-sum’ game - meaning that no firm really wins in this model; it only takes the clients’ needs into consideration as a subsidiary consideration.

In truth, in a growing and profitable market segment that wealth management has been, it makes little sense to spend so much resource on enticing assets away from the competition. Far better to develop home-grown talent, and better by far to attract new assets within the framework of a profitable proposition that reflects a cost to serve model that is sustainable and deploys a talent and technology mix that is both differentiated and sustainable.

The realisation that the only way to maintain profitability within the old relationship manager-led model is to deal with clients with an ever-higher net worth in order to raise sufficient fees.

And high margins in certain parts of the wealth management value chain mean new entrants have been attracted in with lower cost, or better value service models. This trend has been exacerbated by the more innovative firms that have outmanoeuvred the behemoths of banking and asset managers themselves taking a direct route to gathering assets.

Digital transformation and reinvention is key
The answer to this challenge is the commitment to Technology-Enabled Asset/Wealth Management (TEAWM).

Technology allows us to break out of this infernal spiral for those clients that are high net worth (HNW) and below, and to reassert the bank/client relationship. The deployment of technology-enabled relationship and asset management is key to improving the delivery of a systematic and ‘suitable’ service and product set; artificial intelligence and machine learning can further enhance the engagement and client experience.

The new relationship paradigm is highly personalised to the clients’ needs, systematic, reproducible, documented and professional.

A reimagined service model should look to totally and radically change the style, process and management of clients. Most notably, the mix of analogue (i.e. human), to digital (i.e. technology), must be subject to recalibration to reflect the structural changes that are the new economic reality for the wealth management industry.

The disintermediation of established players is now clearly apparent to all as we can see every service area or product subject to disruption.

A model that better serves the needs of clients is now needed in order to not just attract but also retain them. Enhanced technology-enabled suitability, making use of Artificial Intelligence and Machine Learning to create a dynamic suitability, should be the start point; this in turn should be premised on a fundamental re-think of how data is owned and managed - by both the client and by the solution provider. Technology derived from wealth management firms, research tools that generate investment solutions, and platforms to support financial advisors - increasingly premised on an open architecture that draws on the expertise of external and third-party suppliers are all needed.

Without this there is a danger of a race to the bottom, with fees and price being the determinant criterion in client decision-making and driving choices. But the driver of client choice should be based on the complexity of the needs and the fitness of the provider to both meet and exceed requirements.

Opportunities
All is not lost however and the sector has a couple of clear opportunities.

The provision of financial advice is a fundamental requirement in an economy with a sophisticated wealth management, pensions and savings ecosystem. Financial services firms wrestle with regulatory directives about what constitutes advice. This has caused a growth in automated financial advice. The hope for many providers of investment products is that robo-advice will funnel clients along a sales pipeline to their asset management arm, thereby preserving revenues. 

The UK regulator, the Financial Conduct Authority (FCA), has invested substantially on a robo-advice advice unit. The FCA’s desire is that robo-advice could enable the provision of advice to mass-market segments, estimated to number 16 million people in the UK alone. The results in terms of the implementation and adhesion to the regulator’s Financial Advice Market Review (FAMR) will be key to determining the impetus this advance acquires.

A further development is the General Data Protection Regulation (GDPR) which came into force in 2018 and will change the way financial services firms obtain and process data – there is a tremendous, potentially market-changing, opportunity around the client/data interface and the opportunity for clients to take ownership of their data.

There is a real opportunity to redefine the relationship with HNW clients, and to create high-value relationships, beyond a boutique model. And with the democratisation of wealth, technology-enabled access and distribution includes many of the segments of society that have never previously fully benefitted from financial advice.

Conclusion
There is much to be excited about. Most of the obstacles to profitability are within the gift of the management of the banks and wealth managers to overcome. This does not mean that achieving and maintaining profitability is easily achieved, nor indeed a given. The pace of technological change and the complexity of achieving digital transformation calls for bold moves, innovation from within, a willingness to embrace change and a culture that celebrates disruption and seeks to incorporate disruptive technology.

Legacy and conduct reviews can seem like a heavy burden; however, incumbents would do well to remember the huge benefit that having an established client base confers upon a firm.

Regulation is everywhere a constraint on unshackled business, but in truth the regulation and its incorporation into conducting good business lends itself to technologically enabled wealth management. 

Looking to digital transformation is the answer to the continued and further professionalisation of the wealth management industry. This enduring characteristic, the currency of wealth management relationships, must be reinforced and nurtured. The successful firms will have in common that they will have achieved this with their clients.

With this background, it is not just essential for any wealth manager to understand what they want to be as a firm in this changing world, they also need to understand what is out there to help them get where they want to be. They must be able to discover, understand and engage with their ecosystem of solution providers.

About Ian Ewart
Board Member, and advisor to Boards and CMO at Acin Partners. Ian is a Fellow of the Institute of Directors and has 30+ years’ of experience of working in top tier banks and asset management companies including Coutts, HSBC, Bank of America and Barclays. He has extensive experience of operating at Board and Executive Committee level; his expertise is focused on client experience and client engagement.