The new face of wealth management

By Jo Howes on 5th November 2018

Savings and Investment

Jo Howes, Commercial Director at CREALOGIX UK argues that the wealth management industry faces an urgent challenge to embrace digital.

Wealth management as a business sector is long overdue for a digital overhaul. Too long associated by consumers with elitism, opaque decision-making, and traditionalism, the industry is subject to several impactful consumer trends that will provide fertile ground for new challenger brands, and increase the pressure for incumbents to step up the pace of innovation.

The most revolutionary among those trends has been the rise of the mobile app-based service. Purely digital entrants represent the market’s response to a rapid shift in consumer preferences: a decrease in trust in traditional banking and investment services, and a demand for a more interactive and goal-oriented experience. Taken together, these mean a preference across all demographics for digital as the primary channel.

One of the principal ways that challenger brands are meeting these demands and attracting new customers, en masse, is through the offering of digital-only robo-advisory services. Worldwide, robo-advisory services will be managing over $1trn in assets by 2020 according to some estimates.

This is a major trend that actually began with the regulatory drive to separate personal financial advice from investment management. Despite the name, robo-advisory is about offering a self-managed investment portfolio without advice in the formal human sense. In the digital user experience, clients are automatically assisted in defining their personal circumstances, goals, and appetites in order to inform matching algorithms that recommend a number of predefined investment strategies. A well-designed offering can provide investors with a wide range of sophisticated investment strategies, even though the self-service onboarding is still easy for people to do in a matter of minutes on a mobile app.

Robo-advisory means no costs or delays from human advisors

In this completely digital user experience, people can set up and manage their investment portfolio by themselves without manual intervention from expensive wealth management professionals. Thanks to the guided digital process, they are still able to make well-informed decisions and benefit from the distinct expertise of the wealth management firm.

In this user journey, there is not necessarily any formal financial advice service that investors have to pay for. The investor can choose to pay for that separately from the wealth management provider or any independent sources.

In short, robo-advisory stands for the ability to bring on board new customers in a completely digital user journey, and empower the user with self service in any time and place, with no necessity for human intervention.

A new competitive race in wealth management

It is hard to overstate how much of a game-changer this is for the industry, and it has kicked off a brand new competitive race with a vastly bigger addressable consumer market.

By removing manual intervention and creating a user experience for investors that is transparent, intuitive, and empowering, robo-advisory services have democratised access to professional wealth management.

From the firm’s point of view, a high standard of investment strategy can be maintained at minimal extra cost per customer, making the whole business model extremely scalable. Never in the human-meeting-driven, paper-based old world of wealth management would it have been possible to bring on tens of thousands of new customers every month without concerns for service quality and profitability.

Attracting younger generations of high net worth clientele

If leading, long-established wealth management firms are not yet energised by the idea of addressing the mass market with digital services, they may sense the challenge more keenly in their core customer base as their younger wealthy clients increasingly demand high quality digital services.

Firms have long been aware of their problem with rising average age of clients: not enough younger family members choose to continue with the same firm, and newly wealthy clients are not looking to these traditional brands as the place to safeguard and grow their wealth.

A proactive strategy for digital wealth management

To flip the competitive challenge from the fintechs of wealth management, their technology and tactics can be readily adopted by the leading wealth management brands and turned into an opportunity to win new market share and keep high net worth clients engaged with their services.

The hurdle for the wealth management industry is about embracing a digital strategy with more urgency. This starts with recognising both the rapidly building competitive threat from would-be disruptors, and the commercial opportunity of being a fast mover into the robo-advisory market.

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