The author of this article considers some technology issues that wealth managers and private banks need to grapple with.

Will Lawton, global head of QUO, a TradingScreen company, has written an article on why buying more technology tools isn’t the solution for digitisation for wealth managers. At a time when wealth managers are bombarded with tales of how they must embrace digital technology in different forms, it is important to step back and think about what they need and what looks merely attractive or the “newest thing”.

We hope this article contributes to debate and, of course, the usual disclaimers apply. So readers should weigh in with their own comments. Email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com

Institutional finance is steeped in tradition – particularly when it comes to image. It is hard to think of a dress code that evokes a stronger stereotype than the Gordon Gekko red braces, pinstripe suit and shiny silver cufflinks. But change is afoot as a new wave of button-loosening fintech firms enter the market – and it is not just the dress code they are changing, but also the old ways of working.

Rapidly increasing levels of digitisation are spanning vast swathes of the market – including wealth management. Wealth managers are under pressure to develop new strategies to meet the demands of a more tech-savvy high net worth generation in Asia and Europe.

Certainly, technology adoption is the number one priority for wealth managers globally
According to a Thomson Reuters and Forbes Insights survey of 200 wealth managers, over 70 per cent stated that keeping up with technology is their single biggest challenge. Private wealth managers find themselves leading teams of tech savvy Gen Y managers, and sophisticated technology is now a competitive edge.

In the US, a bulk of retail wealth created during the 90s was managed by funds or individual financial advisors. The rise of professional wealth management coincided with a rapid digitisation of the economy – WealthFront and Mint immediately come to mind. Four factors behind this include:

1.    Wealth accumulation;
2.    Technology foundations;
3.    Market regulation; and
4.    Client sophistication

Asia is also going through rapid wealth creation, digitisation and higher customer sophistication, ticking three of the four causal factors. By anecdotal evidence, over half of the wealth created in the last decade is technology centric. Many HNWIs and families are digitally savvy themselves. As per a 2018 Boston Consulting Group study – over 70 per cent of clients in Asia expect access to infrastructure or platform type services with digital being their preferred channel of receiving advice.  

Greater customer experience
Some 60 per cent of wealth management firms state (as per an EY survey) that enhancing the customer experience is their number one priority. For private banks digitising their external asset manager network this is vitally important:

•    Portfolio aggregation – in a multi custodian world, an aggregated portfolio view is rarely available;  
•    Market access for multi asset trading - poor execution has large costs especially in OTC; and
•    Compliance risk – manual pre trade checks create risk of breaches.

But fintech adoption creates new problems as older ones are solved
A BCG study estimates that the work flow digitisation in wealth management is:

•    Client onboarding and KYC – 40-60 per cent;
•    Execution and reporting – 20-30 per cent;
•    Compliance and risk – 20-30 per cent; and
•    Portfolio analytics – 40-60 per cent.

Fintech solutions are now pervasive in many areas of wealth management including onboarding, client management and reporting. Technology has deeply impacted digital onboarding, and biometric technology is widespread. There are several companies working in the portfolio analytics domain. The flip side of this focus has been the inability of smaller firms to get reliable connectivity to core banking systems.

Execution in a multi asset world (think bonds, FX, structured products, funds as well as listed securities) is challenging and “best execution” continues to remain elusive. Wealth managers still have to log into multiple bank portals while OTC products remain almost completely offline. There are few, if any, “workflow solutions” that can digitise execution and aggregate across multiple banks or custodians. Stitching together disparate systems results in expensive technology bloat with multiple points of failure.

The truth is that wealth managers need workflow solutions – not fragmented tools
Private banks and asset managers who make investment decisions need aggregate information about their clients’ portfolios, real price information, and to eliminate execution risk.

Wealth firms and family offices need to integrate new technology, data and analytics across their whole ecosystem. An incremental approach to updating legacy systems, or buying off-the-shelf tools, cannot create a future proof workflow solution.

That’s why digital systems that connect with legacy core banking software are the only way forward

The task of digitising workflows like trading, compliance checks and portfolio aggregation is daunting when looked at from the prism of current legacy systems.

Most legacy systems were conceived in the pre internet era - when customer experience and aggregation were not even concepts. However, ditching decades old legacy bank systems would have unacceptable business risks. On the other hand, not integrating via APIs to online systems carries clear obsolescence risk.  

A workflow solution that can connect to banking legacy systems and provide the layer of digital efficiency to wealth and asset managers is the only way forward. Creating a future proof wealth practice requires a holistic approach to digitisation; just buying technology tools simply isn’t a viable solution. Multi-custodian systems like QUO which integrate with legacy core banking solutions are a good example of this.