The world of financial services has changed enormously in the past few decades. The continuously accelerating pace of technology innovation and digital platforms has been one of the most critical drivers for banks and wealth managers.

In wealth management, change started several years ago with the rise of robo-advisors – artificial intelligence-driven virtual financial advisors – offering simple, attractive and easy-to-use self-service advisory and investment solutions for the mass market. This change has since evolved into a general move towards digitally-enabled investment platforms for all user segments, from ultra-high net worth individuals down, with a corresponding question about how to provide a highly-personalised advisory service using digital channels for clients who are accustomed to a traditional mode of engagement with their wealth managers and may have never considered digital interaction before. 

The accelerating wave of technology innovation, Covid-induced digital migration, the rise of cloud platforms and the expectation of instant, accurate and up-to-date content and data in service interactions have led to a painful disruption for incumbent wealth managers and new opportunities for challengers, with the rapid evolution of technology platforms being key to staying relevant.

Also, double-digit inflation, higher interest rates, soaring energy costs and supply chain disruption are forcing banks and wealth managers to reduce discretionary spending. At the same time, customers have never had as many choices in financial services, with little friction in adopting them.

As we enter this new period of extreme economic, geopolitical and environmental uncertainty, the unstoppable demand for change and innovation bumps up against the cost and complexity of providing the tools and platforms to meet customer expectations.

Current trends impacting wealth management  
According to Gartner (1), banks continue to invest in digital platforms, with 61 per cent placing their bets on digital banking platforms as a critical technology for post-Covid-19 business recovery. 

However, for financial institutions to provide state-of-the-art digital services, they need to modernise their IT infrastructure, as legacy platforms need to be more capable of delivering the seamless digital experiences that customers expect today. In addition to an improved customer experience, there are cost-saving benefits to be realised from platform modernisation. A recent McKinsey research showed that appropriate modernisation of banks’ legacy IT infrastructure could result in a 70 per cent cost reduction and 50 per cent timeline reduction. 

Modernisation is essential to ensuring that programmes provide improved flexibility, scalability and futureproofing to realise potential benefits. Financial services companies are currently focused on organisational change initiatives, adopting agile processes and using partners for both platforms and services across the technology landscape to cater more effectively to the evolving demands of their customers. Platforms are increasingly being assembled from API-connected building blocks rather than being built in-house by monolithic technology organisations.

Moving the IT landscape to the cloud can improve security, agility and availability while reducing IT operations. Wealth managers do not have to choose between cost savings and providing improved services. There is a strong business case for a win-win scenario that can be achieved by migrating to the cloud and upgrading services all simultaneously.

McKinsey & Company

What does this mean for wealth managers today?
Every wealth manager is struggling with the key question of how to balance competing imperatives. This includes cutting costs to protect the bottom line while continuing to innovate to retain and attract digitally-native clients – of all age groups – without alienating the more traditional client base.

We believe the answer lies in each wealth management business taking the time to fully understand their clients, business model and future advisory service goals. Armed with that understanding, an IT organisation can then help define a harmonious balance between “build” and “buy” for technology components, choose the correct delivery model using partners, and the right mix of on-premise and cloud infrastructure.

Only with this understanding can the highly personal question of “What does good look like” be answered, considering the short and long-term cost implications and potential client and revenue benefits.

Wealth managers can introduce appropriate measures to ensure that the resulting investments and change initiatives can be monitored and measured objectively according to these business parameters.

Footnote

1,   Drive Digital Banking Platform Success With the Right Use Cases and Composable Design, Published 12 November 2021 – ID G00745627