Fintech on Friday: Has wealth digitally delivered during the pandemic?

The period following the onset of the coronavirus pandemic has been described by our expert panel as the most significant “stress test” ever seen in the digital financial services world.

For wealth management, already going through a “wholesale adjustment to digital solutions over the last decade”, this unexpected moment tested whether the industry could digitally deliver exactly what it has been designed to do, said independent consultant Seb Dovey.

Many clients are unhappy with the digital experience offered by their private banks, said Finantix CEO Christine Ciriani. Her firm’s research shows 47 per cent of high net worth individuals are pressing their banks to prioritise digital innovation and improvement in client experience.

“If you look at the focus, the last 10 years was really about automating manual processes,” said Ms Ciriani. “The drivers are really around regulatory compliance and shrinking margins. Automation was one way to be able to deliver digitalisation of services.”

Private banking, she believes, is now moving on from this basic automation to actually benefit clients. “This means providing contextualised services, using data and technology to actually help automate not only internal processes, but to drive a richer dialogue.”

Answering a question from Victor Allende, head of private banking at CaixaBank, Ms Ciriani commended banks for wholesale technological improvements to advisory services, allowing private bankers and portfolio managers “to be more efficient and share more actionable investment proposals with clients”.

The danger is that private banks will become victims of the success they have enjoyed from these recent improvements. Their solutions to cope with Covid-19, including facial recognition and data aggregation, have led to accelerating client expectations, according to Douglas Fritz, founder of Silicon Valley consultancy F2 Strategy.

“I don’t believe the majority of financial institutions, large private banks, are really ready for this,” said Mr Fritz. “That goes into more of the culture of change and what has happened in those organisations to really achieve the faster, increasing pace of innovation that’s expected by clients.”

This lack of innovative cultural mindset has prevented much-needed technological updates. “Many large re-platforming, multi-hundred million dollar multi-year technology projects across the globe have not worked out terribly well,” he said, with the focus often purely on practical execution of projects, rather than fostering a cultural shift.

Our panellists, including Kabir Sethi, head of digital wealth management at Bank of America, confirmed that cultural change and a focus on using data, are key to introducing new technological architecture.

“The idea of cross-functional teams is honestly integral to making any kind of transformative or significant change,” affirmed Mr Sethi. “There is an onus on leaders, whether in wealth, financial services or maybe more broadly, to truly drive positive change. This can’t just be about shareholder value. Especially when you are in a space like wealth management, you know you are dealing with people and outcomes that affect their lives. As an institution, we are acutely conscious of the fact that we are often very involved in communities and what happens in communities.”

His view is that participation in and understanding of this new zeitgeist in society will present a massive opportunity, despite the chaos, panic and tragic damage – to both public health and the global economy – that the pandemic has caused.

Unique opportunity

“There has never, ever before been a marketing moment like this, where brands can make themselves more authentic,” said April Rudin, CEO of the Rudin Group in New York. She points to the necessity for relationship managers to “humanise” their banks, infusing previously impersonal client communications with “empathy, tenderness and humanity”, well beyond the mechanics of portfolio delivery. “The true leaders will be those that are able to embed this in their brand, rather than just in the digital experience.”

Private banks must not only show they in tune with clients’ changing emotional needs during the coronavirus crisis, but be able to respond to the social revolution on the streets, where racism and inequality are increasingly condemned.

“Brands, entities and governments that are not responding to the real life situations about equity, balance and representation” are risking long-term reputational damage, especially if they are “wholly out of touch with the demands of society,” said Mr Dovey.

Financial institutions have long been low down the scale in terms of trust, admits Ms Ciriani, but there is more leeway for digitalised brands, especially those experienced in electronic commerce and payments, which are better regarded by the public.

How to create the ideal atmosphere for this changed relationship with clients, and the innovation necessary to promote it, was a central to our discussion. There is an understanding that in many banks, a tipping point has been reached, where internal innovation has become inefficient, as client acquisition costs soar.

“Banks are definitely starting to recognise that internal conditions for innovation are sub-optimal, particularly in the larger organisations,” said Opus Una CEO Sharmil Patwa. Some have decided to highlight their captive client base, distribution power and trusted adviser status, while searching elsewhere for innovation.

“Banks have realised it is cheaper for them to support a fintech,” he added. “They can offer them an exit opportunity, once a technology has been proven and potentially also offer the founders employment. Sometimes this a better route than to build in-house.”

Collaboration not rivalry

This sense of a new wealth management ecosystem, featuring collaboration ahead of traditional rivalry is increasingly gaining currency, particularly in Asia, where banks are not burdened by legacy systems.

“It’s no surprise that the large tech firms are combining with some of the financial players, skipping over legacy banking and moving into digital banking,” said Ms Ciriani at Finantix.

This notion of transformative digitalisation can also succeed in the Western world, where private banks are increasingly thinking about building brand new structures rather than tinkering with legacy systems. “There is a huge temptation, and certainly from the futurists among us, to say, ‘well, you should just try to completely change the system and you have to do that by starting and thinking again’,” said Mr Dovey.

An industry in denial about its technological backwardness until 2010 finally saw a digital dawn emerging in 2020, accelerated by the Covid pandemic. “We’re going to go through a range of changes in financial services engagement that’s far, far beyond the perimeters of wealth management as it is today,” he said. We have reached the stage where the essence of wealth management has started to move well beyond the stewardship of portfolios. “Our financial payment structure, of how we survive has historically been about what we do in money management. My view is that in the next decade, it will be about information management,” said Mr Dovey.

The type of industry which will emerge from an new epoch of transformational change was however a matter of hot debate. “Technology will drive education,” said Opus Una’s Mr Patwa. “Education will drive self-directed investment, which eventually, maybe not in our lifetimes, will remove the need for wealth management the way we see it today.”

This blurring of boundaries is key to understanding today’s climate. “There’s not going to be as much of a distinction between what is a financial services institution and what is a technology company,” predicted Ms Rudin. “There will be lots of partnerships between these organisations, where they will come together to deliver product and service.”

But it may still be too early to write off the big, traditional private banks. “People forget they have the resources and the staying power to acquire those skills, either by building them, by buying them or by partnering,” concluded Mr Sethi. “As we go forward you will see large institutions, especially large integrated institutions, continue to be a big, big part of the private banking model.”

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