Technology in Wealth Management: Opportunity or Threat?

Bankers As Buyers 2013(This is an excerpt from an article I wrote for the William Mills Agency’s 2013 Bankers as Buyers report. Click here to download the entire article, plus 40 more pages of “research, observations and articles about what technology solutions and services U.S. bankers will buy in 2013 and the changing financial industry landscape.”)

Technology Challenges in Wealth Management

Technology companies like to describe their role in a ‘value stack’ for clients. In banking, the value stack is comprised of three primary sets of activities undertaken for the benefit of their customers. The first set is balance sheet activities—gathering deposits and making loans. The second set is payment activities—moving dollars and data from point A to point B. The last set is advisory activities—providing expertise and advice. Most bank departments can provide some combination of all three activities, but wealth management is primarily about deploying intellectual capital to help clients grow, protect and transfer their wealth effectively and efficiently.

Technology has generally been more of a threat than an opportunity to the wealth management business over the past twenty years, as financial information became more easily accessible and online brokers democratized trading platforms. Firms that made money simply by being gatekeepers of asymmetrical information evolved or died.

Self-Service Alone is Not Enough

Most financial firms have tended to allocate their tech spending to two extremes; either for enterprise needs to meet compliance mandates or improve internal operations (ERP, CRM, core systems, trading platforms, etc.) or to enable self-service for their customers (ATMs, online banking and brokerage, mobile banking, etc.)

Survey results fluctuate during different economic environments, but over the long run, roughly a quarter of clients prefer self-service in managing their money. A slightly smaller group wants to pay someone else to do just about everything, but most clients fall somewhere in the middle. They don’t want to pay excessive fees for services they don’t want or use, but they want advice when they want it, usually related to a change in circumstances, such as an inheritance or a major life change.

In other words, self-service alone is not enough, and firms will need to invest in technologies that can scale profitable advice delivery.

Technology Opportunities in Wealth Management

Financial institutions of all sizes want to improve their business with affluent and high net worth customers, and technology can definitely help banks address these challenges, but the payoff can be elusive, as I’ve written about before in the Clientific blog. Merely implementing a piece of technology without the context of delivering true value to clients will typically become an expensively disappointing project. The gap between high expectations and the longer growth curve of real value often leads to the ‘hype cycle’ that Gartner describes so well, (and which I have also previously described in a broader wealth management context). The gravity of reality will inevitably pull banks down from the Peak of Inflated Expectations and into the Trough of Disillusionment.

Download the report to read the entire article


P.S. – The consulting firm Oliver Wyman has recently reached similar conclusions in a new report that is worth reading: A Money and Information Business: The State of the Financial Services Industry 2013

This year’s State of Financial Services examines the industry’s greatest opportunity, and its greatest threat: information…

 You may be reading this paper on a tablet. You would not have read our 2008 report that way. You may use your smartphone for travel directions, reading the news, getting stock quotes, making bookings and listening to music. You didn’t five years ago. You may connect with your friends on Facebook or watch movies on your laptop, streamed from the internet. Again, you probably didn’t do those things five years ago.
Yet, if you are a banker or an insurer, your work life has probably been little affected by the rapid growth of information. How do you now set prices, underwrite loans or policies, assess performance, segment customers and measure their satisfaction? Chances are your practices are much as they were in 2008 (or perhaps even 1998 or 1988). (Emphasis mine) 

Source: Oliver Wyman


(P.P.S. – And if one of your new year’s resolutions was to fill up your digital reading list, head over to the Clientific site to download a free 28 page special report: Five Shifts that Define the Future of Wealth Management.)