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An Overview Of Technology Challenges Facing Wealth Sector
20 March 2020
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 . Trap 3: Building on shaky data foundations Footnotes: i, BCG, 2019
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!
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.
ii, McKinsey, 2018
iii, Forrester, 2019
iv, UK Treasury Committee, 2019
v, Thomson Reuters, 2018
vi, Harvard Business Review, 2019
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 .
Trap 3: Building on shaky data foundations
i, BCG, 2019