Technology
An Overview Of Technology Challenges Facing Wealth Sector
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!
Trap 3: Building on shaky data foundations
Strong data management practices that support data quality and
governance are central to successful digital transformation. With
regulatory changes democratising access to data, and advancing
technologies offering new ways to use data, robust data
management practices are becoming critical to digital technology
change. Yet many organisations miss the opportunity to improve
and reinforce these critical foundations.
Wealth management firms have a vast amount of data at their
disposal. It’s a valuable strategic asset that is being
under-utilised. This data, currently held in myriad (often
legacy) systems, can be turned into actionable insight to enable
better outcomes for clients, end-users and the organisation.
However, it takes upfront planning and disciplined execution.
Key data challenges include:
• Poor data quality and governance
• Inadequate strategies to prevent and respond
to data breaches
• Missed opportunities to connect data across
systems and harness insights across the estate
• Underestimating data orchestration and
migration challenges
Investing more time and effort to leverage the power of data when
delivering technology change can result in better end-user
outcomes, improved regulatory compliance, and more cost-effective
programme deliveries.
Trap 4: Forgetting to invest in people
Under-investment in people and culture change is one of the
biggest technology change traps for wealth managers.
The right skills, culture and behaviours are vital to drive
adoption and unlock value from the investment. Getting this right
will take some planning, but put simply, without it the
technology will fail.
The current skills gap in the sector presents a real threat to
growth. This requires consideration at the project and
organisational level. While partnering can alleviate emerging
digital skills gaps somewhat, the firm must prepare for long-term
delivery and management of the current and future technologies it
intends to operate. That means putting change management
strategies in place, as well as recalibrating talent
management.
Adoption of new technology tends to fail where employees do not
understand or experience the value of the new technology. If
training and communications are only covering “how to use it”,
they are falling short - technology change needs to be
introduced with the context of the business problem it is trying
to solve. In wealth management, where there is some inherent
resistance to change, it can really pay off to simulate the new
world so that the workforce can fully appreciate the benefits. Be
careful not to gloss over any shortcomings (e.g., interim manual
processes), as this can have long-term consequences.
Treading a mindful technology path
Digital transformation is non-negotiable if wealth managers wish
to stay competitive and market-relevant. But they must pick their
paths carefully.
As this report highlights, many hidden technology traps lay in
wait for wealth managers. Firms avoiding them will realise the
full potential of digital technologies faster, and maximise their
positive impact right across the business. Those falling prey to
them may be counting the costs for years to come. Much depends on
knowing where missteps commonly occur.
At Capita Consulting we work alongside an ecosystem of
innovative, world-class technology partners dedicated to wealth
management. Our expertise and best practices can help you deliver
successful and sustainable digital technology change. Have an
idea or a problem? We can help.
Contact the author: Daniel.Giannotti@capita.com
This forms part of this publication’s latest research report,
“Technology Traps Wealth Managers Must Avoid”. Download your free
copy by completing the form below.
Footnotes:
i, BCG, 2019
ii, McKinsey, 2018
iii, Forrester, 2019
iv, UK Treasury Committee, 2019
v, Thomson Reuters, 2018
vi, Harvard Business Review, 2019