How Technology Can Help the Wealth Management Industry Navigate Coming Changes in 2023 | Blog
With the economy headed for slower growth, technology is more important than ever to enable companies to better serve customers by providing hyper-personalized experiences. Read on to learn how the disruptions will impact the wealth management industry and the role technology and service providers can play to help wealth managers navigate the choppy waters ahead.
In light of changing investor preferences, mounting regulatory pressures, and a looming economic slowdown, the wealth management industry is at the cusp of change. While the industry has demonstrated good resiliency and recovery post-pandemic, signs point to subdued growth in the next few years.
The wealth management industry has been experiencing one of the longest periods of market growth and economic stability in recent history. Financial support by governments, lower interest rates, and limited consumption opportunities have contributed to rising household wealth, generating increased revenues for wealth management companies from more fees and advisory support.
But the rapid rise in interest rates and fear of an economic slowdown will put pressure on this industry in 2023. Let’s look at the factors disrupting the wealth management industry in the first of our two-part series.
Fundamental change in ecosystem participants – passing trend or here to stay?
The industry is seeing structural changes in ecosystem participants. Traditional wealth managers are no longer the only players offering wealth management services and products. Challenger banks, pension providers, insurance firms, super-apps, nonbank financial companies (NBFCs), and nonbank financial institutions (NBFIs) are entering the market and creating competition.
These emerging segments already have access to a large customer base supplemented by data insights on demographics and buying patterns. This enables them to remove silos for customers and simultaneously improve income streams by reducing churn risk.
Customers now can access investment services within an umbrella of existing offerings. While this is a win-win for both parties, it is making wealth managers apprehensive as they realize the critical importance of retaining and more effectively serving their current customers.
Rethinking growth versus profitability conundrum – impact of a potential slowdown?
While the pre-pandemic era was all about expanding and tapping into new customer segments, the strategy for serving various customer bases has significantly shifted. With the changing market dynamics, the focus has morphed from expanding and tapping into newer segments to building trust with existing customer segments and enabling hyper-personalized experiences.
A potential economic slowdown would have ripple effects on the wealth management industry. The focus on rapid growth would take a backseat as enterprises pivot their attention to reducing costs and improving profitability. This would directly impact tracking advisor productivity, improving advisor-to-client ratios, and enabling hyper-personalized experiences.
At the same time, providing access to emerging themes like Environmental, Social, and Governance (ESG) and digital assets will prove to be differentiators in the long run. Regulatory activity is heating up in the ESG space and will lead to corresponding technology implications for wealth managers’ IT estate, as previously discussed in our blog, New Sustainability and ESG Investment Regulations will Spur a Second Digitalization Wave in Wealth Management.
Technology implications – will the IT estate need to be re-examined?
The wealth management technology estate traditionally has been characterized by multiple disparate systems siloed by products or functions, fracturing the customer experience. At its core, wealth management grapples with a massive data problem – how to effectively analyze customer data, understand their journeys, and identify better cross-sell/upsell opportunities.
Wealth managers need an IT estate that is flexible enough to accommodate these hyper-segments and different products, and their underlying data to address these evolving demands at speed and scale.
Identifying the right platform partner, enabling product expansion via ESG and digital asset offerings, and quickly disseminating this information to advisors will be key priorities for wealth managers as they assess their technology estates.
Identifying the ecosystem strategy for system integrators and other technology companies to improve fractured customer experiences will be equally important for technology providers. At the same time, service providers also will need to orchestrate and assemble best-of-breed solutions for wealth management clients by building a robust partnership ecosystem.
As wealth managers grapple with these market changes, technology has never been more important to help them better prepare and tackle the potential challenges coming their way.
The key questions that need to be answered include:
- How can the service cost be reduced?
- How can the right tools be used to improve advisor productivity?
- How can a microservices-based Application Programming Interface (API)-enabled composable core be built?
- How can data be leveraged to enable personalized client experiences?
- How can a scalable and purpose-built cloud infrastructure be used to run mid- and back-office operations on the cloud?
We are interested in hearing how wealth managers are preparing and tackling these market dynamics, and how this is manifesting in the conversations technology and service providers are having with clients. Please reach out to [email protected] or [email protected] to share your thoughts. In our next blog, we will look at the future state of the wealth management industry and provide a technology architecture blueprint for this space.
Learn more about how to deliver better customer experiences in our LinkedIn Live session, Frictionless Customer Experiences: The Key to Unlocking Satisfaction.
