2.1. Traditional customer relationships in WM space
Because wealth management has been traditionally based on high-touch interactions and personal relationships, wealth managers are still struggling to find the right balance of digital and manual touchpoints. Most wealth managers today still see information technology as a support function rather than a core business strategy.
Low digital penetration levels across the industry are in stark contrast to the new-age clients’ digital preferences. The widening generational gap makes it harder for traditional wealth managers to understand and adjust to the younger, digital-centric clients’ needs and preferences, thereby weakening investor-advisor relationships. Traditional wealth managers have been slow in transitioning to enhanced digitalization. The pandemic and recent market disruptions have accelerated adoption, but this long-tailed gap will take longer to fill in.
The digital empowerment of wealth managers should be the top priority for leadership at WM firms. They can start by driving programs and training for enhancing tech and digital literacy. Building from these programs, wealth managers can adopt the hybrid approach with digital strategies to win over the new generation of investors.
2.2. Security and vendor lock-in concerns for cloudification
Although cloudification can lead to significant cost and effort savings, it is not without challenges or concerns. One major concern is the security of data residing with external cloud service providers. Firms are much more comfortable with in-house data systems than hosting sensitive data on a third-party cloud system. Also, financial firms are apprehensive about the risk of vendor lock-in, which would make it difficult to migrate cloud assets in the future.
Raising awareness on cloud technology and security features among senior decision-makers in wealth management firms will ease security concerns. This can be done through periodic demonstrations and presentations. Applying multi-cloud strategies (including orchestration and monitoring) can address the lock-in worries. Increased vulnerabilities of cybercrime and privacy issues can be answered with adaptive and impeccable security measures.
2.3. Workforce displacement worries due to the influx of automation
The existing workforce has always resisted automation, often based on misplaced concerns of displacement. The key to successful automation is change management, wherein wealth management advisors and middle/back office staff are educated on automation and its benefits to their work processes. Identifying champions within the employee fraternity, along with consistent and clear communication, can be critical to enabling a non-disruptive and effective transformation.
2.4. Integration with existing legacy systems
Most wealth managers are stuck with rigid legacy systems and disparate data sources implemented in silos to address a particular problem rather than a holistic transformation. As firms are gearing up for a full-blown digital transformation, they struggle to integrate/replace existing core systems with new digital experiences and mobile apps.
Firms can modernize the core systems (e.g., a multi-channel wealth management suite with front-to-back-office integration) to support compatibility with the latest technology and third-party systems with a focus on interoperability and cost-effectiveness. For example, a modern cloud-based and secure data management solution can easily and safely integrate with the latest front-end digital systems, compared to the legacy in-house data systems.
3. Opportunities for Digitalization across the Wealth Management Value Chain
Digitalization opportunities are evident across the wealth management value chain. An integrated digitalization transformation addressing all the relevant user touchpoints will enable an overall enhanced experience for investors and advisors. Digitalization levers can be mapped to each of the wealth management value chain’s constituents (Front office, Middle office and Back office).
Front office digitalization has a disproportionate impact on client experience. The focus is on frictionless interaction and enhanced digital UX to cut down on turnaround time, improve process efficacy, and ensure a smoother customer journey in line with Big Tech and Fintech experience.