Institutional finance is steeped in tradition – particularly when it comes to image. It is hard to think of a dress code that evokes a stronger stereotype than the Gordan Gekko red braces, pinstripe suit, and shiny silver cufflinks. But change is afoot, as a new wave of button-loosening fintech firms enter the market – and it is not just the dress code they are changing, but also the old ways of working.
Rapidly increasing levels of digitisation are spanning vast swathes of the market – including wealth management. Wealth managers are under pressure to develop new strategies to meet the demands of a more tech-savvy high net worth (HNW) generation in Asia and Europe.
Certainly, technology adoption is the number one priority for wealth managers globally
According to a Thomson Reuters and Forbes Insights survey of 200 wealth managers, over 70% stated that keeping up with technology is their single biggest challenge. Private wealth managers find themselves leading teams of tech-savvy Gen Y managers and sophisticated technology is now a competitive edge.
In the US, a bulk of retail wealth created during the 90s was managed by funds or individual financial advisors. The rise of professional wealth management coincided with a rapid digitisation of the economy – WealthFront and Mint immediately come to mind. Four factors behind this include:
1- Wealth accumulation
2- Technology foundations
3- Market regulation
4- Client sophistication
Asia is also going through rapid wealth creation, digitisation, and higher customer sophistication. By anecdotal evidence, over half of the wealth created in the last decade is technology-centric. Many HNWI families are digitally savvy themselves. As per a 2018 BCG study– over 70% of clients in Asia expect access to infrastructure or platform type services with digital being their preferred channel of receiving advice.
Great customer experience & digitising operations are key priorities for wealth firms in Asia & Europe
60% of wealth management firms state (as per an E&Y survey) state that enhancing the customer experience is their number one priority. For private banks digitizing their External Asset Manager network (EAMs) is vitally important.
• Portfolio aggregation – In a multi custodian world, an aggregated portfolio view is rarely available.
• Market access for multi-asset trading - Poor execution has large costs especially in OTC
• Compliance risk – Manual pre-trade checks create the risk of breaches
But, fintech adoption creates new problems as older ones are solved
A BCG study estimates that the workflow digitisation in wealth management is:
• Client onboarding and KYC – 40-60%
• Execution and reporting – 20-30%
• Compliance and risk – 20-30%
• Portfolio analytics – 40-60%
Fintech solutions are now pervasive in many areas of wealth management including onboarding, client management, and reporting. Technology has deeply impacted digital onboarding and biometric technology is widespread. There are several companies working in the portfolio analytics domain. The flip side of this focus has been the inability of smaller firms to get reliable connectivity to core banking systems.
Execution in a multi-asset world (think bonds, FX, structured products, funds as well as listed securities) is challenging and “best execution” continues to remain elusive. Wealth managers still have to log in to multiple bank portals while OTC products remain almost completely offline. There are few if any “workflow solutions” that can digitise execution and aggregate across multiple banks or custodians. Stitching together disparate systems results in expensive technology bloat with multiple points of failure.
The truth is that wealth managers need workflow solutions – not fragmented tools
Private banks and asset managers who make investment decisions need to aggregate information about their clients’ portfolios, real price information and eliminate execution risk. Wealth firms and family offices need to integrate new technology, data, and analytics across their whole ecosystem. An incremental approach to updating legacy systems or buying off the shelf tools cannot create a future proof workflow solution.
That's why digital systems that connect with legacy core banking software are the only way forward
The task of digitising workflows like trading, compliance checks, and portfolio aggregation is daunting when looked at from the prism of current legacy systems. Most legacy systems were conceived in the pre-internet era – when customer experience and aggregation were not even concepts. However, ditching decades-old legacy bank systems would have unacceptable business risks. On the other hand, not integrating via APIs to online systems carries clear obsolescence risk.
A workflow solution that can connect to banking legacy systems and provide the layer of digital efficiency to wealth and asset managers is the only way forward. Creating a future proof wealth practice requires a holistic approach to digitisation just buying technology tools simply isn’t a viable solution. Multi Custodian Systems like QUO which integrate with legacy core banking solutions are a good example of this.
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