The Wealth Management Technology Provider Landscape | Market Insights™
March 15, 2024
Wealth Management Technology
Wealth Management Technology
Wealth Management
The Asset and Wealth Management (AWM) industry is seeing the democratization of finance, growing demand for personalized digital experiences, and the emergence of new products such as digital assets and ESG-compliant investments. To adapt to evolving customer preferences and meet regulatory requirements, AWM managers are increasingly turning to Digital Experience Platforms (DXPs) to revamp their operations, streamline costs, enhance data management capabilities, and deliver tailored client experiences. By leveraging DXPs, AWM firms aim to provide advisors with a comprehensive, real-time view of data through intuitive dashboards, enabling them to deliver better service.
The integration of DXPs empowers asset and wealth managers to optimize their processes, personalize client interactions, and create an enhanced advisor experience. DXP providers are plugging the gaps in functionality coverage through build, buy, and partnership investments, along with the infusion of emerging technologies in their current product offerings. They are also establishing a robust partnership ecosystem comprising FinTech point solutions, technology providers, WealthTechs, and consulting and implementation partners to drive commercial and GTM innovations.
In this report, we assess 12 leading DXP providers for AWM products and categorize them as Leaders, Major Contenders, and Aspirants. The research will help buyers select the right-fit technology providers for their needs, while technology providers will be able to benchmark themselves against the competition.
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Scope:
The PEAK Matrix® provides an objective, data-driven assessment of service and technology providers based on their overall capability and market impact across different global services markets, classifying them into three categories: Leaders, Major Contenders, and Aspirants.
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.
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.
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.
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:
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.
The clock is ticking for asset managers to provide arduous and complex Environmental, Social, and Governance (ESG) data on financial funds mandated under the Markets in Financial Instruments Directive (MiFID II) by January 2023. To meet European regulations, the wealth management industry will need to embrace advanced digital tools to account for investors’ ESG preferences – leading to a second digitalization wave. Read on to learn how this will impact technology providers.
The global wealth management industry is at an inflection point. The strong growth in assets under management for wealth managers has been fueled in part by the digitization wave sweeping this industry.
Generational wealth transfer and the rise of the next breed of investors have redefined advisory services from a physical to a hybrid model. This step change in wealth management firms’ traditional customer base has led to increasing demand for tailored and digital customer experiences.
The first digitization wave resulted in firms increasingly collaborating with FinTechs, building in-house innovation capabilities, and adopting digital technologies such as Artificial Intelligence (AI) and analytics to develop new products, services, robo-advisors, and business models.
As investors and advisors settled into the new normal and wealth management services became accessible to all, another demand pattern emerged. Next-generation investors are cautiously choosing the right wealth manager to help manage their wealth.
Today’s new client base is increasingly attracted to companies with strong sustainability and ESG standings and wants evidence from wealth managers of funds’ internal and external sustainability commitments.
However, the rise of greenwashing poses serious reputational risks for wealth managers. The lack of a single source of truth in analyzing ESG data means that no standard terminology exists to accurately classify any company’s ESG standing.
Investors are baffled by the sheer increase in ESG funds entering the market and are concerned about their authenticity. Millions of dollars in penalties have been levied on large financial services enterprises over greenwashing claims this year alone.
To fight greenwashing, the European Union has passed MiFID regulations to promote sustainable finance products and facilitate greater transparency for all participants. Under this amendment, advisors will need to identify client ESG preferences and incorporate sustainable products in portfolios accordingly.
However, classifying ESG data for each fund across 580 mandatory, conditional, and optional fields is a mammoth task. The disparate data sources make it difficult for enterprises to accurately account for ESG scores. Another bigger emerging problem is how all this data will be used to connect to investors’ sustainability preferences.
Because of the data complexity and challenges facing asset managers to comply, the original deadline has been extended from August 2023 to January 2023.
The industry already faces competition from emerging FinTechs who capture market share and provide contextualized experiences. On top of this, a significant gap exists between the new guidelines and the current state of investment platforms to meet these requirements.
Asset and wealth managers will need to assess whether their current platform can ensure compliance with this changing regulation and partner with technology providers to modernize their digital solutions.
This will be challenging as we believe the user interface in many wealth management technology platforms has not evolved at the same pace as the core functionality, which will hamper the industrialized delivery of personalized and contextualized experiences at scale across hyper-segments.
The new regulations will require adding an ESG layer to existing platforms to account for investors’ preferences. As sustainability and ESG preferences become ingrained and drive technological changes in current platforms, expect to see a second wave of digital advancements coming.
Wealth technology providers will have to accelerate their ESG roadmaps in the next 12-18 months and show value from these initiatives. We recommend providers take the following actions:
The compliance deadline extension has given wealth managers much-needed extra time to assess their technology offerings and develop roadmaps to incorporate ESG preferences. With the compliance date fast approaching, providers will need to move quickly to invest in their platforms to provide the digital solutions the wealth management industry needs to meet the MiFID II ESG amendments.
Has your organization made changes to meet the sustainability and ESG investment regulations? Please reach out to [email protected] to share your experiences and learnings.
Also, don’t miss our LinkedIn Live event, Sustainability and the CIO’s Office: A Powerful Connection, to learn how the diversity of people and power of technology can strengthen your sustainability strategy.
