Communication the key to unlocking tech transformation of wealth management
Will digital intelligence triumph over human emotion and wisdom? Speakers from the FT/PWM Innovation in Wealth Management Summit debate the latest industry tech trends with Yuri Bender
In the endless talk about digitalisation, conducted by vested interest in its deployment – software companies selling packages or banks streamlining processes and tech stacks – the culture of wealth managers and clients is often forgotten or ignored.
“One of the biggest revolutions ahead for the wealth sector will come through process improvement and automation of what were linear approaches,” says David Durlacher, CEO of Julius Baer’s international division in London. Despite this scientific description, he is in no doubt about the human quality necessary to trigger change: “Communication.”
While physical resources will be pumped into digital enhancement, developing AI tools and data-led initiatives, the toughest fight is emotional, as banks battle to connect with a broader client demographic.
Grappling with technology
“Our industry must grapple with its limits as much as opportunities, if it is to engage hearts and minds of a new generation,” says Mr Durlacher, describing increasingly socially-conscious clients pondering the role of their wealth in improving society.
“The ultimate requirement of wealth managers is to engage with our humanity as much as our intellect,” suggests Mr Durlacher, shifting the focus of the debate from digital innovation to appreciating firms’ collected wisdom from negotiating crises, allocating assets and advising clients.
“Wisdom,” he believes, is essentially human, unlike “intelligence”, which can be synthetically generated, recalling a client meeting, to demonstrate differences between the qualities. “This couple had sold their business, the proceeds making them extremely wealthy. During our conversation of how to help, the temptation was to discuss performance, assess markets and how to manage their money,” he says. “If we had done that, we would have missed their entire priority, as the main employer in their local community, keeping hundreds of people in work. They may have walked away from their business, but still held a keen desire to support the community. Our main job was answering the big picture question: ‘How can we help you achieve that broader goal?’”
Second-hand emotion
Emotion not only determines engagement with clients, but also feeds AI algorithms, confirms Jerome Stern, managing partner of family-owned investment firm J Stern & Co. “You have more and more analytical tools and can automatise processes, with AI allowing you to summarise things straight away,” he says. “But it doesn’t give you the ability to ask the right questions in the first place.”
AI doesn’t give you the ability to ask the right questions in the first place
Jerome Stern, J Stern & Co
Moreover, investment managers must weigh up emotions when drawing up portfolio strategies in a way machine learning may struggle. “Human behaviour is driven by irrational exuberance,” says Mr Stern, referring to political interference in environmentally friendly investments by right-wing US politicians.
“When you’re looking at trade, you have to also see it from the point of view of the Texan pension fund, hearing external forces preventing them investing in oil, a significant part of the state’s GDP. You ask yourself: ‘Am I actually doing the state a disservice by doing this?’”
Similarly, while noting irrational behaviour leading to client losses in cryptocurrency projects, including the FTX debacle, he is a proponent of technology facilitating these investments, believing the digital leap during Covid propelled finance forward “10 years” in a short period.
“The technology behind this will be revolutionary, no question,” stresses Mr Stern, advocating the use of blockchain alongside AI in wealth management, allowing investors to buy tokenised shares from decentralised exchanges via mobile devices.
Peripheral vision
At Citi Private Bank, one of the most advanced in deploying technology, digital capacities are “table stakes”, rather than selection criteria in their own right, says chief innovation officer, Phil Watson, favouring collaboration with external partners, including universities and start-ups to help innovate internally.
“We talk about ‘bringing the inside out and the outside in’. In simple terms, this means that ideas are born, and progress is made through sharing” not just technology, but also human challenges, opportunities and “pain points”, says Mr Watson.
“Wealth managers and private banks frequently struggle from a lack of peripheral vision,” he admits. “They can be so focused on a narrow set of products, services, and client experiences that they miss the state of play completely changing around them.”
Connectivity to innovation hubs, plugging banks into ideas and talent pools that could embed digital culture into banks’ “DNA”, can only be achieved by developing human talent alongside its artificial manifestation, he argues. “The more we technologise, the more we humanise. Applying one in absence of the other is detrimental to the client experience and your business model.
Wealth managers and private banks frequently struggle from a lack of peripheral vision
Phil Watson, Citi Private Bank
