Fintech on Friday: Technology allowing wealth managers to move into mainstream

The strongest recent influence on the wealth management industry, leading to its ongoing transformation, has been regulation, especially the European MiFID rulebook, according to Luigi Marciano, CEO of Italian-based software provider Objectway.

Transparency of costs is piling huge pressure on wealth managers’ margins, leading to a full scale redraft of their business models, said Mr Marciano, speaking on the eve of a technology conference in Rome, attended by more than 150 asset and wealth managers, including Objectway clients such as Pershing, KBC and Amundi.

The changing cost structure of the industry and its increased digitisation is also leading many players to broaden their reach away from just serving the wealthiest families. “Our clients are becoming more mainstream,” admitted Mr Marciano, a nuclear scientist by trade, who set up the firm in Milan 25 years ago. “They typically create wrappers or containers within discretionary portfolio management and in the past these were dedicated to high net worth, rich clients. Now many investment managers are re-orienting themselves to retail, offering products for people with €20,000 ($25,000) or €50,000 to invest.”

A further proliferation of these products is expected across Europe as the retail market advances to compensate for the retreat of state pension systems, he added. “People are moving their money to wealth managers to build their long-term financial plans, and this is a really big opportunity for the industry,” gearing up to service new segments housing “an enormous quantity of money.”

While this new clientele may be ripe for a high tech-led service offer, the entrepreneurs at the HNW end of the client base will remain reluctant to embrace robo-advice, believes Mr Marciano. “They don’t have the time or experience to manage their assets themselves,” and are looking for low risk portfolios, with capital protection their top priority, he says.

But the role of technology is definitely encroaching into the management of these wealthier clients’ portfolios, as a new era of increased volatility necessitates constant rebalancing of assets, rather than more straightforward buy-and-hold strategies, said Mr Marciano, suggesting monthly portfolio adjustments are now necessary. This in turn requires much more regular communication between wealth manager and client in order to agree the changes.

While the so-called “client experience” is gradually improving, the transformation is nowhere near as extensive as many private bankers would claim, with innovation held up by legacy systems and organisational silos. The main change for most banks is the adoption of new client reporting tools rather a full scale digital transformation and change in organisations’ mentality, he believes.

“Our opinion is that in the next 10 years, you will see more technology to augment the capability of humans to do things to help clients, rather than tech to work in substitution of humans. I call it a ‘digital humanism,’ which is a combined or hybrid model. Humans must always be available to make the decisions which computers cannot take.”

While large banks are limited to often making little more than incremental changes, the newer players such as Singapore’s DBS and the Korean players have much more flexibility to offer a digital wealth management service. “It is much easier for newcomers, who start from scratch, to exploit technology. The real challenge is for incumbents to transform themselves, with most forced to add micro components to existing infrastructure, rather than building a fresh system.”

Fear of failure in technology was nothing to be ashamed off, a fintech consultant and entrepreneur Spiros Margaris told the conference. “If you’re not scared, you’re not really willing to change. In the old days you knew all your competitors, but now there are many new ones to think about. There is no field in banking or insurance where the new fintechs don’t take a piece of it. Even in asset management, if you don’t know enough fintech companies, then maybe you shouldn’t be in the business in the first place.”