Millennials and Gen Xers currently account for a majority of the earning population worldwide. As a result, the largest demographic cohort looking to manage wealth or create retirement income is shifting from baby boomers to these population segments (see the exhibit below), which are generally more involved, aware, and digitally oriented than preceding generations. The new investor generations demand information at their fingertips, anytime, anywhere – something impossible to achieve with traditional wealth management methods.
Exhibit: estimated shift in wealth from baby boomers to Gen X and millennials from 2016 to 2046
The impact of COVID-19 on wealth management
The COVID-19 outbreak has brought some key challenges in wealth management to the forefront. First, it has highlighted gaps in traditional wealth management methods, accentuating the pressing need for digital transformation. COVID-19-induced restrictions have severely impacted agent availability and as well as customers’ ability to visit advisers. Firms that can leverage digital tools to balance business continuity challenges with customer expectations will be able to differentiate themselves from others in the current climate.
Second, revenue erosion resulting from the COVID-caused recession, combined with an increase in business costs, may drive consolidation in the industry, as smaller firms will find it difficult to stay afloat. We are already seeing a shift in asset classes’ preferences. High Net Worth Individuals (HNWIs) and Ultra HNWIs (UHNWIs) will be impacted, as the wealth managers’ diverse portfolios are impacted. More than half of respondents to a UBS Group AG survey of wealthy investors said they feared not having enough liquidity in the event of another pandemic, and a similar percentage expressed worry about leaving sufficient money to their heirs.
What wealth managers need to do
Wealth managers need to increase their focus on services such as workforce management, operations continuity, customer communications, digital, goal-based planning, and portfolio impact advisory to persist through the current challenging situation. At the same time, they shouldn’t lose sight of the perpetual risks to business, such as cyberattacks, money laundering, and other security threats. Wealth management firms will need to ensure – even in the absence of physical interaction and with limited agents – that leadership maintains the confidence of both customers and employees.
Digital will remain the overarching theme to address these challenges. In recent times, Business-Process-as-a-Service (BPaaS) for back-office operations and robo-advisory have gained traction, though the solutions’ scale and magnitude continue to remain low. While BPaaS helps firms bolster their critical operations, technology leverage can be increased further via more digital products, automated cybersecurity systems, smart portfolio creation, trade analytics, and trade simulations for efficiency improvements, productivity gains, bandwidth creation, and customer satisfaction in the next normal.
As wealth management firms look to achieve these objectives, they will require support to quickly and efficiently adopt digital, set up the required infrastructure, move workforce interactions to virtual mediums, revamp operations and traditional workflows to minimize human intervention, and hedge location-based risks. They will have to carefully prioritize tasks and implement digital step-by-step, so as not to abruptly overhaul traditional methods and processes. For this, they could opt for off-the-shelf products or customized solutions, or choose an external provider to do it all.
To tide themselves over the crisis and prepare for what’s to come, we recommend that wealth management firms:
At present, digital transformation is no longer a strategy to cater to a specific customer segment but the very means to survive. It will help meet customer experience standards and preferences in relationship management, query resolution, and communication. For employees, digital tools will enable more robust decision-making and goal-based planning for portfolios, as well as help monitor them real-time to enable faster turnarounds and higher returns.
When you outsource your wealth management function to a third-party service provider, you’re not responsible for handling day-to-day operations and client contact. But you still have a huge responsibility in making sure your provider is fully capable of serving your clients’ needs.
Here are five major market trends that are affecting the wealth management industry. Is your provider addressing them?
As the global crackdown on bank secrecy continues, wealth management advisory firms have no choice but to quickly move from secrecy-led tax services to a more holistic and comprehensive approach to investor portfolio management.
There’s a very different advisor-investor dynamic with millennials than with baby boomers. The younger investors, especially those of the entrepreneurial class, are looking for a much wider range of services from their wealth advisory partners. Beyond tax management and planning, millennial investors want:
Despite the robot versus human debate, robo-advisory platforms continue to gain prominence. And investors are increasingly embracing a hybrid approach where they can get low-cost advice from robo-advisors and leverage human advisor expertise when more nuanced investment decisions come into play.
A technology-enabled front-office certainly helps financial services firms achieve some of their efficiency and client service goals. But RPA in the back-office can make their operations even more efficient and effective, and analytics in the back-office can help them make faster, better investment decisions, and anticipate customer behavior with greater precision.
Evolving fee models
Facing diminishing returns, investors are increasingly demanding more transparency around the fees they are charged. In turn, the fee model is gradually moving from commission-based to performance-based. For example, some providers are charging their fees linked to how well they perform against a particular benchmark index or rate.
Despite rising costs, enterprises continue to remain skeptical and cautious about outsourcing large chunks of the compliance function. They’re increasingly outsourcing some transactional activities, such a regulatory reporting and basic documentation vetting, to their third-party providers. But they’re still holding more critical services, such as due diligence, end-to-end KYC, and AML processes, close to their vests. And this guarded position makes very smart business sense. Because they are ultimately responsible for correct compliance, and because so much is at stake, enterprises should only consider outsourcing these types of processes if they have full confidence in their providers’ expertise and ability to effectively fulfill their compliance obligations.
What trends are you seeing in the market? Is your wealth management provider able to keep pace with your evolving requirements? How are they charging you for the services? Please share your thoughts with me at [email protected].
Demands of the next-generation investor
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