The rise of robo advisors has highlighted the potential for technology-led innovation in the wealth management business model in Europe and beyond. Robo advisory services can enable established wealth managers to look beyond the high-net-worth/ultra-high-net-worth (HNW/UHNW) segment and engage the mass affluent market, as well as the new generation of tech-savvy, self-driven investors. Younger generations of millennial investors tend to be self-directed, rely on several sources of advice and are not particularly loyal to an institution. Emerging models that combine automated advisory services with traditional wealth management offerings are attractive to this segment. In addition to generating new sources of revenue, these models also drive down costs.
However, advice is only one of the opportunities introduced by automating components of the wealth services ecosystem. Digital intervention now spans the entire wealth management value chain, from onboarding, profiling and goal-setting, to strategy, execution and monitoring. Using digital approaches, wealth managers can provide differentiated offerings to their clients.
As firms invest in digital wealth management platforms, several use cases across the value chain have emerged for transforming the client experience:
Digital experience: A seamless, omnichannel experience with robust workflows and data integration builds the foundation of an enhanced digital experience. Areas for digitizing the client experience include client onboarding, risk and investment profiling, goal setting and portfolio creation, simulation capabilities, etc. Technology investments will drive the maturity curve toward intuitive, paperless processes with a modern UX design, providing personalized and contextual information for the customer journey.
Analytics: We’ve found an increased application of data science to establish multi-variable micro-segmentation to better understand client needs, and develop actionable insights to improve customer satisfaction and retention through contextually customized proposals. The data sources may include the customer profile with the firm, records of e-mails and calls to advisors and publicly available information (including from social media). Investing in targeted analytics that help marketing, such as next-best-offer models, will further enable development and positioning of new products. Behavioral analytics (psychographic, tone and sentiment analysis) can help advisors predict client preferences regarding investment products and asset allocation.
Investment education and more effective communication: Simple and easy-to-understand videos and blogs can be used to inform clients about products and how different strategies (e.g., tax loss harvesting) work. Several wealth services providers with leading digital offerings are already integrating multiple channels (such as Schwab’s Investing Insights blog) that contain useful information on a wide range of investment topics.
More effective communication is crucial for digital advice. Helping clients avoid common mistakes such as holding high levels of liquid cash or buying high and selling low, enables digital advisors to earn trust and prove the maturity of the client service model. Wealth services providers are also obliged to ascertain clients’ understanding of products and overall financial awareness under investor protection regimes such as the Markets in Financial Instruments Directive (MiFID) II.
Enhanced digital tools for dissemination of information, and increasing client involvement through interactive programs such as gamification, simulation and scenario planning, as well as handholding in situations such as periods of enhanced market volatility, etc., will build client trust and also support regulatory compliance.
Collaboration: The interaction between client and advisor or between the client and the firm is increasingly becoming virtual, speeding information exchange and removing bottlenecks from advisory processes. For example, clients can communicate with the firm using Web-based audio/video chat, or advisors can conduct financial planning reviews and investment performance reviews using screen sharing. Other emerging collaboration capabilities include electronic document sharing and secure digital signatures between the client and the firm.
Transparency: The use of automated technology supports transparency, since everything that is routed through an automation engine can be recorded and easily reported to the client. Periodic regulatory reporting — monthly, quarterly or annually — is easily automated as a result.
Investor communities: Client networks can play an important role in self-service scenarios, as customers can share important information about current and past performance, as well as best practices on different investment aspects. Members of investor forums can earn badges/points based on the “up votes” received from other members of the community, thus establishing legitimacy. Communities can also play an important role in beta testing new functionalities and algorithms for robo advisory firms.
Open platforms: Financial services providers are increasingly embracing open API frameworks, allowing third-party products and services to be sold through the bank’s channels, advisors and digital platforms. By the same mechanism, firms are also allowing their products and services to be accessible to other firms on an as-needed basis.
Automated advice, data integration and analytics are powerful tools in the hands of wealth management organizations. Firms that deploy these capabilities successfully will be able to fend off increased competition from fintechs. Wealth management firms can no longer bank on retaining existing clients, especially in the event of intergenerational wealth transfers, as the new generation might not be as loyal to the old family firm.
By using these digital tools, wealth managers will be able to attract and retain millennial investors, while also reducing costs, streamlining operations and enabling human advisors to apply their expertise to helping clients.
To learn more, please read parts one and three of our series on robo advice. The Rise of Robo Advisors (Part 1) and Robo Advice: From Challenger to Stepping Stone (Part 3).
For more on this topic, please read our full report, “Emerging Trends in Automating Wealth Management Advice” and visit the Asset and Wealth Management section of our website.