Wealth management customers are individuals whose needs go far beyond basic financial products. Attracting these customers and retaining them is very challenging, but is also likely to result in the biggest payoff among all client segments. The world has never seen so much wealth so widely dispersed in so many households globally. Propelled by high earnings and robust investment returns, this growth is projected to continue.

According to the Economist Intelligence Unit (EIU research – Spotlight on the New Wealth Builders, 2015, sponsored by Citi), as shown in Figure 1, since 2010 the number of households in the new wealth builders (NWB) and high-net-worth (HNW) segments has grown faster than the mass market (households with financial assets <$100K) segment. This strong wealth creation looks set to continue, with average growth in NWB wealth matching the strong growth seen in the much smaller HNW segment over the 2014–2020 forecast period. Conversely, the mass market population (<$100K investable assets) is contracting.

Historically, wealth management thrived on personal advice, since the rich could afford this exactly as they obtained personal services for all their other needs. Someone said: “if you want to see the future, it is already here and the rich are enjoying it”. As technology has taken hold, and communication has become cheaper, different forms of automated tools have taken precedence in managing wealth too. Also, the expansion of the millennial group of consumers – who are more comfortable with technology – means that opportunities for technology-based investment options have increased. This opportunity has ensured that venture capital (VC) investment in wealth management FinTech is growing at a fast pace (see Figure 2).

Citi Research estimates that wealth management venture investment is tracking pace with investments in blockchain, which is a far more hyped area. Certainly, this is a sign of the opportunity for returns.

Banks need to continue to secure these customers in the face of this challenge, and to do so we recognize that the future of WealthTech lies in some sense in the basics. We recognize the following:

1. Firstly, that customers value relationships and trust in this business far more than in any other financial relationship (see Figure 3). This enables banks to have a major advantage vis-à-vis other entrants. One of the reasons major disruption in financial services is slow to come is certainly the trust factor. In wealth management, this extends to trust in the wealth advisor too, and this trust – both at the institutional level and at the level of the individual – is earned over a substantial period of time.
2. A customer-centric wealth strategy must focus on first protecting and then growing wealth. Deloitte defines the new investing class as the rewired investor² who has come to view risk through a different lens: she perceives risk as downside, rather than volatility. As a result, advisors have had to emphasize capital markets and hedging strategies that seek downside protection more than traditional portfolio allocations that seek to manage risk through diversification. This amplifies the first point too, in that the returns on investment and other factors are relatively less important and that customers value trust and relationships significantly.

Let’s additionally discuss the various elements of the current wealth management landscape:

1. Low financial advisor productivity. We find that a significant proportion of advisor time is going on training and meeting compliance requirements. The need of the hour is to invest in improving advisory effectiveness, with an understanding of customers’ financial goals and appropriate products. The implication of this is to ensure higher automation of various service and administrative tasks, and to use various technical aids to improve productivity.
2. Trust. Post-financial crisis, public distrust in banks overall is extending to lack of confidence with financial advisors. The various mis-selling scandals and consequent large fines that have made the headlines, compliance failures and similarly large fines there have all contributed to a failing sense of trust in banks and their employees. Being a banker is not a popular job description. Banks and their employees are doing a lot to bring that back, and the process continues.
3. Regulation and its impact on processes. The financial crisis brought about a large amount of regulation, and that has not abated. The additional challenge of regulation is its increasing divergence, in the sense that each regulator has looked at regulating banks locally as much as the common standards that continue to be required. This is a challenge for global banks especially. Regulation brings technical and process challenges and impacts advisor productivity.
4. Profitability of various customer segments. While the wealth space has huge opportunity, not all segments are equally profitable and this changes from time to time. The challenge is in ensuring a long-term relationship view in a constantly changing product offering. Servicing models should be diversified according to the different segments’ cost to serve, suitability and risk profile.
5. Technology and the drag of legacy systems. The ability of systems to respond proactively to opportunities rather than be tied down reactively in complying with regulation is a competitive differentiator.
6. Data. Providing a consolidated view of information, processes and people from various systems and real-time data sources. There is a profusion of available data from both bank and external sources, and to stitch this together for the use of advisors is critical.
7. Global incomes and taxation. Governments are looking to implement common reporting standards (CRS, FATCA) and clamp down on tax avoidance, which has specific relevance in the wealth management space given global incomes. This has implications for reporting, KYC/AML and tax advisory software.

In the above context, future technology trends will include:

• Continued focus on advisor productivity, including virtualized meetings, paper-free processes and other digital capabilities. Side screen functionality will improve advisor productivity in giving advisors and customers the same view of information and capabilities. Given the increasing complexity of regulatory requirements, including global taxation, the right enabling tools (e.g. KYC, risk profiling) will be even more crucial.
• Advanced data visualization products will enable advisors to communicate with customers better and make financial planning sessions faster, thereby again improving advisor productivity and differentiating advisor–client interactions from self-managed investing. Data will play a huge role in understanding customers’ needs to create better propensity models.
• Significant digitization/automation of service and administrative tasks. Making these available to customers to manage themselves with minimal challenges is the ideal way to focus advisor–client interactions on value-added planning conversations. Services like notifications and the ability for customers to self-manage some asset classes on an execution basis, and the availability of news and market data information, are examples where digitization helps enhance trust, and bring transparency into the relationship with customers.
• API-enabled platform distribution. The future of technology is in crowd sourcing innovation. Citi already has over a third of its API list focused around its wealth products, and is signing up partners to provide innovative experiences to wealth customers. These include portfolio performance, rates, transaction details and investing.
• Robo-advisory products, which will capture increasing shares of customers’ wallets. Robo-advisors are like index funds, which have captured a large share of funds flows. However, exactly like index funds, there are advantages and limitations to robo-advisors. The advantages include low cost, self-service and simplicity. The limitations are the converse – that the model does not work in difficult times and where a detailed assessment is needed of financial objectives. Not surprisingly, a survey (see Figure 4) of financial advisors suggests that they are not hugely concerned about displacement by robo-advisors.

We believe therefore that monoline robo-advisors will plateau and the best outcome for customers is a hybrid advisory model which combines the low cost of robo-advising for certain objectives with the availability of a digitally empowered financial advisor for other objectives.

Conclusion

In conclusion, making the digital personal is going to be as important as making the personal digital. The management of wealth requires a higher level of personal interaction, both initially and ongoing, given the complex nature of the product, customer needs and the various investment choices available. Therefore, the future of WealthTech lies in technology-enabled customer centricity that powers both advised and self-service products and services.