Wealth Tech Awards 2022: Private banks’ digital metamorphosis

The wealth industry has realised digital expertise is essential across both portfolio management and customer relationships

The Covid pandemic has proved a critical catalyst in helping shake private banks out of their analogue torpor and embrace the digital revolution already influencing much of the society which surrounds them.

Many commentators, including the judges of PWM’s Wealth Tech awards, who have studied patterns of transformation particularly closely at the 55 banks which submitted their entries in 2022, would go even further. They claim the industry has changed so much, that both its goals and its parameters must be redefined.

“Wealth management is now an obsolete term,” states April Rudin, founder of the New York-based Rudin Group wealth marketing consultancy. “It is time to give the industry a facelift, with new nomenclature that better describes the functions being carried out to deliver on goals-based investing and broader financial planning.”

Combining portfolio management with broader wealth planning needs is vital to this reshaping of the wealth management sphere, she believes, adding that digital functionality needs to go well beyond accessing account balances or trading investment instruments. The new era, says Ms Rudin, must embrace communication with clients, trust and estate planning platforms, plus digital access to increasingly popular ‘alternative’ asset classes including private equity, debt and real estate.

While it is too early in the game to determine whether private banks have yet achieved a comfortable balance between managing assets and providing an attractive customer experience, the direction of travel involves deploying a broader range of innovative technologies.

“Customers don’t just need digital tools, they are demanding a whole range of propositions, especially when we talk about extended families,” says Keith MacDonald, head of the UK wealth management practice at consultancy EY.  “We expect full relationship and balance sheet management will be needed in the future.”

Data and its curation and management will play a central role in determining the dynamics of this new relationship. “The use of data is definitely one of the biggest challenges in private banking,” says Urs Bolt, project manager for IT consultancy ti&m. He expects the major obstacles to be of a regulatory rather than technical nature, with data protection and customer consent emerging as key sticking points.

“As long as customers are not able to ‘own’ the data and allow access to it, there will be a challenge for private banks and advisers to ‘auto-generate’ the most suitable financial solution for clients,” he says. “Until then, client advisers need to work together with customers to collect and structure relevant information and provide suitable solutions.”

This forms the basis for what many describe as the ‘hybrid advisory’ or ‘tech-enabled’ advisory model. “Changing client expectations and the need to serve up an intimate client experience that mixes the best of face-to-face and digital – in the right format and at the right time – will become a major driver,” believes digital wealth management adviser Mario Bassi.

“Advisers will need to have the right information at their fingertips to respond to a client base that takes an active interest in their own affairs and investments.”

This need to keep up with changing circumstances of clients and respond with a personalised offering is reflected in the work of banks such as BNP Paribas, which develop their wealth management tools through client focus groups. This inclusion of the client in the building of technology is the first of several major innovations the industry has seen recently.

The second realisation driving innovation is that data dissemination will drive profitability more than asset management expertise, believes wealth management consultant Seb Dovey, although this is by no means a unanimous view.

While many private banks have seen their encounter with data as something of a wrestling match, which is apparent in their entries to PWM’s awards, they should increasingly embrace data and see its management as an opportunity, says Mr Dovey.

“Private banks and wealth managers need to grasp that the future value driver and economic uplift is less about maintaining excellence in money management and more about becoming world class around information management,” he says. “The latter will be the difference between core income and growth income. This has been a long time coming. We first mentioned this back in 2010, when the digital arena was still in its infancy. It is even more relevant today.”

The third key catalyst driving transformation is inclusion of start-ups into digital eco-systems. These smaller businesses, which work in symbiosis with the major banks, can no longer be ignored, as they are often the best generators of new ideas. The challenge lies in how to integrate them into existing wealth management capabilities.

“One common factor is that with very rare exceptions, start-ups without legacy are the pioneers,” says Mr Bolt, emphasising in particular their innovation in alternative asset classes. “Some private banks realised the additional value of platform and marketplace offerings and started to invest and collaborate with the new platforms,” he adds.

Although banks entering our awards have tried to buy tech start-ups and integrate them into their own structure, this is not necessarily the best route. Many have failed, unable to maintain momentum and pace of innovation as they struggle to integrate tech-based start-ups into a traditional banking culture.

“The way forward is through open platforms and ecosystems, as much as that is possible in this highly regulated industry,” says Mr Bolt, who sees more benefit in banks taking equity stakes, buying licences or establishing credit lines for the start-ups. “We should encourage a collaborative approach to benefit from a start-up’s capabilities. This can be more beneficial for supporting growth.”

Nautical parallels offer a vivid comparison of innovation levels in big banks versus start-ups and a lens for analysing their interactions. “The analogy of super-tankers and speedboats really does apply here. The main risk to a collaboration involving these entities is that the speedboat capsizes in the wake of the super-tanker’s banking red tape,” says Sharmil Patwa, founder of wealth management consultancy Opus Una.

“If a collaboration is to work, start-ups and early stage companies need to be protected from this, while getting the support they require. Constructs that tend to work include bank-sponsored accelerators, followed by paid pilots or banks’ corporate venture capital arms making direct capital investments.”

In both cases, the fintechs remain insulated from the drag created by often unnecessary bank governance and the banks have both financial and human capital in the game. When it comes to further revolutionising digital private banking, this relationship between start-ups and major private banks is likely to present both the main challenge and the key opportunity.