Article by Pierre-Alexandre Rousselot for Indices, Agefi, September 2016
Who has never wondered “How did we manage before?” : how did we live without electricity? How did we communicate without mobile phones? How did we work without internet and emails? These technologies have become part our everyday life, bringing us comfort in our lives and our way of working. No professional will renounce to it nowadays. Neither you, nor me. As well as numerous industries, finance is undergoing an invasion of attractive and facilitating technologies with the fintechs, causing suspicion and some worry among professionals. How do these technologies impact finance? And most important, what will be the “vital” technologies for wealth managers in 2030?
It is the butterfly effect : new technologies don’t isolately impact an area but it modifies a whole ecosystem. In the first place, it concerns the industrialisation of the wealth management business itself. The asset management activity emcompasses repetitive tasks with low added value : order entries, documents management, etc. Digitalisation can reduce the human intervention and the time spent on these fastidious tasks. A growing part of wealth managers adopts centralised solutions for ordering which brings significant time saving. The bilateral communication with custodian banks allows collecting market data and to have a nearly real time valorisation of assets under management.
The connected wealth manager capitalise on a valuable and scarse asset : time. Technologies revolutionise compliance management that represents a huge load in terms of working hours and a major strategic risk for managers. Technologies facilitates compliance management by enabling automatic controls over acts and sensitive entities. The compliance office focuses on investigating and resolving detected anomalies. This is a situation that has become a common but that was considered science-fiction a few years ago.
In addition to transforming the organisation and the nature of independant managers, new financial technologies reshapes the wealth management market itself. Robo-advisors are feared by many professionals while others see them as an opportunity for an organic growth on a mature and competitive market. By lowering human intervention to its maximum, this innovative type of advisor shrinks the operational costs and can offer wealth management services to less wealthy individuals than what is usually required to access the asset management services. Without speaking of “low-costs wealth management”, robo-advisors help broaden the clients target in the way haute-couture brands launch à prêt-à-porter line (a much more profitable activity for the brand). In terms of business development, new technologies applied to finance attract high potential clients who are extremely versatile – the millenials clients. Born between 1980 and 2000, they value technologies that simplify their life. This is an incredible opportunity for pionneer wealth managers to develop a digitalised client relationship.
The millenial population communicates with SMS and emails. In this context, face-to-face meetings and phone calls from their advisors are totally inadequate. How can one expect to convert and retain digital natives clients with babyboomers communications? New technologies support partial digitalisation of the client relationship, that is very likely to become total within a few years. By 2030, millenials with turn 50 and they will represent the majority of assets under management. It thus seems urgent to adopt their codes and their rules.
What does it imply? First of all, it requires transparency and connectivity with 24/7 access to their assets information with the possibility to interact : ordering, communication with their advisor, etc. Clients want to know how their money is invested and they want to easily request for adjustements. A World Economic Forum report recommends that independent managers use technology to bring transparency and control tools that clients are expecting. The communication channels that are appreciated include video, videoconferences (FaceTime, Skype, WhatsApp), SMS alerts, social networks, etc.
Like all industrial revolutions, the digital revolution is destructive and creative. The automation of repetitive tasks leads to some workforce reduction and the costs reduction allow the conquest of new markets. The impact of fintechs must be appreciated in its globality to understand the phenomenon and the underlying opportunities.
Can we assume that “Nothing is lost, nothing is created, everything is transformed”? Unlike the Lavoisier principle, we evolve in an open system that allows exchanging and “co-creating” new models that future wealth managers will be part of.