Personal service and rapport with clients differentiate wealth managers from other financial offerings, but digital and algorithmic innovation is creating the possibility of the wealth manager’s role being increasingly delegated to technology — and potentially opening up the sector to new players with very different ways of doing things.
In a report released Wednesday, PwC said its research showed that wealth management is one of the least tech-literate sectors of the financial services industry, and what it currently offers high-net-worth clients is sharply at odds with what they expect.
The report drew on interviews with wealth relationship managers, chief executives and financial technology innovators, and insights from a survey of 1,000 high-net-worth individuals in North America, Europe and Asia.
It found that just a quarter of wealth managers offer digital channels beyond email.
However, 69% of wealthy individuals surveyed use online/mobile banking, about 45% use online means to review their portfolio or investment markets and some 39% already use online services for portfolio management.
Demand for finance-related technology was similar among both younger and older respondents. The one exception was portfolio management, where under-45s were much more interested in managing investments online than their older counterparts.
In addition, 47% of those who did not currently use robo services said they would consider doing so in the future.
More than half of wealth respondents said it was important for their financial advisor or wealth manager to have a strong digital offering, and this proportion rose to nearly two-thirds among under-45s and those in Asia.
Expectations that wealth managers should be technologically proficient were higher still among those who said they felt digitally confident.
Yet, players in the wealth management sector seemed oblivious to their technology inadequacies, the report said.
PwC identified three waves of digital growth (digital commerce, digital consumption and digital identity), and found that most wealth management firms were “at best” at the very early stages of the first e-commerce-focused wave:
- Few had automated and digitized their back office and administrative functions
- Only a quarter made use of digital channels beyond phone and email
- Only a tenth employed social media with their clients
- Many were just now investing in web portals and basic mobile apps
Some even rated their firm digitally sophisticated, when the only service it offered clients was a website.
It was hardly a surprise that two-thirds of wealth managers did not consider robo-advisors a threat to their business.
Moreover, they insisted that clients did not want digital functionality, which, the report said, directly contradicted the importance their clients place on it.
What do wealthy individuals value most about their current advisor or wealth manager?
Survey respondents ranked their firms’ technical capabilities and digital offering just eighth out of 11 options. Worse, only 39% of clients said they were likely to recommend their current wealth manager, falling to 23% among clients with $10 million or more in assets.
“This conflict within wealth management firms, combined with a client base that feels only weak affiliation to its chosen providers, is creating a sector that is now acutely vulnerable to digital innovation from fintech incomers, including robo-advice services,” PwC’s head of global asset and wealth management Barry Benjamin said in a statement.
“Ignoring this state of affairs is not an option. If firms do not respond now, they simply will not survive in the medium to long term.” Survival Kit
The report said that in order to survive, wealth management firms must accelerate efforts to adopt a comprehensive digital infrastructure that integrates every aspect of their activities and corporate culture.
In addition, they must harness digital’s potential to effect greater efficiencies, manage costs and advance their core client proposition by drawing on a much wider range of available data.
And not least, firms must be willing to partner strategically with fintech innovators to deliver technological solutions at the speed the market expects.
“Wealth relationship managers enjoy high levels of trust among their client base,” Benjamin said. “Any future wealth management model needs, without question, to retain this human aspect.
“However, in an increasingly complex world where the investment office may, for example, have to evaluate more than 200 different investment products for a client, and where clients are also aware of what automated technology can do in the investment advisory space, technology will be vital to keep the job both doable and scalable for a growing audience.”