Digital revolution needs more than lip service to become reality

The wealth and asset management industries appear to have reached an interesting junction on the road to digitisation. 

While a handful of firms have taken real steps to improve the client and relationship manager experience, while also attempting to cut costs, make their processes more efficient and adhere to a raft of encroaching regulations, others are simply appointing a ‘chief innovation officer’ to tick boxes, then burying their heads and hoping the whole digital revolution will go away.

“The high net worth species is a highly digitalised audience,” says Seb Dovey, founding partner of wealth thinktank Scorpio Partnership, who believes the industry is woefully behind the curve when it comes to implementation of new technology.

“Our research shows 50 per cent have more than 250 Linkedin followers and are following more than 250 people on Twitter. This means they are more likely to follow digital channels which disruptors are offering them.”

Many banks, says Mr Dovey, are totally failing to engage with this key audience. “Banks are obsessed with entrepreneurs,” he says. “But 40 per cent of entrepreneurs don’t use traditional models of private banking, retail banking or brokerage. Entrepreneurs are actually left wondering why they should have a relationship with any financial services provider.”

The problem, according to Samantha Ghiotti, a partner with Anthemis digital consultancy, is that currently, only lip service is being paid to digitisation, whereas a new reality would require business models as well as operational practices to be transformed.

The digitisation process must be delivered from the very top of the organisation, she believes. “The role of the CEO is fundamental. We have an Italian saying: ‘The fish rots from the head,’ so you also look to the head for inspiration. The CEO has an enormous power to cut to the chase and give very positive signals to open up the coffers to smooth the path of transition.”

The conversation about digitisation and technological innovation is no longer just about improving returns, it is an existential question, she believes, relating to the very survival of financial firms. “How can you transform digitally without spending billions?”

There may also be some external triggers for digitisation, she suggests, with Brexit quite possibly one of them as asset managers re-assess their processes after the UK leaves the EU. Loss of expert capabilities and manufacturing from the UK means the “asset management industry could be sent into a tailspin”, and forced to restructure.

“Automation is part of the answer,” says Ms Ghiotti. “The asset management industry in the future cannot employ as many people as it does today.”

The banks that will survive are those that take their lead from the likes of Google and Microsoft. “In a digital environment, they must recognise that the way they use talent and processes needs to be more along the lines of a network than a vertically integrated structure,” she says. 

“People think this is only relevant in a start-up company, but look at Google and its concepts of Youtube, Adwords and Android – the cash cows of Google – you need to protect, enhance and defend your business, but you also need to invest in a different environment, where business can grow.”

Proper application

These themes of how both manufacturers and distributors of asset management products need to embrace fintech developments to change their models were at the centre of the recent FundForum summit on the industry’s future held in Berlin. But the participants were split on how technology should be deployed.

Some thought its influence will grow yet remain restricted. “One could argue that the digital scenario will replace the wealth management industry, but it won’t,” says Scorpio’s  Mr Dovey.  “It’s the nature of the hybrid, with some electronic components and some digital.”

The interaction between the digital and the human is the area where the dynamic needs to change, he believes. “You have better information than you have ever had before to plan the business for your customers,” says  Mr Dovey. “We have to step up the game to incorporate digital ideas from other areas.”

This approach is shared by technology provider Sybenetix, which has just signed a long-term deal for London-based fund manager Artemis to use its behavioural analytics software.

“Asset managers need to work with fintech companies rather than putting them out of business,” says Taras Chaban, CEO of Sybenetix. “They can learn a lot from fintech companies,” especially in terms of automation and improving efficiency.

He also feels technology can help teach portfolio managers how to better oversee clients’ portfolios. This is the approach taken by Asian banks including DBS in Singapore, which gather data to aid the use of “predictive intelligence” in maximising portfolio returns.

“Investment management is not an art, it is a skill which can be learned. Critical decision-making is important in other industries too, including the medical industry and aviation, where people have used technology to reduce mistakes and save lives, and financial services can learn from these.”

In particular, regulation should be viewed as an opportunity rather than a hindrance, believes Mr Chaban.

“Many firms are talking to potential clients, gathering information on them and they see this as a cost, because the regulator is forcing them to collect data. But there is a massive opportunity then to take that data and use it. For us to help our clients, we really need to understand this data.”

Analysis of such data, using specialist software, can help draw up patterns of how portfolio managers trade and show them how to avoid errors.  “Using this data, we can build probabilistic models of what is likely to happen going forward, so it is predictive” he says.

“This is all about how human beings can use technology to develop their skills further, helping them go from good to great. It’s not about how robots can replace humans.”

Hybrid solution

Gina Miller, partner at wealth manager SCM Private agreed that the “hybrid” solution is the most viable model. “Fintech is an enabler, not a replacer. This is not just about robo-advice, we need to be totally re-thinking online investment solutions.”

But others believed a headlong, disruptor rush to a digital model was damaging the industry’s reputation. “I view fintech as a threat and we are about to go through 2008 all over again,” says Paul Resnik, founder of FinaMetrica, a risk profiling firm using applied psychology to make a scientific assessment of an individual’s risk tolerance. 

“There is a danger of mismatching assets and liabilities for investors, which is exactly what robos will do.  They will offer inappropriate advice for investors, and the whole thing will blow up. We used to only give rich people bad advice. The risk now is that we will give it to everybody.”