Firms have the chance to offer better client and advisor experiences — but must keep an eye on challenges
While the wealth management industry is facing myriad challenges, one priority is coming through loud and clear: advisors must cater to a more diverse set of needs as clients demand increasingly flexible and personalized products and services. And according to the latest 2020 Wealth Management Outlook from Capgemini, fintech partnerships can go a long way toward helping firms grapple with that need.
“The end-user and client landscape is changing,” Soumya Ghosh, Vice President and Head of Banking & Capital Markets Canada at Capgemini told Wealth Professional. “On one end of the spectrum, you have aging individuals and baby boomers waiting to retire; those groups are also, to varying degrees, thinking about how to pass on their wealth to the next generation. On the other end, you have millennials and Gen Z, who are more comfortable with technology and look at investment through a completely different lens.”
For financial-services firms, engaging effectively, adequately, and appropriately with those different segments is obviously a challenge that involves developing new capabilities, processes, and services. While they can try to address that challenge in-house, they may neglect their core businesses if they try to stretch too far or too fast.
“That’s where a partnership with fintech or big tech as an enabling force can help,” Ghosh said. “Augmenting their businesses with solutions from digital service providers — new investing platforms, apps for multi-channel account access, AI-enabled communication, and so on — can create a better client experience, as well as drive additional revenue. Allying with tech firms could also let firms set up back-office or front-office to help advisors work more efficiently.”
More efficient technology tools, he added, can enable advisors to have more quality discussions with their end clients. Aside from freeing up time for important conversations, technology can provide advisors with the right data to assess client’s needs, as well as communicate with them in a way that’s most comfortable for them — via chat or text for millennial or Gen Z clients, for example.
“One firm we’ve worked with is leveraging fintechs to develop wealth lifecycle plans, which allows the firm to capture different life events and determine the next best action or offer to recommend to a particular client,” Ghosh said. “Some firms also profile their clients with 720 views, which include not just data from the client, but also information from social platforms or other public platforms. And with robo-advisors coming in, large wealth-management organizations also feel the need to have their own robo equivalent offering, which may be too troublesome to build from scratch.”
Ghosh emphasized that technology isn’t a cure-all solution. AI tools, for example, can only be limited to specific use cases or solving a given problem, and are not meant to replace humans completely. Large-scale AI mandates for any organization, he added, are still quite a long way away, as they involve cultural changes, structural changes, and most importantly, the correct data infrastructure, which is required to effectively train an AI system.
“The other side of AI is that, if not used properly, it can lead to challenges that can impact your business,” he said. “If you leave it to work on its own without proper monitoring, it can make wildly inaccurate predictions or decisions. That’s why right now, it’s mostly used to help humans make the right decisions.”
As they set up more powerful information streams and amass deeper pools of data, wealth firms must also be vigilant against the threat of data leaks. Cybersecurity is already a staple item in the top-priority lists of securities regulators and investment-industry groups, and for good reason. As the world has become more connected, the risk of identity theft and cyber fraud has become exponentially higher.
“Cyber criminals are getting more and more sophisticated in their hunt for sensitive information,” Ghosh stressed. “Wealth-management firms are a particularly attractive target. We’ve seen the reputational damage that comes with news of a financial firm falling victim to a cyber breach; we can say that data is a new form of client wealth that firms have to be serious about protecting.”
Given the speed and magnitude of the damage that a cyber-attack could wreak on a company, wealth firms are increasingly recognizing that waiting or reacting is not a smart strategy. They’re taking the bull by the horns, Ghosh said, through huge investments in detecting potential threats ahead of time, as well as closing potential loopholes and patching up potential points of vulnerability.
“Some fintechs are using biometrics technology, such as fingerprint or voiceprint recognition, as an added security layer to authenticate their clients,” he noted. “There’s also been some adoption of next-level cyber security solutions, through which potential threats are flagged based on certain unusual events — a larger-than-average fund transfer, for example, or a login from an unrecognized location.”
This is where it becomes clear that firms must strike a delicate balance: as they exert efforts to increase access and provide more flexible solutions to their clients, they must also make sure that they’re not increasing their threat surface to the point that they become excessively vulnerable to cybercrime.