Building a front-to-back digital infrastructure

It is clear why wealth managers are increasingly active in delivering digital: because the research says they will be dead if they do not adapt. 

In Capgemini’s latest World Wealth Report from 2016, around 67 per cent of high-net worth individuals polled were willing to use automated advisory services, up from 41 per cent in 2015. Moreover, more than 80 per cent of wealth managers wanted better digital tools.

But what is digital wealth management and what does it really mean? To many it seems to mean robo-advice, a client portal and adviser dashboard, or some other apparently flashy bit of kit to support the client-adviser relationship.

The reality is that digital wealth management goes far deeper inside an organisation. What we see above the surface, though important to show progress, is only the tip of the iceberg. But those new tools, sitting above the surface, hide the large efforts and engines that we do not see behind the scenes. To deliver a digital front-end that actually delivers on the strategic needs of business, there has to be a significant infrastructure operating in the background, serving it and tying together multiple different components.

To truly deliver the digital wealth management proposition and everything that will support – relevance, client experience, AuM and so forth – wealth managers must therefore ensure their core technological infrastructure in the middle and back office is fit for purpose.

“Wealth managers have learnt that a fancy front-end is not enough,” says Jeremy Boot, product manager, digital wealth management at Geneva-headquartered technology solution provider Temenos. “That will not deliver the end-to-end benefits that they need to engage their clients and improve their businesses. There needs to be a full transformation.” 

An engaging piece of kit at the front-end might look nice but does not create a real digital wealth management proposition. A truly flexible, personalised, user-friendly, interactive and responsive proposition, which benefits the client, adviser and institution, can only be consistently delivered with a far deeper technological engagement. Wealth managers must look from the front to the back of their infrastructure to deliver.

Easier said than done

“These institutions face historic barriers to change: legacy and disparate systems environments, technology that has been developed in silos and disconnected from one another, and a historic under-investment in their technology infrastructures,” adds Mr Boot. 

They are also faced with the high and ongoing cost of maintaining this existing infrastructure, he explains, along with the costly burden of new regulations and the reticence of senior management to take on large-scale renovation projects under their own watch.

“The market has lagged in technology. In the back office, the historic underinvestment is now coming home to roost,” suggests Kenn Taylor, head of wealth management at London-headquartered consulting firm Alpha FMC. “A lot of the systems used today have been built on technology that is now tired and aged.”

The market is therefore somewhat stuck between a rock and a hard place. Adding a fancy digital tool at the front-end is a relatively easy step and can deliver a quick win to the business. Faced by such pressures, this must be an appealing route to senior management. 

For that same leadership to take the bigger step of confronting and changing the complex legacy infrastructure in the back-end, the infrastructure that is running their business, is a far harder step to take. But it is becoming the accepted view to respond to the theme of digital wealth management, despite the sizeable challenges.

Challenges and responses

Largely speaking, at least among the larger wealth managers where there is scale and budget to tackle these issues, there is a clear understanding that a deeper engagement is required and, as such, there is serious action taking place behind the scenes. 

At Credit Suisse, there is a clear recognition of the challenges. “The key challenges from a technology perspective originate in the legacy systems,” says Stephan Hug, head of IT strategy and architecture at the Swiss firm. Those were built in a time where digital end-to-end processes were not part of the vocabulary, he explains, and a lot of them include manual steps, which now need to be automated one after another.

“The bank has automated many processes, and worked on the client channels and made new functionality available to them,” says Mr Hug. “We will continue to focus on front-to-back digitalisation and automation of legacy systems as well as on renovating and extending the functionalities available to our clients.”

Similarly, at DBS, the process of moving to a more digitalised business has a broader set of challenges. According to Patrick Dreyfuss, chief operating officer of the wealth management group, the challenges are further compounded by the need to deliver the same processes or content in an omnichannel manner, for 24/7 system and service availability – which legacy back ends were generally not designed for – increased cyber security requirements and for real-time transparency on client information and transactions.

The bank has responded by “engaging in the deep transformation of our IT architecture principles and infrastructure solutions”. 

That means following a service-oriented architecture approach, where front layers call for services through internal APIs, and, in terms of infrastructure, that means moving progressively to a virtual private cloud instead of standalone servers. 

“This enables us to manage capacity peaks and availability in a very cost-effective way,” he says.

Certainly, firms would prefer to invest their time, budget and strategic thinking into their front-end but, as Mr Taylor at Alpha FMC eluded, their infrastructures are simply not ready for the demands of digital. Firms must first engage in a deep and sustained change effort in the back-end.

