The wealth management sector is under increasing pressure. While their traditional and highly conservative approach has satisfied customers for quite some time, a growing number of customers feel attracted by more innovative solutions for their investment needs. Numerous so-called WealthTech start-ups attack incumbent players in different areas. WealthTech activity can be divided into six categories: automated investments and robo-advice; social and copy trading; crowd-investing; analytics and information; and deposits and pensions; as well as platforms. The most advanced solutions can be found in the category of robo-advice. A current market analysis shows that the global investment volume in the “robo-advisors” segment of 2017 will rise by roughly €203 billion to €958 billion in 2021 – with the USA in the lead.¹ Sounds huge, however, compared with the overall market for global assets under management it can almost be neglected (as of today). Further rapid growth can be expected to come from incumbents that start to offer robo-advice as well, as seen in the USA.

Low Cost/High Value?

Robo-advisors work much more cost-efficiently, faster and without emotional influence – just some of the key advantages for customers. However, robo-advice solutions are also advantageous for wealth managers as well. They enable incumbents to serve new customer segments at lower cost levels (e.g. Goldman Sachs has recently announced that it will not only serve the super-rich, but also affluent customers – based on new robo technology). In order to attract younger generations (including the famous millennials), wealth managers are testing digital investment solutions as well. Across the entire market and all age groups it can be observed that an increasing number of customers embrace this more innovative approach – however, at varying momentum across the globe.

But What Does This Mean for Wealth Management Operations in General?

Wealth management providers should inevitably establish digital technologies in their performance spectrum. In doing so, the key to success is to address customers across multiple channels (i.e. to offer a real omni-channel service). Imagine, the grandson would rather buy Asian stocks on an online platform over his iPad, whereas his traditional grandfather gives his advisor a call to buy some Dow Jones stocks. This is one of the biggest challenges wealth management operations are faced with: they must be able to serve different generations with different needs and also be able to serve heterogeneous needs within a generation. On the one hand there are the millennials, who are connected to technology and digitization in general. On the other hand there is a growing percentage of older people, who have worked and saved money for retirement. In particular, in this age group the proportion of those accustomed to traditional human advisory cannot be overestimated. And many high-net-worth individual (HNWI) customers continue to rely on a high level of “human” support, with an advisor whom they can fully trust. There are also aspects that customers pay attention to regardless of their age: costs, returns, personal support and using a selection of different channels.

Omni-channel as the New Mantra

At the same time, not every millennial requires robo-advice and innovative ideas. In general, the wealth management sector has to change from a supplier to a consumer market. Whereas even today banks specify what they want to offer to their customers, a time will come when the customer tells the bank what to offer. For that, a range of communication channels are needed, that can be used in a flexible way depending on changing customer needs. Therefore, an omni-channel approach needs to be integrated into the digital wealth management business model. This means one business logic across all channels: no matter how many front-ends are offered, they need to be based on the same set of information and logic. Thus, all front-ends should be seamlessly managed in one single automated back-end process – that requires one single data hub, ideally even across national borders.

In this setup the customer journey can be completely tracked, 24/7. This means that not only is the wealth manager informed about any transaction in any channel at any time, but the customer can also switch between the channels at any time. Referring to the example above: as soon as the grandson also wants to speak to the advisor when in the process of buying stocks, he needs to be able to switch channels seamlessly.

Beyond Systems and IT – The “Big Picture”!

However, the solution is not to offer all possible channels, but to find the perfect fit between the company’s business model and its digital strategy. The challenge lies in defining a framework by asking several questions.

• Customer segments: Who is my customer and what is the value added I want to provide?
• Products and pricing: What is my product and service offering across channels and customer segments? How can I operate profitably?
• Business processes and IT: How can I build optimal processes? Which channels should be offered to satisfy the relevant customer segments?

The requirements from each individual triangle must be aligned with each other in order to provide a consistent business model, as shown in Figure 1:

Alignment of Business Perspectives

A segmentation of the customer base seems to be crucial for every wealth management provider. While designing processes and IT architectures, providers need to be aware of their current state of infrastructure. Different systems and system generations, as well as the size and age of a wealth management company, determine the effort required for the digital transformation process as well as the speed of implementation. In addition to that, operational complexity is driven by a wide variety of devices used by customers, as well as by the number of brands and subsidiaries operated by the bank.

Balancing Complexity and Profitability

Customers will be segmented based on their willingness to pay – ensuring that customers with a low willingness to pay are provided with services based on processes with low cost of provision (fully automated, online-based). Based on the willingness to pay and the respective operational costs, price categories can be established. This is a necessary condition for ensuring profitability.

In order to provide maximum flexibility to switch channels, service modules need to be created, representing individually bookable service packages (e.g. an online robo-advisory module including one hour of personal advisory per given period of time). The switch between channels needs to be seamless for the customer. It is furthermore essential that an advisor can track the complete customer journey. That degree of flexibility should also be reflected in the pricing schemes; for example, the individual price point could be determined by the range of booked advisory service modules. For the grandson in our example above, this would mean – depending on the pricing scheme – that he may have to pay an extra charge for switching to an advisor during an online process.

There is No One-Size-Fits-All Approach

There is no perfect blueprint for digital business models, so one could rather speak of critical success factors for a digital transformation process. Wealth management operations need to define a clear focus, determining the procedural stages for the implementation of the business model. Hereby the entire process will be more evolution than revolution, since in the fewest cases a complete change is possible. But it can be a rapid evolution. Based on our experience, the following aspects should be considered in order to ensure a successful transformation process:

• Customer centricity. The transformation process is geared to the needs of the customer segments which are to be served.
• Leadership. Digital transformation requires full senior management backing.
• Culture/employees. Wealth management providers need to establish an innovation culture, as well as foster change in the mindsets of employees.
• Strategy. Digitization needs to be the core element of a wealth management provider’s corporate strategy, rather than simply being seen as an additional sales channel.
• Processes. The process landscape needs to be fully flexible and consistent across communication channels.
• Technology. A flexible IT infrastructure as well as agile development methods are key to any digitization initiative.
• Products/prices. Products/services, as well as respective pricing schemes, need to reflect individual customers’ consumption behaviour.

It seems obvious that an optimal digital business model is, of course, not just IT: it consists of leadership, cooperation, processes, offerings, customer groups, technologies and much more! The goal must be to create a completely flexible organization (in the sense of a holistic system). And even if there is not a one-size-fits-all approach, it’s a fact: all wealth management operations need an individual digital business model based on customer-oriented channels to match generations.