Today, many wealth management firms are now spending more on technology than most other areas of their businesses, making tech the most important aspect of managing and growing a wealth management firm.
Why is that? According to a recent industry research report from F2 Strategy, wealth management firms are “…finally recognizing technology as the most effective growth accelerator in the industry…”. The paper breaks the reasons why technology is fundamentally altering the wealth management space into four categories:
- Scale – Without technology, growth comes with decreased margins and limited capacity.
- Commercialization – Technology improves operational efficiencies, enhances onboarding processes, and improves the client journey.
- Corporate Value – Firms with strong technology infrastructures are garnering higher multiples for business value upon sale of the business.
- Client Experience Enhancements – Digital technology capabilities are a compelling differentiator for wealthy clients.
As part of this industry research, the authors identify ten trends in these four distinct areas for 2022 and beyond. Highlights include the growing focus on cryptocurrency and digital assets as demand rises with end clients, creating the realization for advisors that they need to up their game in the digital asset area. Over 70% of advisors said that cryptocurrency would be a viable investment asset option. Yet, only 11% of advisors are helping their clients invest in these alternative assets, showing that there is much need for education and new capabilities before digital assets become mainstream in the industry.
Another clear trend identified in the research is the growth of automation technology and the focus on back-office automation. Over 83% of firms are increasing their investments in operational technology, “automating everything they can operationally including trading, meeting preparation and money movements.” One key area of focus that every respondent said they were pursuing was to increase the automation and standardization of the client onboarding process.
According to the research report, the third major trend is increasing focus on data aggregation. While nearly 90% of firms use data and account aggregation to better track and manage client assets, satisfaction with current tools varies dramatically. As a result, many firms are looking to outsource aggregation and rely on existing tools. The good news for users of SS&C’s Black Diamond® Wealth Platform is that recent enhancements in data aggregation capabilities will be a powerful enabler for firms to provide better holistic advice and identify opportunities for new business opportunities to consolidate assets.
The last major trend identified is "customization at scale" and the ability to better tailor investment and wealth strategies vs. dropping clients into models and standard approaches. The authors note that the rise of direct indexing is contributing strongly to this trend. In addition, the usage of powerful rebalancing technology will be instrumental in better tailoring portfolios to clients' needs, goals, and objectives. Aspects such as ESG constraints, tax efficiencies, and the ability to work around concentrated positions contribute to this trend.
Again, the excellent news for Black Diamond users is the recent enhancements to the platform's Rebalancer, making it much more flexible and efficient in personalizing portfolios and taking advantage of tax efficiencies. The Black Diamond Rebalancer is also accelerating its adoption in the industry as over 700 firms are using it, deploying 4 million workflows in 87,000 models via 250,000 sessions last year.
These are just a few technology trends driving change in the wealth management industry. Combining these trends with other factors such as the aging of firm principals, the need for succession planning, and the hyper-active M&A space consolidating the industry, 2022 is shaping up to be another transformational year.
 2022 F2 Strategy Outlook Report, Good Technology Speeds Grown for Wealth Management Firms, https://www.f2strategy.com/2022-outlook-report#intro