However, that does not mean the more visible front-end developments are off the table. Quite the opposite, in fact. The approach is therefore a hybrid between the necessary upgrading of their back-end infrastructures and simultaneously delivering wins in the front.    

At both Credit Suisse and DBS, there are clear examples of these front-end additions. Mr Hug highlighted the Swiss bank’s recent new services including digital onboarding, while Mr Dreyfuss pointed to the Singaporean bank’s introduction of DBS iWealth, an app that gives its clients autonomy to conduct their banking transactions, manage their wealth and trade with a single tool from their smartphones.

Standard platform

Looking further, another significant example of the focus on the back-end to deliver deeper wins for the business in the digital age comes from UBS. While the Swiss giant will likely concur with much of the activities and focus of its competitors, arguably it is taking things further still. In a major project initiative, the bank is committed to standardising its front, middle and back office onto its Swiss platform across the entirety of its global footprint.

This programme, known as 1WMP, is “aimed at aligning location-specific business models towards a single unified platform in accordance to our strategic ambition”, according to Callum Licence, the global wealth management platform programme lead at UBS. 

He further explained that the effort “will standardise our processes and unify the way we develop new services by integrating our historically fragmented infrastructure onto one platform”.

The 1WMP project was started back in 2012 with the bank’s German operation in 2012 as the pilot. Once this was successfully completed, the project then shifted to the bigger task of onboarding its Singapore and Hong Kong-based Asia Pacific wealth management business, its second largest book outside its home Swiss operation. Once this leg of the journey is complete, the bank suggests it will have approximately 80 per cent of its AuM run on one unified platform.

The goal of one platform has multiple benefits for the bank. “With this new platform, we can build things once rather than multiple times for each platform of the business and bring the best parts of the bank to all of our clients,” adds Mr Licence. 

“Services that we could not deliver to clients before because they were in smaller scale markets, we will now be able to reach. It does not matter what dimension you look at, this initiative brings real benefits to the bank and its clients.”

Broad benefits 

The three cases highlighted here make clear that delivering a digital wealth management business is about far more than the pretty front-end tool kit. 

Whether it be in creating more efficient businesses, stripping out cost from their existing and expensive convoluted technical infrastructures, becoming more agile and responsive organisations that can respond to client demand and more easily create and distribute solutions, the front-to-back effort involved in digitalisation strikes right to the core of their businesses.

Yes, these businesses see the effort of digitalisation as a means to be more attractive, accessible and efficient at the front. They also see the effort as an enabler for them to adapt and become more efficient, agile and sustainable businesses.

While large firms, due to their scale and budget power, might steal the limelight and have a greater capacity to tackle these issues, there is an increasing proliferation of this front-to-back engagement across the industry.

“We see a lot of activity right across the market, from the major players down to the independent wealth managers,” says Mr Taylor at Alpha FMC.

While recognising the market’s slow adoption of digital tools and historic underinvestment in technology, Mr Taylor sees the new era of digital tools and capabilities as supporting the wider industry. The risky, big bang core system replacements, as one striking example, can be avoided, at least for the moment. Among these options, he highlights investments into new process automation robotics – tools that can really help in areas such as streamlining processes, aggregating data and adding automation to previously manual tasks.

Where to next?

The journey is only just at its beginning. Frankly, if the wealth management sector is to fully extract itself from its historic underinvestment, its engagement must continue. 

This necessity is only underlined when considered against the flow of regulatory pressure, the evolution of wealth management business model and the ongoing changes to client expectations in the digital era.

As highlighted above with robotic automation, there are a variety of tools and techniques to support this continued journey of engagement and discovery. For instance, the market is pushing further into the use of web services which enable easier access to and across legacy systems. A bit like glue, these bind an infrastructure together and extract what they need to feed the needs of the front-end. 

Also of interest now are application programming interfaces (APIs), particularly in enabling a more digital client engagement and experience. As clients’ demand access to more services, more like their smartphones, so wealth managers need to be able to service those expectations through an API strategy. 

Finally, of course, firms are interested in the possibilities from big data and data analytics, machine learning and artificial intelligence, as well as the continued application of agile development and process automation.

The depth of the market’s existing efforts to adapt, coupled with their eagerness to bring newer and emerging tools and techniques to bear, serve to highlight the depth of their digitalisation journeys. Becoming a digitalised wealth management business is about much more than a few tools at the front.