The confluence of Wealth Management and Technology

Technology is not for Wealth Management, this is a sector driven by advisors



3 years ago | 6 min read

I have heard multiple times that technology is not for Wealth Management, this is a sector driven by advisors. I both agree and disagree.

Wealth management is definitely an industry which requires a high-touch model, meaning the advisors need to maintain a regular interaction with the customers and be more physically present than digitally present.

Does that mean the Wealth Management as an industry is going to have a nice profitable ongoing business model in coming years, purely led by advisors, without a strong role of technology? Based on the trends seen in the industry, you might want to disagree with that statement:

Consumer trends

  1. Looking for an enriched advisory experience: There are multiple aspects of an enriched advisory experience. One is, of course, having a human touch and physical presence. There are other aspects which enhance the experience across the entire customer journey, as shown below:

2. Looking to shop around and find best value: Given the number of options available in the market, the customers like to shop and may not be loyal to a single Wealth Manager. They are open to switching service providers to capture higher value and returns. This is further magnified due to the great wealth transfer happening from Baby Boomers to Gen X to Millennials, as the younger generation is more prone to switch in search of better experience and higher value.

3. The desire to get more for less: In addition to looking for a great experience and higher value, customers are also looking to pay less and maximize their returns. They are demanding more transparency in the pricing models and given the choice of options available in the market (buyers’ market), they are able to push down the prices (and hence putting margin pressures for the wealth managers)

Impact on Wealth Management Service Providers

Driven by these consumer trends, the providers are experiencing a challenging situation in front of them, which is putting pressure both on their topline and margins.

  1. Pressure on Topline

Topline (in general) has 2 key components: Revenue per customer * Number of customers. If we see each of these components individually:

a) Revenue per customer: As mentioned in the consumer trends, because of the variety of choices available to consumers and the desire to get more for less, the pricing power of wealth managers is coming under pressure.

b) Number of customers: This is a combination of both new customers and existing customers. Acquisition of completely new customers is dependent on the level of relevance that can be offered in the marketing reach-outs. Retention (and further growth via up-selling and cross-selling) is dependent on the different factors we saw in the section of customer trends (related to experience, level of personalization, availability of choices/buyers’ market etc.)

2. Pressure on margins and rising costs

Led by the pricing pressures and additional costs incurred for the acquisition and retention of customers in this competitive and evolving market, there is a need to save costs to maintain (and improve) the margins.

For example, in the Private Banking space, the profit margins have reduced in Western Europe; North America saw a moderate improvement. The margin of Western Europe declined from 25 bps to 22 bps (from 2014 to 2018); APAC stayed constant at 22 bps in that period and North America increased from 24 to 28 bps in the same period (Source: McKinsey report on European private banking: An inescapable call for action)

How can technology help?

Given all these trends, one can’t deny the fact that something different must be done compared to the traditional approach followed in Wealth Management. Some of the areas where technology can help address the consumer trends (and the corresponding business challenges faced by the industry) are:

  1. Helping improve topline

a. AI enabled new customer acquisition: The days of traditional and intrusive email/phone based campaigns are far gone. There is a need to do very personalized data led marketing, which leverages data from different channels to:

  • Create a 360-degree view of customers via integration of data from multiple channels
  • Develop the micro-segmentation of customers based on multiple parameters
  • Search for prospects based on social signals (e.g. real time updates on social media related to needs, life events etc.)
  • Dynamically generate personalized content and integrate in customer journeys in real time

b. Digital experience transformation for improved engagement and higher loyalty (to drive retention)

  • A great digital onboarding experience to significantly reduce onboarding time and making it seamless for customers (e.g. digital document collection, automated KYC checks, product details available at fingertips)
  • A great real time service experience via consistent experience across multiple channels (e.g. WhatsApp, mobile app, social media). Depending on the type of service request, different modes can be chosen (E.g. report generation can be done using self-serve channel, vs. a need for portfolio advice will require a personal advisor touch)

c. Data enabled hyper personalized robo-advisory but delivered by advisors to drive retention and up/cross selling. Important to note that we are not talking about replacing a human advisor with a robot. It is more about enabling the advisors with a more data driven approach for product / solution recommendations, based on the 360-degree view of customers and their risk appetites.

d. Gamification and advisor cockpit for improved advisor time prioritization: Advisors have a lot to take care of (e.g. daily meetings, client documents, different advisory needs for different customers, maintaining history of correspondence etc.). In a traditional setup, advisors need to manage these across disparate systems (e.g. emails/physical evidence for documents and correspondences, financial planning system or excel for customer wise portfolio and risk appetite details, transaction system for history of transactions, email based calendar for meetings etc.). It is difficult for advisors to prioritize and focus on what creates most value for customers— Advisory.

In order to address this, it is important that the advisors have a mobile advisory cockpit available in real time, which has all the details related to advisor daily routine, customer 360-degree view, changing market factors, product remmendation engine, financial planning tool, history of transactions etc.

e. Open API architecture for enhancing the offering portfolio and choices for customers: In this competitive landscape of WealthTechs and multiple other service providers, it is important to offer an end to end aggregation of services for the different needs of customers (in this context related to Wealth Management), instead of encouraging a customer shopping behaviour to go different places for different requirements. This can be enabled by moving away from legacy and monolithic architectures towards an API led Service Oriented architecture, which makes aggregation with new offerings easier.

2. Helping reduce costs and improve margins

a. Intelligent back-office automation for lower operating costs: Many of the back-end processes can be easily automated now, given the plethora of automation tools and implementation expertise available with technology service providers. This will enable the wealth managers to reduce effort and cost spent in simpler tasks and invest the same in more advisory oriented roles

b. Cloudification for lower IT infrastructure costs and improved agility / time to market: Cloudification is a trend which is touching every industry; Wealth Management is no exception. It is important for the Wealth management companies to start becoming more cloud native and review their existing portfolio of applications for different options around retention, rehosting, replatformization, rearchitecture and repurchase as a SaaS model. This is needed not just for cost reduction, but also to make the business more agile in terms of launching new products and services to meet evolving customer demands. In addition, many of the data and analytics related services are now available on cloud, which would allow the organizations to be more data driven while addressing their customer needs

c. Core platform transformation: A lot of organizations are continuing with their legacy core systems, which makes it difficult for them to address any new business requirement in an agile manner. We talked about cloudification, which is one aspect of making the business more agile. At the same time, it is important to digitize your core platform and drive the integration of your siloed applications with the digitized core. Many of the core platforms (e.g. Temenos) come with their dedicated Wealth Suites to address the Wealth Management industry requirements.

This article was originally published by Arpit kumar on medium.


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I am a business person with strong consulting, sales and operations background, and high affection for technology. I also provide advice / consulting to small / startup companies on request.







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