On a global scale, wealth management is one of the most attractive sectors in the financial services industry, seeing as to how it tends to have greater growth prospects, lower capital requirements, and a higher cost-income ratio as compared with other banking businesses.
Therefore, the growing consensus that wealth management is on the cusp of a digital transformation doesn’t come as much of a surprise – shifting demographics and the rise of a new generation of investors in the form of millennials whose expectations and preferences have been shaped by new technologies have brought new standards to the industry in terms of how investment products and advice are dispensed.
Suffice to say, keeping up with new technology and staying relevant to the next generation of investors is crucial to wealth managers and other major players in the industry in order to stay ahead of the curve.
The Digital Evolution
The digital wave is coming for everybody, and the way Affin Hwang Asset Management’s Chief Marketing & Distribution Officer Chan Ai Mei sees it, asset managers have a choice to either stay afloat and adapt to these technological trends, or end up being left behind.
“We believe the push towards full digitalisation will come from the market and clients themselves. The entrants of new robo-advisory players have certainly kept incumbents on their toes too,” she tells Smart Investor.
Indeed, that technology will be a game-changer for the wealth management industry, which will in turn change how clients’ wealth is managed, is indisputable. This reality is in fact reflected in the industry survey conducted by the Federation of Investment Managers Malaysia (FIMM), which revealed, among others, that over 29.5% of stakeholders view online platforms and mobile apps as one of the high-impact areas that would yield the most results.
“As a result of such digital disruption, the needs of clients have also evolved. Global asset managers are currently challenged when it comes to luring this new generation of investors who tend to be always connected. Their desire for self-actualisation and emphasis on the self also means that a more customised approach to wealth advisory is needed,” Chan points out.
If industry players fail to catch up with this trend, she adds, asset managers could be limiting themselves to the same subset of investors, and fail to draw in these new group of investors who desire more convenience and automation, as well as closer proximity and engagement with their asset managers.
Recent measures announced by the Malaysian government in the recent tabling of Budget 2019 have also underscored the importance of technology in driving a more dynamic capital market. Initiatives such as a digital asset exchange, a co-investment fund and also a property crowdfunding platform are some examples.
“We are encouraged by these policy developments including the government’s embrace of technology that would lead to more inclusive growth in the economy. This is especially as investments become more democratised, thus providing greater access for all sections of society to participate in the country’s growth through the capital market,” Chan acknowledges.
Changing Advisory Trends
With digitalisation gradually transforming much of the financial services industry, there is no doubt that the role of the financial advisor will change dramatically in the next few years. That being said, keeping up with new technology and staying relevant to the next generation of investors are the twin factors that define the wealth management industry today.
But how is digitalisation disrupting the wealth management industry?
“Digitalisation has changed how clients view the unique selling point of a firm, a bank’s product offering or technology platform, all of which can no longer constitute key differentiators of unique selling propositions to clients,” explains Refinitiv’s Market Development Manager (Wealth ASEAN) Yuri Willyono.
In this case, the success now depends on the standard of their service – customer experience, their costs, and the business model, to be exact. It comes imperative, therefore, for firms to adapt their services and delivery to the changing client expectations and needs, such as:
- Investors no longer want to be treated as part of a segment but instead as unique individuals with specific goals and preferences, hence they expect to be presented with financial solutions based on their own life goals and events, and they are less interested in being sold transactions or products;
- Not only are these new generation of investors digitally savvy, they are also financially savvy – they want to understand the advice they receive and make the important decisions themselves;
- They are also more sceptical of authority than previous generations of investors; they believe in the wisdom of their peers; and
- Their expectations are also shaped by using a lot of non-financial digital firms (Google, Facebook and Amazon, for instance), and they wonder why they do not get the same customer experience from their financial advisor that they get from retail, entertainment and other industries.
In fact, according to Accenture, 90% of Asia Pacific (APAC) customers are willing to use digital wealth management tools and have an exceptionally strong appetite for robo-advisory, while 87% consider their investment activities to be self-directive. Having said that, these customers want tools and capabilities that offer superior user experience and flexibility, as well as client-led investment.
“However, APAC clients also still value the human touch. Investors are also likely to continue to seek personal advice for needs that reach beyond investment like tax and estate planning, or those that involve emotional issues such as securing healthcare for elderly parents. They still consider their personal relationship a top loyalty factor,” Yuri reveals.
Human vs Machine
On whether the full digitalisation of the wealth management industry is possible, Refinitiv’s Yuri Willyono is quick to point out that automated advice is unlikely to fully displace human-based advice, nor are robo-advisors likely to dis-intermediate financial advisors in a major way.
“Instead, we may see automated advice drawing customers who could not previously afford a personal advisor, hence expanding the advice market,” she says, adding that the winning advisory models are thus expected to combine elements of automated and human-based advice models to form a hybrid model.
Continues Yuri: “The balance between the two advice models will likely vary across investor segments based on investors’ ability to pay for advice, as well as the complexity of financial needs. On one end of the spectrum is more simple needs such as asset allocation and mutual fund selection whereas on the other end of the spectrum, one will see more complex needs such as tax and estate planning.”
Suffice to say, the industry is moving towards a hybrid advice model where technology would be seen as an enabler to effectively outsource some aspects of an adviser’s work while allowing them to focus their time on areas of advice where they can add most value to their clients.
“Wealth management firms will need to invest in building the technology platforms and tools that will enable this hybrid advisory model. In a world where wealth managers have lesser and lesser control (or almost no control) over the information a client gets, wealth managers need to shift from the traditional Push model to a Pull model, which is a truly client-centric advisory approach.
“Wealth management will remain a people business; however, digitally enabled production and advice will have a major impact on the business models of wealth managers,” Yuri acknowledges.