Fintech on Friday: Wealth managers must pick a side of the digital divide

A shock can sometimes be a catalyst for positive change – and often the bigger the shock, the greater the eventual change. More than six months from the start of this extraordinary era we are all living through, it is safe to say that we will not be returning to the old way of doing things.

In the wealth management industry, the Covid-19 pandemic has highlighted a deep chasm between firms that have been successfully able to support clients through an omni-channel digital experience, and those who have hitherto only paid lip service and are now struggling to meet fast-evolving expectations.

Analogue consigned to history

The current crisis has swept away at least one of the arguments wealth management firms traditionally put forward to avoid embracing innovation: namely, that their clients expect and pay for a white-glove service. The assumption was that this could only be delivered through face-to-face contact as the relationship sourced its value in personal connections, empathy and other intangible factors that could not be realistically replicated through digital channels.

Firms have been forced to innovate so that they can stay close to their clients – and some have enjoyed successes. This has become a year of rampant adoption of technology – from review calls on Zoom, e-signatures through DocuSign and collaboration sessions on Slack, to this summer’s eyewatering tech stock rally. The old ways of operating could soon be left in the past, driven out either by commercial necessity, prolonged social distancing or a combination of both.

On the commercial side of the equation, analysis undertaken by Aon, using a proxy group of leading UK wealth firms (not including private banks), to calculate how growth has been affected found that between 2007 and 2019, average pre-tax reported profit margins declined by nearly 40 per cent, from 22 per cent to 13 per cent. With margin pressure expected to continue in the current climate, it will make it vital to embrace new technology as an integral part of the client experience to better support productivity.

Of course, most will agree that wealth management is a relationship-driven industry. So, to enjoy a competitive advantage, firms need to start viewing digitalisation as an opportunity to be seized with the ultimate reward of happier, more loyal clients. A digitally-enabled front office will increase convenience and strengthen client trust.

Digital shortcomings more visible and less excusable

The ways that firms can prove they are truly client-centric are evolving from nice gestures that clients might enjoy but offer no long-term value (e.g. events and hospitality) to providing them with insight and ideas which are aligned to their interests and help them to meet their goals.

But digital tools and data management are seen as industry weak-points. The online tools provided to clients are often perceived as too simple and not user-friendly. For example, going into the crisis, 22 per cent of clients reported problems with analysing performance data online, 14 per cent with the log-in procedures and 34 per cent were concerned with data security. Today these concerns are further magnified, as clients are forced to use these tools and experience pain-points at a time of heightened stress.

Balancing act 

Many firms have had to make the leap into a digital communication model but may find that client demands do not stop there. It is likely that investors will want access to more tools that allow them to complete advanced activities independently, rather than waiting for the return to face-to-face meetings.

Looking to the future, firms will have to weigh up carefully how to keep the best of the old, along with the new, to improve workflow. Simply put, in the old model a banker doing five in-person meetings a day might have looked productive. In the new environment, with profitability coming under pressure, ‘high-touch’ can look a lot like ‘labour intensive’.

Wealth managers must now pursue more cost-effective models of serving clients with non-complex needs while identifying those willing to pay more for the white-glove service. In future, marketing should have an enhanced role in delivering the human touch digitally, as empathetic communications will be needed to stay close to clients and grow.

Old arguments about digital and data frequently revealed cultural tensions within organisations. Now, the choice is simple: there will likely be a digital divide. Which side will your business be on?

Caroline Burkart is associate partner and Tasha Vashisht head of thought leadership development, client insight, at Aon