noun: the ability of something, especially a computer system, to adapt to increased demands
The financial services industry has seen significant change over the last decade. Perhaps retail banking has seen the most, particularly from a consumer’s point of view. Here technology is at the forefront of a new user experience and radically changing the relationship between consumers and providers.
At the other end of the spectrum, we see wealth management, where the operating models and client interactions remain largely unchanged. I believe this will begin to change over the coming years, but perhaps not to the same extent as the retail world. There are many justifications for this more conservative approach, particularly at the high net worth end of the market.
Although I do not foresee radical changes to the operating model, this does not mean that technology cannot transform the industry. The underlying ethos of wealth management is trust, and this is often portrayed through personal relationships. Wealth management is also a more complex business than retail banking and in most cases investment strategy is a reflection of a wide range of factors. AI and other technology advances can provide multi-faceted logic, although, in many cases there is also an important emotional aspect to individual investment, which is far harder to replace.
There is plenty of discussion on technology’s impact in the industry, much of it focusing on the client experience and digitalization. In my view, the most undervalued area for transformation with the greatest capacity to deliver a return on investment (ROI) is scale. Scale is often thought of as becoming a huge firm with significant market share, but the dictionary actually defines scalability as “the ability of something, especially a computer system, to adapt to increased demands”.
If firms also viewed technology through this lens, rather than a focus on disruptive change, they would yield stronger and more defined benefits. Using technology in this manner ensures you can bring leverage to existing proven processes and business units. It will allow profitable and popular functions to reach a wider range of stakeholders. Well-designed technology will allow users to control and manage tasks and bring true scale, providing greater returns for clients and firms at the same time. An added benefit more time for valuable staff to work on more rewarding tasks, from both a professional and personal standpoint.
Whilst automation is a broad subject, the front office is one area where it can bring significant change. One example being portfolio construction, where a series of investment decisions can be applied quickly and effectively to a large number of portfolios. Smart applications will acknowledge and support the individual nuances and allow high quality human skills and knowledge to be maximized.
The wealth management industry is on the cusp of change. How technology is utilized will be the defining factor in a firms future success. The managers that can maximize their ROI in both technology and people will be the winners going forward.