This article, entitled “The Rising Impact of Technology On Wealth Managers, is by Robert Steedman, partner, IBM Global Business Services, and Alistar Oldcorn, senior managing consultant, also at IBM Global Business Services.

This publication has approached a raft of consultants operating in the wealth management sector to give their views about a range of challenges and opportunities for the industry in different parts of the world. A number of articles will be released in these pages in the coming weeks and we hope readers find them stimulating. The articles have been sought by this publication and also by Bruce Weatherill, of Weatherill Consulting, and also chairman of ClearView Financial Media, publisher of this news service. This article, entitled “The Rising Impact of Technology On Wealth Managers, is by Robert Steedman, partner, IBM Global Business Services, and Alistar Oldcorn, senior managing consultant, also at IBM Global Business Services. The article draws on examples from around the world.

In a recent study of 4,183 CxO’s across 20 Industries1 it was found that technology, market and macro-economic factors were seen to be the most powerful external forces affecting organisations in the coming three to five years. What is remarkable is that for the first time in many years there was alignment in this ranking of top external factors between chief executives and the 1,656 chief information officers who completed the survey. We can conclude, that on the topic of technology at least, the C Suite is united - It matters.

In fact, technology as an external force has soared from sixth to first place since 2009. It is therefore vital that as wealth executives emerge from navigating the troubled waters of recent years they must now build a deep understanding of how technology can shape their business going forward.

Historically, technology has centred on facilitating and recording the advice process, serving clients and processing transactions with the level of rigour and oversight required by regulators. In recent years a myriad of new opportunities to generate value have arisen by not just focusing on the process but also on the data itself.

Consider for example, new organisations like e-Toro who seek to leverage social trading data and the use of collective wisdom to trade smarter together. This industry innovation sits alongside the more typical technology execution dialogue that may be attempting to consolidate information, deal with information lifecycle or simply pose important questions such as: “Now that I have all the data in one place, what do I do with it?”

Deepening insight and client experience
For many informed executives the answer to the above question of how to use data is to focus on using it to deepen the connection to the customer. Indeed, some 84 per cent of CIO’s2 propose to deepen the connection to the client through insight and intelligence and these executives are lining up visionary plans in areas that were unheard of until recently.

Results will follow, for example in a recent mobility study 50 per cent of respondents reported productivity improvements of more than 10 per cent.3 For wealth managers to realise this benefit they must ensure the mobile experience fits seamlessly alongside their physical channels and any apps and tools are sufficiently functional and relevant to complement the wider client experience.

One insightful and thought provoking ratio for wealth executives in this drive to a digital front office is the ratio between front and back office cost and how effectively the organisation can provide the front office accurate data, insight and execution capability to avoid a negative skew to back office cost and difficulties in scaling.

This new ability to turn data into insight is particularly important in a post-Retail Distribution Review world as we see a number of indicators to suggest that advice services will need to become increasingly technology enabled, and in some cases entirely automated.

-    There are now fewer than 3,500 bank and building society advisors, down from 8,500 in 20114
-    There has been a rapid rise in the number of internet-based start-up companies in the wealth and investment management sector; Wealthfront, nutmeg and YourWealth to name but a few.
-    The price war on AuM charges for most of the fund supermarket and wrap platform online providers in early 2014 indicate an increasing reliance on digital services, self-service, and reducing the cost to serve for much of the retail investment market
-    Comments from FCA chief executive, Martin Wheatley, at a recent UK Treasury Select Committee meeting, who confirmed a view that automated advice online will be possible in the coming years.

Innovation in support of relationship managers
However, at the higher end of the wealth and financial advice market, it is more likely that financial advisors and wealth firms will embrace the advances in digitisation, mobility and data analytics in order to complement the human interface rather than replace it.

Importantly, outperforming organisations are way ahead of the pack. They are nearly twice as likely as their peers in underperforming enterprises to have a cohesive strategy for uniting the digital and physical elements of their businesses5. There will become more demand for B2B2C features from wealth advisor software that enables the advisor to manage those features provided to end investor clients. This will include single portfolio view (potentially including away-investments), total wealth position, portfolio performance, “investors-like-me” comparisons, portfolio/fund alerts, and many others, but will fall short of offering trade and transaction functionality.

We are also likely to see the emergence of cognitive computing in the wealth industry as illustrated by IBM Watson. The technology is a combination of natural language understanding (it can "read" and understand unstructured data found in documents such as contracts, letters and memos), a search engine to comb through millions of data points in seconds, and artificial intelligence that "learns" how to draw conclusions from the data. Essentially it can accept questions written in normal English, mine mountains of documents and databases for the answers, and provide natural language responses.

The technology is being explored in the wealth management division of Australia’s ANZ Bank. Joyce Phillips, CEO Global Wealth and Private Banking, wondered if Watson could be used to assess a new customer's financial situation more quickly and comprehensively than a human being could.

"What if I could sort you out in one session by asking you a few questions, and not have you bring a filing cabinet of paper to me, while we're having a cappuccino?" Phillips mused. "I started to test that concept with clients and it really resonated, " he said.6 ANZ has about 2,000 financial advisors and five million wealth management customers in Australia and New Zealand.

"Imagine if I was able to read every single financial document that exists in this country and never forget a word I read, and then we sat down with great advisors to understand how you would home in on the most relevant pieces of information and be able to do that consistently, within a matter of minutes," she says. "That's what Watson can do for us. It's more than just retrieving data or a search engine. We want this to be an assistive tool for the advisor,” she says.

Advisors will connect with Watson through tablet and mobile technology and the bank is developing a digital portal for wealth management that will include online chat. The eventual return on investment, Phillips suggests, will come from increased fees charged for advice, increased market share and improved customer retention.

In summary
It has never been more relevant to understand the impact of technology on the wealth manager. Opportunities and threats are evident from both an operating model perspective and as a result of innovation to deepen the client experience. We also see exciting new developments that could support relationship managers in turning data into insight or to harness the power and complexities of cognitive computing. One thing is sure, if the future is digital - the wealthy will have high expectations.

Footnotes:

1 The Customer Activated Enterprise, Insights from the Global C-Suite Study, IBM Institute of Business Value. 2013
2 Moving from the Back Office to the front lines, CIO Insights from the Global C-suite Study, IBM Institute of Business Value, 2013
3 “The Upwardly Mobile Enterprise” IBM Institute of Business Value. October 2013
4 Money Marketing, FCA reveals 23 per cent further fall in bank adviser numbers, 2014
5 CIO’s in outperforming enterprises are more likely to have a cohesive digital-physical strategy. 31 per cent Underperformers. 59 per cent Outperformers, IBM Institute of Business Value