2020. A year like no other.
I was recently asked to speak at a conference to summarise how last year impacted the wealth management market. When I started to prepare, I was immediately reminded of the fact that throughout the year, you couldn’t open an industry paper or networking app without being told that the digital laggards of the financial advice sector had finally woken up to digital transformation. That the hands of the previously paper-based processors of wealth management had finally been forced to embrace technology. If this were true, the impact could be considerable, not only on the way in which wealth is managed, but also the reach of the wealth management industry both in terms of customer numbers and geography. For this reason, I felt it was a hypothesis worth testing.
I interviewed a range of firms across financial advice and wealth management to find out if what was happening represented real digital transformation. Or whether, out of necessity, advisers had simply introduced electronic signatures and conducted client meetings via video call. What I found was the latter. The emphasis, rightly, had been on business continuity and continuing to engage clients during a period of lockdown against the backdrop of an uncertain economic environment and investor nervousness. Whilst unremarkable from a technical perspective, I concluded that the seemingly minor attitudinal change which these steps represented, had the potential to be the catalyst for meaningful industry change.
If we study other areas of financial services, or even other industries, we see that digital change typically grows exponentially. Online banking is a good example of this. Whilst I can’t imagine consuming the services I receive from my retail bank via any means other than a mobile app, there was a time when the idea of online banking was met with considerable nervousness around security by both providers and customer alike. However, once an industry becomes comfortable with the use of technology, the pace of change accelerates quickly. Even when the technology and tooling exist, it can take time for attitudes to catch up and that has been the case with the Wealth Management industry. However, it appears that the current pandemic may well have helped to close the gap. Now the Wealth Management community has seen that it is possible to provide a highly personalised, tailored service digitally, then the sector stands on the cusp of being able to service far more people, across a much larger area.
How is this change likely to manifest itself? My guess is that digital advice and guidance will play a pivotal role. Over the past few years, I have spent a lot of time working with digital advice software suppliers and I’ve witnessed the sophistication of digital advice solutions evolve at a remarkable pace. The main barrier to widespread adoption has been a fear amongst the advice community that robots will steal their clients. With wealth managers forced to adopt technology, attitudes have shifted. Given what is sure to be a more cost-conscious environment, we are likely to see this change stick as advisers realise the significant operational efficiency savings from technology. Fact finding processes and data gathering exercises can be streamlined, best of breed architecture can be adopted using modern integration technology and wealth managers will be able to deliver their service at a time, frequency and via a channel which suits their clients’ demands. The change may prove timely as it’s estimated that £350bn is set to move in the way of intergenerational wealth transfer from baby boomers to gen Xers and millennials in the next decade. As digital natives, Millennials are likely to have different expectations of the way they consume services and Wealth Managers will be required to keep pace. Consumers now want to access the services they pay for, as and when they need them, and this can only be enabled digitally.
So what has this past year meant for the world of Wealth Management? 2020 saw an enforced change to the attitudes of Wealth Management firms regarding the use of digital. That seemingly minor change has the potential to act as the catalyst for profound transformation which will guide the financial behaviour of a generation.