FinTech, AI, roboadvice, crypto, open banking and digital transformation (ok, maybe not that one) are now buzzwords cropping up in the everyday conversations of people who usually consider finance and money to be taboo words. That tells us client expectations are changing and that staying ahead in the game has never been more challenging. Let’s take a look in to this further in this article ‘Digital Transformation and the Wealth Management Industry?’.

Navigating Digital Transformation in Financial Services

In the coming years, the success of many financial services firms and wealth managers will centre on their ability to continually evolve their proposition through digital transformation. But what does it take to navigate the twists and turns of digital transformation successfully? How can financial institutions not just keep pace but set the tempo in this relentless culture of innovation? How do they choose where to spend their often constrained development budgets?

Against this backdrop, I was thrilled to have the opportunity to sit down recently and discuss my thoughts with the teams from TechPro and Assured Thought as part of their industry research paper “Accelerating Digital Innovation & Time-to-Market in Today’s Transformational Financial Services Sector”.

The Driving Forces Behind Digital Innovation

As anyone who knows me will tell you, I can always be relied on in any conversation to provide my honest thoughts and opinions. Imagine then, just how much I have to say on a topic which I’ve spent the last five years contemplating on a daily basis as the Head of Division, Strategy for a FTSE100 and having spent the last 15 years working in financial services dealing with the poor digital transformation decisions of the past.

To capture all of those thoughts in a single blog would see the word count exceed that of a dissertation and have you all disappearing quicker than an ice cube in the desert. Instead, I’ve captured just a few key points from my perspective below:

• According to a Gartner report, software spending by wealth management firms was projected to increase by 11.5% in 2022, reaching £149 billion. This for me is driven by two primary factors. Firstly, clients are increasingly demanding highly personalised services. They want every interaction with a financial services firm to be tailored specifically to their needs. To meet this demand effectively, increased utilisation of software and fintech solutions is essential. Secondly, regulatory and margin pressures are contributing to the rise in software spending. The Financial Conduct Authority (FCA) in the UK, for example, emphasises cost over value, driving firms to scrutinise and optimise the costs associated with their services. This puts downward pressure on margins. By adopting technology, firms can enhance efficiency and operate at a larger scale, helping to ease these cost and margin concerns.

• The key evolution for me in clients’ behaviour within the wealth management sector is their desire for a hyper-personalised experience. They no longer settle for a standardised process that treats them as just another customer. They want a process that understands their unique circumstances and considers various factors related to their finances. This shift towards personalised service is expected to continue and intensify, not only in the coming years but also beyond 2025 and 2030. Clients want the perception that they’re receiving a tailored experience, even if it may not be entirely unique from the service provider’s perspective. The perception of a hyper-personalised service is crucial. As younger clients enter the industry, this need for customisation and individualisation will only grow stronger, which is significant given the intergenerational wealth transfer which will occur in the coming decades.

• According to Deloitte, 40% of wealth management clients now say that digital access has greater importance in decision-making, and three quarters of wealth firms believe that the primary engagement channel for investors will be digital within two years. McKinsey also reports that 50% of high net worth clients feel their wealth managers should improve digital capabilities across the board. These findings are consistent with what I’m seeing in the industry and I believe most wealth managers accept the need to improve their digital capabilities. In fact, I’m somewhat surprised that only 50% of clients feel this way. The financial services industry in the UK, in particular, is known for its outdated systems and solutions, presenting a significant opportunity for new market entrants to enhance digital channels and client experiences. However, the level of digital access and capability needed depends on the complexity of the service and the specific needs of clients and there will always need to be, in my opinion, the ability for a hybrid approach, where face-to-face interactions will remain a key component of any wealth management service.

• As firms look to embrace digital transformation, it is key they identify the right processes to move online or transform. It is my view that almost all clients now at least expect to have the option to complete basic tasks like opening bank accounts, initiating transfers, or making pension contributions to be handled digitally, with almost instant processing through an app or online platform. That being said, there are still other factors to consider. Firstly, the age demographic of clients plays a role, as older individuals tend to be more cautious and less digitally native. Overcoming this hurdle for less tech-savvy or older clients remains a challenge. Secondly, as the complexity of client needs grows, particularly in managing larger or more complex wealth portfolios, including intricate tax strategies, or diverse investment portfolios, there is still a strong client preference for face-to-face interactions and personalised support from wealth managers. Hybrid and choice will be words we hear, but that only introduces layers of additional complexity (and therefore cost!) for firms.

• Another significant trend in the wealth management industry is the demand for integrated banking and wealth management services and I can only see this continuing, driven by clients’ desire for convenience and the ability to access all their financial information in one place. Clients want a unified view of their finances, including their bank accounts, investments, mortgages, and loans. Open banking initiatives are making this integration more feasible by allowing different financial service providers to share data securely with client consent. In terms of partnerships and collaborations, we can expect to see more alliances between banks, wealth management firms, and fintech companies. These collaborations will allow firms specialising in different areas to pool their resources and expertise, creating seamless and comprehensive solutions for clients.

The Challenge of Meeting Consumer Expectations

As you can see, there’s lots for firms to consider and increasingly demanding consumers to deal with. Overlay challenging economic circumstances, tightening industry regulation (you didn’t think we could get through a financial services article without a nod to Consumer Duty did you?!) and restricted development budgets, firms need to ensure they select the right processes to digitally transform. Paying particular attention to their clients needs will be a key component to whether they are successful or not.

If you haven’t gone to sleep yet or lost interest, you can read the full report and contributions from other industry experts here. Or, if you’d like to talk further about your FinTech approach or technology strategy, book in a meeting with us here as we’d love to kick start a conversation.