An Overview Of Technology Challenges Facing Wealth Sector

Daniel Giannotti, 20 March 2020


Capita Consulting is this publication’s consultancy partner on a ground-breaking new research report, “Technology Traps Wealth Managers Must Avoid”. Here, Daniel Giannotti, head of Capital Markets and Investment Management, outlines the main technology challenges his firm sees wealth managers grappling with out in the market – taking in a number of “classic” technology traps along the way.

This publication's "Tech Traps" report was launched earlier this week. To kick off, here is the first chapter, setting out an overview of the report and its terrain. It comes from Daniel Giannotti, head of capital markets and Iinvestment management at Capita Consulting

As an industry, wealth management is in the middle of the perfect storm of wide-scale transformation. Regulatory obligations are growing; digital technologies like artificial intelligence and analytics are driving automation and innovation; customers expect more (think personalisation and real-time engagement); and the competitive landscape is shifting as born-digital entrants emerge. In an industry forecast to reach $272 trillion in assets under management worldwide by 2023, (i) how can wealth managers remain relevant and competitive?

The successful adoption of new digital technologies will play a crucial role in responding to change and driving growth, but wealth managers need to tread carefully: successful transformation will depend on avoiding common technology missteps. Here is a flavour of what we see in the market.

Trap 1: Thinking there is a “silver bullet” 
A staggering 70 per cent of digital transformations fail, (ii) invariably because clear vision and a measured approach are lacking. No technology is a panacea, particularly since change is constant. Winning requires discipline and an iterative approach.

Failure often occurs when organisations:

1.    Bullishly race to change. This can create risks and inefficiencies and result in failure to achieve potential value.
2.    Are risk-averse and obsessed with quality. Moving at glacial pace, organisations can fail to keep up.
3.    Fall victim to scope sabotage. Internal demands for the perfect solution on day one can compromise the vision and case for change.

The ideal is to deliver change with the right combination of speed, cost and quality. It is possible, but it requires disciplined management, leadership buy-in and investment in overall organisational capabilities. Wealth managers must take stock of their current maturity levels before they can build them.

As the pace of change accelerates, agile, iterative delivery approaches that provide value in shorter delivery cycles are proving effective.

Wealth management challengers are delivering innovation at a faster pace than incumbents (iii). The practices they employ include:

•    New ways of working, such as agile, design-thinking and systems thinking; 
•    Continuous change pipeline and deployment practices; 
•    New funding principles to encourage modern technology innovation; 
•    Testing automation capabilities; 
•    Anti-fragile architectures to better respond and adapt to continuous change; 
•    Avoiding over-customisation and investing in partnerships; and 
•    Involving clients in design and staggered releases (alpha, beta and minimum viable product stages). 

Adopting these practices can be advantageous. Operational resilience, ongoing support and improvement are as important as innovation, however. High-profile outages damage reputations and regulators (iv) are getting ready to legislate in this space.

Trap 2: Getting caught up in hype at the expense of strategy
Wealth managers are falling behind: 68 per cent say that learning about and keeping up with new technology is a top challenge. (v)  They are not alone. Leaders around the globe are reporting poor returns on their digital investments due to an inability to scale digital innovation beyond early pilot work. (vi) The problem is not technology choice; it’s the ability to navigate the options. Will a build or a buy strategy deliver the desired outcomes?

Third-party technology vendors with flashy new toys may excite, but don’t be blinded by the lights. Due diligence is vital, encompassing the following as a minimum:
•    Carry out an in-depth assessment of the underlying third-party technology: This can uncover hidden issues early, avoiding problems during implementation.
•    Consider the alignment of the solution to the business strategy: This will help to focus your investments.
•    Do the numbers: What are the use cases? How will they generate tangible value for core and next generation clients? What return on investment can you expect?

On the other hand, firms pursuing a build strategy need to be confident in their ability to deliver and then manage the technology. Common pitfalls include extended time to market, lack of a product roadmap and cost management.

In both instances, evaluating ongoing costs and selecting technology partners that can support the business through technology change are important. Smart, controlled pilots lower risk, so start small, keep it simple and iterate quickly. Remember why you started and constantly test alignment to business objectives and value. Return on investment is king!

Register for WealthBriefing today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes