How Tech Drives Wealth Management Change - BNY Mellon's Pershing

Tom Burroughes, Group Editor, London, 30 January 2019


This news service interviews the US firm as part of its feature series on how technology affects, even revolutionises, how wealth management gets delivered.

This publication examines a number of areas where technology is affecting the world’s wealth management sector. (To see a feature giving an overview of the terrain, look here.) A firm that shared its ideas was BNY Mellon’s Pershing. Here is a full version of the interview, featuring Daniel Semal, director of information technology architecture at that business.
What in technology is having the largest impact on wealth management at the moment and likely to do so in the next 12 months, and why?
Coming off the back of multiple, heavy years of regulatory change, a lot of wealth management firms are looking forward to being able to focus back on investing in product/service enhancement, but the specifics will be where each wealth management firm is looking to differentiate themselves or make-up lost ground from the last couple of years. 

When firms decide how to allocate their IT budgets, they have to choose between what they want to spend money on for business development/growth reasons, and what they must spend to deal with regulations. Some firms claim their compliance spending can be a competitive edge, but is that true? Is the choice between "must spend"/"want to spend" getting less severe now, or is it as difficult as ever?
Across the financial services industry as a whole there might be considered a bit of a lull this year as firms try to recover from the extensive impact of MiFID II and GDPR. This doesn’t mean that the regulatory burden is over by any means. WM firms are expected to be compliant by customers and regulators alike. 

The competitive edge in these firms really comes in innovative ways to meet the regulations without detrimentally impacting the customer experience. Examples being the increased communication which MiFID II has imposed for customers such as quarterly custody statements. These are expensive to send out and may well be seen as a pain by customers receiving all this paper four times a year, so firms switching to a secure, eDelivery solution can reduce operational costs and potentially increase customer satisfaction.

Where do you see the main tech requirements of the following kind of industry player: private banks (large, small); life insurance firms; single family offices; multi-family offices; wealth managers/asset managers; independent advisors?
There are some common themes across all players, with three which are probably getting the most air-time currently being cyber-security, customer experience and data/decision analysis.  Each player will be interested in different facets of these themes.

How much of the hype around blockchain/distributed ledger tech and its potential to change back/middle office operations is justified? What is the firm doing in this space? 
It’s rare that any massively hyped innovation is able to live up to the hype within a small timescale – whether in technology or any other area. Yet it is the energy and interest generated by hype which can often break innovation from a laboratory success into a commercial, real-world success, although there are usually numerous failures on the way. 

The concept of DLT [distributed ledger technology] opens interesting possibilities into revolutionary solutions to existing problems, but revolutions are often painful for all parties involved, even if the ultimate outcome is beneficial. Its application needs to be considered to ensure DLT is being chosen as the best solution to a specific problem, not just because it’s a great thing to have on your CV. The hype has dropped off over the last few years so this should allow viable, real-world DLT solutions to be more thoughtfully developed without needing the big, quick wins always expected from any new superstar. At the moment, we’re keeping an eye on the DLT space but are not actively looking at any implementation projects.

Where do you see the biggest potential for AI to affect wealth management? After a few early years, where do you see the "robo" advisor now?
AI is the new technology superstar, displacing DLT from a hype perspective, but it has the benefit of being much more mature and involved in other industries. I heard a good definition of AI recently in that current implementations work best as Augmented Intelligence – the machine providing additional, rapid insight to a human to increase the accuracy and timeliness of decisions. The full process of machine-initiated and actioned decisions is an uncomfortable leap for many consumers at the moment. Within this space I would see 2-3 main areas of opportunity:

-- Firm-wide strategy – looking across the firm to gain new insight into its operation.  Which processes are slow/expensive, which advisors are really outperforming, which geographic regions have the best growth opportunities? This analysis is in the mature sweet spot for the AI technology and is readily implemented without major disruption to daily operations; 
-- Firm investment decision-making – analysing market, geo-political and even social media data streams as a means of improving returns is an obvious use of AI technology. This is more impactful to existing systems and processes and has an increased risk where the decision-making timescale is greatly reduced from setting firm-wide strategy; and 
-- Personalised consumer investment decision-making – collecting data points about investors to define a personal investment plan at scale is the true goal of robo-advice.  A strategy considering environmental, societal, and religious drivers as well as short, medium and long-term financial goals is a very different proposition to the guided access approach of the first wave of robo-advisors.  This is still a way off but is in no way unobtainable. We should see consumers continuing to demand more bespoke services from their advisors, driving this as much as the improvements in AI technology drive the feasibility.

Can you give examples of how the role of bankers/relationship managers and other wealth professionals is being affected by tech, and what advice would you give to people entering the industry? 
The mobile phone is still the biggest ultimate driver for how wealth professionals are affected by technology simply because it has empowered consumers to be much more demanding in their interactions. This doesn’t necessarily concern the quality of an app but the overall, individual connection with any service provider – think Amazon, Apple, Spotify, Netflix. This is especially true for any premium service, where consumers are becoming less willing to be treated as yet another number and demanding an obvious effort to be treated as individuals with very specific preferences. 

This is a key message for the industry right now – there is plenty of competition for customers and whilst the underlying financial performance of the service is important, the desire for a high quality, seemingly customised, customer experience is in demand. Technology plays a large part in shaping the customer experience, both with respect to creating efficient processes behind the scenes and facilitating an easy, personalised interaction with the wealth professional, but it should never be considered the be all and end all.

Are there other points you would like to make? 
Technology is changing at an ever more rapid pace, with no end in sight. WMs, like almost every industry, are trying to ride this wave. There is a balance to be found between being directed by globally impacting technology changes to not falling behind the pack and the judicious use of new technology to gain a competitive advantage. The successful WM will need to do both; being judicious in the technology investments they make whilst acknowledging that the lifespan of these investments is ever shortening as the pace of change increases.

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