Banks today perform a double duty. On the one hand, they’re steadfast providers of investment advisory services for the local community. On the other, they must constantly innovate, looking forward to keep ahead of regulation and competition.
Traditional but innovative – they don’t seem to mix. We’re no strangers to witnessing financial giants felled by disruptive innovation and regulatory scrutiny. But despite seeing how denial has affected other institutions, as many as one-third of bank wealth management leaders would prefer to ignore the competitive and regulatory threats and carry on business as usual.
That surprising statistic was revealed in a survey conducted earlier this year by Longitude Research on behalf of Grant Thornton. Of those surveyed, the majority of corporate and investment banks, wealth management and retail banks agree that all banks will eventually use digital platforms. But that still means 39 percent of retail banking executives refuse to believe that digital platforms are necessary to survive in the current environment.
Similarly substantive minorities within the banking industry seem to resist other “modern realities” of 21st century banking. For instance, the survey revealed that one-quarter of senior wealth managers and one-third of top retail bankers say they disagree that traditional banks will face increasingly more competition from outside their industry. This is despite the proliferation of fintech startups directly targeting banking customers with typically smarter and slicker technology platforms.
Survival for banking’s old guard will depend on these institutions’ abilities to adapt to the new world order. Envestnet has highlighted five factors critical for delivering meaningful change:
1. Vision. The approach to change must be set at the top of the organization, where leadership must effectively impart their business vision throughout the organization.
2. Client experience and segmentation. Once that vision is ingrained in the culture, firms need to align service and support practices among different client segments to design predictable client experiences. Digital engagement clearly helps with this.
3. Creating capacity via technology integration. The alignment of vision and experience is meaningless unless firms create excess capacity by integrating and simplifying elements of the advisory value chain. In short, firms need to turbo-charge integration through more focused and efficient use of technology.
4. Creating a consultative approach. Firms should leverage that excess capacity to create a high-performing consultative sales culture to improve profitably across segments.
5. Managing regulation and risk effectively. Finally, change will be hobbled unless firms have the ability to be proactive around the management of fiduciary and regulatory responsibilities and associated risks.
THE LEGACY HURDLE
The biggest reason many banks hesitate to move forward is the need to upgrade – or even completely replace -- their legacy systems. But while it’s a difficult task, there are many benefits to making a switch, and a plan can provide a smooth onboarding and implementation period.
One example of a truly integrated platform is a front-to-back solution that encompasses business planning, investment management consulting and in-field support to help banks fulfill their fiduciary duty while delivering the best outcomes to clients.
The Aite Group, in a report commissioned by Envestnet, indicates that an integrated technology platform can help bank and trust advisors find:
- 20 percent more time for client management.
- 76 percent higher practice revenue.
Meanwhile, registered investment advisors (RIAs) were able to:
- Serve 57 percent more clients.
- Run a book of business 78 percent larger.
- Earn 46 percent higher practice revenues.
And Independent broker-dealers (BDs) were able to:
- Help 44 percent more clients.
- Double their book of business.
- Generate 73 percent higher practice revenues.
So what applications can be incorporated in these integrated platforms? According to the Aite report, advisors’ and independent BDs’ top requests were:
- Fee billing
- Account aggregation
- Performance reporting
- Portfolio tools
- Proposal creation
A best-in-class platform should include all these features while also operating with three integral characteristics: a single sign-on to save advisors from having to switch between programs when dealing with a client; data sharing to reduce both the burden and the risk of manual entry in multiple applications; and a smooth interface, allowing for a seamless change in process for advisors.
A BACK OFFICE THAT ENHANCES THE FRONT OFFICE
The benefits of platform integration are not merely theoretical – they can be quantified. The Aite report found, for example, that when RIAs used advanced integration, they spent 19 percent more time and BDs 28 percent more on their core competencies – client prospecting and investment management – than their peers with no or very basic integration.
The time saver was mostly operational: Bank and trust advisors with no or basic platform integration had to devote 44 percent of their hours to operational tasks; the same was true of only 23 percent of those using advanced integration. This meant these bank advisors could allocate 62 percent more of their time to investment management.
This ability to focus more intently on prospecting and investment can have a significant effect on advisors’ financial metrics, too. RIAs and independent BDs without advanced integration worked with a median number of 88 and 113 clients, respectively; for those with advanced integration, these numbers jumped to 138 and 163.
Similarly, practices using advanced integration tend to enjoy higher median client assets than those without such integration: $80 million for the average advisor with superior systems, compared with $45 million for those without. Independent BDs had client assets of $125 million and $63 million, respectively. Revenue, too, soared for those who had embraced advanced integration – by 46 percent for advisors and 73 percent for independent BDs.
Full platform integration is clearly not only a means for banking advisors to survive – it is a way for them to thrive. With the right features and partner, integrated technology can help banks get in the disruption game – without risking their time-earned reputation and record.
The information, analysis, and opinions expressed herein are for informational purposes only. Nothing contained in this article is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type.