A global study “Disruption and Transformation in Wealth – Future-proofing Service and Operating Models” from Citi Business Advisory Services, in partnership with Citi Securities Services, looking into developments across the wealth spectrum, was released this week.

New research from Citi Business Advisory Services, in partnership with Citi Securities Services, highlights the need to transform business and operating models amongst wealth managers as declining fees, tight margins, and the increasing cost of regulation and compliance continue to put pressure on the industry.

Some of the main considerations identified by wealth managers in the survey included uncertainties about the outlook for global growth driving change. Client experience and digital delivery also remain a top priority whilst the regulatory environment remains the top challenge for industry. Wealth managers also have a preference for outsourcing technology development, the survey shows.

The global study Disruption and Transformation in Wealth – Future-proofing Service and Operating Models found that 71 per cent of participants surveyed identified the overall client experience as a top priority. This heightened focus on the client experience and, more specifically the digital client experience, stems from evolving client expectations and the threat of digital disruptors. The report was based on quantitative and qualitative data from 23 interviews with almost 170 participants across retail, wealth and private banking segments in Asia-Pacific, Europe and North America.

Structural shifts including the emergence of new wealth, coupled with uncertainty in global markets and a fluid regulatory landscape, have pushed the wealth industry to address the fundamental challenges of maintaining and growing relationships with their end clients, the report continued.

To deliver an enhanced and digitally-enabled client experience, wealth managers and private banks should focus on transforming their operational technology and service models, the report suggests. When asked about their preferred technology development strategy, 75 per cent of respondents said they prefer to work with external parties.

The challenge of tight margins in an inflationary environment, as at present, is significant for wealth management in general, even though net-interest margins at banks have widened because of the rises in interest rates over the past year. This publication considered the issues here in an editorial.

The study also found that there is a distinction between which functions are more likely to be outsourced, with 46 per cent of respondents preferring a hybrid model, upgrading their in-house systems with third-party tools. Areas that respondents are unlikely to outsource include most client-facing activities such as onboarding and KYC, and compliance, regulatory and tax reporting.

“The emergence of new technologies demands for a native digital client experience and the largest intergenerational wealth transfer in history pose significant challenges to the entire wealth industry,” Okan Pekin, Citi’s global head of securities services, said. “Our research outlines ways in which we can re-imagine service and operating models to deliver solutions to wealth managers to address these challenges.”

The study found that almost half of survey participants ranked budget constraints as the top barrier to transforming their technology and operations. Looking to the future, the firm said that the drive for scale and efficiency is accelerating consolidation across the industry.

“Based on our study, it is clear that the wealth industry is at an inflection point, and it is critical that wealth management providers servicing the mass affluent to ultra-high net worth clients need to get their operating model right. Moving forward, we see trusted partnerships as key to success as consolidation continues,” Andrew Pitt, head of research and content for Citi’s institutional client group, said.