Does your wealth manager drink coffee or kilowatts?

UK TV network Channel 4’s television series Humans depicts a world where highly sophisticated, life-like humanoids called ‘Synthetics’ are a must-have in any household or company. Whether required to do laundry, make cups of coffee or undertake admin, robots start to replace humans across many different jobs and functions. 

While Humans is obviously a fictional construct, there is insight to suggest that it presents a not too distant future. A recent report by consultancy firm PwC projected 30 per cent of jobs in the UK were potentially under threat from breakthroughs in artificial intelligence. In the most affected sectors, up to half of jobs could go.

The first wave of impact has already been seen in wealth management. Algorithmic investing has been around for years. But how likely is it that automated systems could replace the role of the relationship manager?

Digital – in its most common current form – is already seen as an essential hygiene factor for private clients when deciding who they entrust with their assets. Investors have a broad sense of how they interpret value in a wealth management relationship and digital is fast becoming a benchmark for the perception of quality.

Wealth advisers, however, are yet to fully align themselves to clients’ digital expectations and are therefore at risk of falling behind the curve.

A majority of millennials (under 35s) now deem the strength and breadth of digital tools to be a core value of their wealth management, rather than access to skilled professionals, according to recent research Scorpio carried out with CFA Institute. And while younger wealth advisers are more in tune with this trend than their older colleagues, they are still wary of accepting clients could value digital functionality more highly than access to human experts.

At first glance, the prognosis does not look good for the advisory profession. But the supporting research indicated that clients are still willing to pay a premium for a wealth management service as long as advisers can prove they can demonstrate expertise over a range of technical product areas. Robo-advisers cannot reason or empathise with clients in the same way human advisers can in times of adverse personal or market circumstances. Moreover, automation has decreased the potential cost of investments but remains limited to the scope of portfolio management for now.

Artificial intelligence may not be able to replace the human element of a client-adviser relationship but it will become ever more relevant to wealth managers in the coming years. The first fund to be under full control of artificial intelligence was launched last month in what could be a major milestone in the asset management industry. However, an over-reliance on computer models has burned fingers before and we only need to look as far back as the pound flash crash, or CDOs based on subprime mortgages.

It therefore seems more probable that future wealth management solutions will strike a balance between humans and computer models. Automation has a place within the wealth space for executing and maintaining investment solutions while advisers can communicate advice to clients that these machine-based models generate. Digital technology can still be embraced by advisers in an effort to maximise their assets under management while retaining a personal touch for clients.

The wealth industry is also moving to boost productivity through their back-office spending on automation. Ever-changing regulatory issues continue to squeeze wealth managers' profit margins with the rise of ‘regtech’ promising to help keep client assets secure, but also appease cross-border regulators.

Digital is not just another channel but an integral part of the wealth management proposition. Early adopters of automation stand to outperform the competition as advisers move to keep pace with the digital advances seen in other industries. Automation will not replace the RM service model within the next few years but advisers will need to better differentiate and articulate the value of their offering to stay competitive.