The Covid-19 pandemic proved how technology can benefit both private banks and their clients, and has enabled regional players to compete on a global scale.
The further we travel along the digital highway heralded by the Fourth Industrial Revolution, the deeper the trends uncovered.
As our annual Wealth Tech Awards move into their sixth incarnation and the vanguard of innovative banks expands to embrace a broader range of global firms, several definitive patterns are emerging.
Covid is seen as a seminal “moment” in the digitalisation of private banks by the panel of analysts judging PWM’s awards.
“The pandemic has caused a sea change, with laggards forced to come to terms with the newly digitised world,” says Alois Pirker, founder of Boston, US-based digital strategy consultants Pirker Partners.
“Most relationship managers are using digital tools in their personal lives, but their company’s digital capabilities have been mediocre at best. Broader adoption is only possible if firms are creating digital platforms fully in-line with various client segments a firm serves.”
With an ageing demographic troubling most wealth firms, struggling to recruit younger advisers, technology specialists within banks are trying hard to familiarise older advisers with new apps and convince them of their efficacy.
“Being able to do more business or serve clients better would be the ultimate argument that will lead to adoption for this demographic,” says Mr Pirker.
Few organisations, with the exception of a handful of multi-family offices, have been able to match client handlers with appropriate family generations, says Keith Macdonald, head of wealth management consulting at EY. “Many continue to see ‘digital’ as a threat to their relationships, not as a support,” with some analysts describing a climate of “fear and angst” among advisers, fuelled by a narrative of tech replacing humans.
But there is also a more positive story, with commentators convinced by the pandemic’s transformative power. “Covid forced a recalibration of value of the relationship model and its delivery channels,” says independent wealth management consultant Seb Dovey. “What was previously thought impossible – engagement through digital mediums – became normal. Indeed, in many case it became the preference.”
Once the world transitioned from Covid, say industry voices, it became possible for leaders to rethink the precarious balancing act between advisers and technology. This, in turn, helped deliver “high-value premium” investment and wealth management services. As a result, clients felt happier with their advisers, who became richer as a result.
Global platform
For local and regional banks, the pandemic has provided a much wider audience, as newly available global technology platforms promote them into the international league.
“With advisers and clients normalised to no direct contact through physical meetings, the aftermath of the pandemic opens a huge door to the right type of firm,” confirms Doug Fritz, co-founder of US wealth consultancy F2 Strategy. “In North America and in Europe, it means regional players can now operate on a national and even international scale. Tech can make a fast-growing regional player seem as large and competent as a global wire house.”
Commentators also describe a “profound and long overdue” cultural change affecting advisers. These relationship managers were finally able to see with their own eyes how their profession could be more flexible than their bosses previously allowed, with client relationships handled from any location.
Yet this cultural change from a traditional towards a more tech-led model can be vastly overestimated, comments Sigrid Unseld, data architect and CEO of Scilla Consulting, who has worked with both Credit Suisse and UBS in the past.
“Changing the culture is often a minor issue compared to the tech problems many private banks are facing,” she says. “They typically struggle with their legacy systems and integration problems across platforms.”
Cultural shifts without visionary leadership have also proved close to impossible, according to Sandra Daub, chief marketing officer at Noumena Digital and lecturer in disruptive technology at the Lucerne University of Applied Sciences and Arts. “Culture starts with leadership; everybody is talking about digital, but target settings for most employees are still the same as they were years ago,” says Ms Daub.
Fostering digital transformation, she says, requires a different type of target, well away from the “Gantt” project management charts of yesteryear, which still adorn the laptops and walls of private banking C-suites. Budgeting processes also need to move on from today’s practice of pitching for funding from head office more than a year in advance.
While there are pockets of client advisers experimenting with digital innovation in the high net worth and ultra-spaces, this is the exception rather than the rule. “A large part of the client advisers are still focusing only on their personal relations and do not really trust in the technology,” believes Ms Daub.
“They either fear digital innovation or lack a technical understanding of the tools available.”
Personalised insights
If advisers are slow to embrace cultural change, the same cannot be said for their clients, expecting a smoother ‘customer experience’ after buying into this journey with luxury brands and apparently valuing this more than financial return.
“Statistically, portfolio performance has near zero correlation to client satisfaction or referability, while quality of contacts, through calls, videos and meetings – but not email – have near 100 pe cent correlation to net promoter scores [accepted measures of client experience],” claims F2’s Mr Fritz. “Tech needs to create stronger and better personalised insights to make a difference.”
But Ms Daub cautions this is the case only in boom times for asset management. “In times of high returns, customers will probably pay less attention to whether they would have a slightly higher return with another bank and then the customer experience will count highest of all,” she says. “But in times of low or even negative returns, every basis point counts and cannot be compensated by the customer experience.”
Private performance
The asset class where digital experience is currently not delivering is the increasingly popular sphere of private assets. This can act as a serious break to adoption of alternatives, currently one of the main goals of chief investment officers and the advisers they oversee.
“Today, I see a lot of manual work when banks are processing alternative investments. This, on my perspective, is the main reason why alternative investments are only available for high net worth investors,” says Ms Daub.
“Processing is so expensive that its only worth it for large ticket sizes and current core banking systems do not support alternative investment processing. I believe that smart contracts and tokenisation will allow the required automation to democratise alternative investments.”
It may take some time for tech providers to meet the challenges posed by illiquid assets. “You need to think about some of the characteristics of liquid assets – fungibility, market driven pricing, utility as collateral – and compare that to illiquid assets such as art, which you can’t trade,” says Sharmil Patwa, founder of the Opus Una consultancy in London.
“These can only be valued by a handful of people, they are not great collateral due to difficulties in custody, valuation and liquidation. So you have to ask yourself: why devote so much time and effort to this issue when the digital house is literally on fire elsewhere?”
Technology firms are however keen to breech this impasse. “More and more tech providers, such as iCapital, CAIS and Titanbay seek to endear themselves to financial advisers,” says April Rudin, founder of the New York-based Rudin Group. “But most wealthy individuals are already bypassing their adviser and transacting direct deals themselves. Most platforms are scrambling to train advisers on alternatives, but it is more complex and nuanced than banks realise.”
This prompts a deeper question for banks to contend with about the much broader range of assets their clients now require, believes Ms Rudin. “Will investors ever dramatically change this practice of investing directly and do they really want a single private bank or adviser for all their assets?”
