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EXCLUSIVE: Tech Automation Holds Rich Wealth Management Promise – In Conversation With FNZ

Tom Burroughes

22 May 2024

When a global report earlier this year stated that AI will transform wealth management – with almost two-thirds of advisors expecting to use it by 2028 – it added to a continuing trend of analysis. AI, along with other technologies such as blockchain, is at the centre of many wealth industry conversations. (See here for an example, and here.)

The report, based on interviews with 250 wealth management firms and 2,000 investors, was produced by tech firm . 

Findings included 69 per cent of executives saying that AI will significantly change the way their firms work and 60 per cent of advisors expect to use AI tools by 2028. Some 47 per cent of respondents said blockchain and related technologies will reduce the need for intermediaries, such as custodians and clearing houses.

In findings that resonate with what this news service hears, 52 per cent of wealth management firms leading in digital transformation expect a dramatic industry shakeout, and the same percentage said that most products will become commoditised, forcing providers to offer value-added services to defend fees.

This news service asked Carl Robertson, group chief marketing officer for FNZ, about the report, its significance and how such studies can inform the industry. 

WealthBriefing: What are the most compelling use cases for AI and blockchain in the wealth management/private banking industries today, and for the next two to five years, and why?
Robertson: Driven by changing investor expectations and advances in technology, there are major changes on the horizon in the wealth management and private banking industries. A key factor is automation and the use of AI in the back office and underlying services required to support client infrastructure, which then allow financial advisors in the front office to engage with clients in a more meaningful, personalised and cost-effective way.

Onboarding is a great example – in an industry based on data, for too many firms are sending paper back and forwards, taking weeks to open accounts, is still the reality. We need to see this replaced by fully-automated, end-to-end processes that leverage digitisation but also increasingly machine learning and AI. The benefits are clear – we’ve found that wealth managers who have moved to modern digital platforms have typically been able to reduce fees by more than 10 basis points as their cost-to-serve has been brought under control.
WB: If you were a chief executive of a bank or wealth manager, what sort of spending and investment into blockchain and AI tech would make most sense, and how can firms set their priorities wisely?
Robertson: The real value that investment in AI brings is operational efficiency behind the scenes, so allocating resources towards solutions that streamline processes, enhance security, and reduce costs is a good place to start. 

In a changing regulatory landscape, we are also seeing more firms investing in risk management, and our research shows that the percentage of those making significant investment in `regtech’ over the next three years will nearly double. Ultimately, this investment frees up time for advisors to add real value by doing what they do best – providing personalised advice and focusing on the end-investor experience.

WB: How big an issue is a certain reluctance/caution by firms to spend on these areas because they fear (with some reason) about putting money into “dead ends,” etc, or because they wait to see what others are doing first?
Robertson: I think it’s natural that there may be a certain amount of hesitation when it comes to embracing new technologies, but very quickly firms will see the benefits it brings to their operations and ultimately bottom line, which then feeds through to the end investor enjoying an accessible and tailored experience with more choice. In fact, our research indicates that by outsourcing middle-office and operations functions, wealth and asset managers can realise operating cost savings of up to 30 per cent compared with more traditional approaches. When providers see that their customers are increasingly demanding more, they will adapt, otherwise they risk losing out.

WB: In your view, what sort of misconceptions about AI and blockchain tech do you encounter from wealth management and banking executives? What’s your typical response?
Robertson: It’s not just in our industry that AI is sometimes seen as a buzzword rather than a genuinely transformative tool, and there are certainly some hesitancies around its practical applications within organisations. It’s incumbent on us to demonstrate the tangible benefits and successful implementations of AI in supporting a range of internal and client-facing activities. There is also an element of reassurance that’s needed – the integration of AI is there to streamline out-dated processes and free up valuable time for advisors in customer-facing activities – it’s automation first not automation only.

WB: What are the biggest prizes for the financial services sector in getting the use of these techs right? Is it revenue growth, profits, robustness, flexibility, other?
Robertson: Harnessing technological innovation in the right way can bring enormous benefits for companies in the industry. Firms will see revenues increase as their digital strategies are embedded, and they will leverage these trends to improve profitability and decrease costs to serve clients. Operationally, there are huge efficiencies to be enjoyed through the implementation of AI-based digital strategies. 

The way AI can analyse vast data sets to spot patterns and anomalies in real time helps use cases in risk management, fraud, and compliance, while firms are increasingly using it to improve strategic planning. All these factors contribute to businesses becoming more robust. Importantly, there are significant benefits to the customers these firms serve, through greater personalisation and choice which contributes to enhanced investor experiences.

WB: In the findings of FNZ’s research, as referred to above, which strike you as particularly significant, and what lessons/actions should follow from them?
The key lesson for me was the growing expectations and importance of the younger generations of investors. There is clear evidence to show that firms will need to tailor their solutions to a more diverse and demanding base of younger investors, as we see a vast transfer in wealth from older to younger generations over the next decade.

Gen Z’s experience of service has been shaped by born-digital companies, such as Apple and Amazon, and we found that this has caused a step change in the high level of expectations. Firms will therefore need to demonstrate their relevance as many younger investors believe they may not need to use advisors. Those who do not meet these evolving needs will lose out, with younger investors more likely to hunt around to seek better digital apps, channels, tools and platforms.