In addition to tackling ongoing digital challenges of replacing legacy systems, responding to changing regulation and meeting increasingly sophisticated client demand, the 40 private banks from across the globe which entered the PWM Wealth Tech Awards can now be measured by another metric. How their digital infrastructure responds to the unprecedented demands of the Covid-19 pandemic, dealing with volatile markets, remote advice and increased cyber-hacking, has proved an important benchmark for our judging panel, conscious of the crisis accelerating most existing digitalisation trends.
“What is clear is that those firms which have not really embraced a tech overhaul for the operating model are going to be exposed in 2020,” says long-standing wealth consultant and UK-based PWM awards judge Seb Dovey. “A badly enabled tech capability in wealth management is going to cause the
clients concern and this will affect their decision to remain.”
Among big name firms to have impressed our judges during the evaluation process are Europeans BNP Paribas, BBVA, CaixaBank, Credit Suisse, HSBC and UBS; Citi and Merrill in North America; and DBS in Asia. Banks in developing countries are also making digital waves, including Turkey’s Akbank, Brazil’s BTG Pactual, Thailand’s Kasikornbank and China’s Industrial Bank.
Those banks which have performed well are not generally newcomers to the digital game, confirms Alois Pirker, head of research for Aite Group’s wealth management practice in Boston, US. Firms such as DBS, that launched and implemented data analytics several years ago, are emerging into a powerful position, as machine learning algorithms typically need eight months to a year to properly learn client characteristics. The opportunity in this data sphere will likely be the focus of the shifting digitalisation battleground for several years to come.
“Digital transformation has been a major industry trend for the last five plus years,” says Mr Pirker. “Leading firms have fine-tuned and leveraged their digital engagement platforms well before the crisis. But others have largely paid lip service to the trend; low adoption of their digital platforms led to a rude awakening at the onset of the pandemic.”
With these platforms now established as the major communication channel for private banks and customer experience moving centre stage, clients receiving underwhelming service could reconsider their rota of providers, suggests Mr Pirker.
Despite some vast, expensive and often ground-breaking technological innovations, the report card remains mixed, with some grandstand projects and basic upgrades failing spectacularly.
“Very few private banks have successfully upgraded their core platforms,” says Doug Fritz, founder of Silicon Valley-based tech consultancy F2 Strategy. “Many have used data architecture, data science and advanced analytics to work around the problem. Those that have tried to move and modernise have largely failed.”
Ambitious robo-advice projects have not delivered promised AuMs or client experience expectations, leaving the lion’s share of portfolios still custom-managed by private wealth advisers, adds Mr Fritz.
Knee-jerk reaction to crises such as Covid-19 has been more common than well thought-out long-term strategies. “Past core technology spend has clearly helped some firms, but much of the recent digital activity has been more tactical to respond short-term to Covid-19 challenges,” says Keith MacDonald, partner and wealth management head at Ernst & Young in London.
‘Plug and play’ products in client communications and e-signatures for onboarding have fallen short of transformative expectations. “Banks should really be having a brave rethink of the operating model and application of tech,” says Mr Dovey. “But most are applying tech to automate a previously manual workflow. That is simply the first phase and only gets a business so far. What tech should be considered for is a completely new way of doing business.”
Many private banks simply build a thin digital layer, a “horseshoe” around existing traditional systems to enhance customer experience. “With the importance of time to market and limited budget, the focus is currently more on such a ‘horseshoe’ than on core systems replacement,” says Mario Bassi, a Sydney, Australia based wealth management adviser and former senior private banker.
Leadership has been an important factor for banks which have succeeded in remodelling digital architecture. Sometimes this has happened through force of personality and vision, as with Kabir Sethi, who has digitally transformed the private banking franchises of Merrill and Bank of America, despite many claiming this could not be done. At others like BNP Paribas and Citi, leaders have fostered a more inclusive culture through embedding innovation teams and practices in the process. Rewarding managers and employees for taking the digital plunge is also vital.
“To make truly transformative change, you need leaders who are prepared to challenge the status quo,” says Sharmil Patwa, founder of the Opus Una consultancy in London. “Compensation structures in larger organisations don’t recognise this.”
Most agree that some kind of ‘hybrid’ arrangement – combining robo investment and mechanical data analysis with a more emotional, human approach – will emerge as the winning model. But the industry faces a huge challenge to find the optimal mix between these two key service elements.
“Older clients typically require more advice and planning and there is an opportunity for next-gen robo only,” says Mr Patwa. “But financial institutions that want to service a spectrum of customer segments and maximise ‘share of wallet’ will need a hybrid approach.”
There is a strong belief among some that in a “people business”, advice will always triumph over technology. If anything, Covid-19 has demonstrated the need for both approaches. “This is the time when human relationship managers have their day to show empathy, understanding, emotional support to clients in a way that no digital platform can do,” says April Rudin, CEO of the Rudin Group in New York. “In that way, digital has truly enabled advisers to get close to clients, without worrying about tedious tasks or communications which can be enabled easily by digital platforms. Covid-19 has proven the need for hybrid wealth management.”
Digital wealth management is now a mandatory part of the client experience, no longer a luxury, nice-to-have addition. “The alternative is to focus on clients which prefer traditional channels only,” says Urs Bolt, of Zurich based digital consultancy BoltNow. “But this is a high risk strategy which could lead to a literal ‘dead end’ because this client segment will simply erode away.”
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