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Meet and beat the rising storm: The new digital era for wealth management


OK, so we aren’t yet pulling up to ATMs in flying cars or conducting financial transactions with life on Mars. Still the future is now for the wealth management industry.

Technological innovations such as robo-advisor applications and social investing platforms have catapulted us into a new age of financial advising. However, the profound extent of technology’s impact is often understated. As new investor demographics arise simultaneously, the convergence of change has created the perfect storm—a hurricane—to upend the industry.

Through a study Cisco recently conducted in partnership with Roubini Thoughtlab, we dove into the eye of that hurricane to observe the scope of this disruption. Based on input from 2,000 investors and 500 investment providers across 10 major wealth markets, the report, Wealth and Asset Management 2021: Preparing for Transformative Change, identifies how technological, economic and demographic mega changes impacting the wealth management industry.

The report’s key findings point to four of the industry’s biggest changes:

  1. Huge wealth creation is on the horizon. By 2021, household assets are expected to grow to $89 trillion (with a “t”) in the top 25 markets, which will bring in more than $50 trillion in investments. Much of this wealth will come from emerging markets that include China, Mexico and Poland. Additionally, as Baby Boomers retire, we will continue to see a historic transfer of wealth as $30 trillion is passed along to Millennials and Gen Xers. This combination of new markets, new investors and new wealth is creating a heterogeneous set of customers with an array of wants and needs. Finding a way to appeal to everyone represents a huge undertaking.
  2. Anyone with a bank account can be an investor. The entry point for professional financial advice now stands at next to nothing, due to the availability of virtually free robo-advisor applications. The convenience and low cost of such technologies are particularly attractive to the next generation of investors, digitally native Millennials. Yet, Millennials aren’t the only ones drawn to digital self-service tools. The Roubini report shows that 49 percent of Gen Xers, 50 percent of Baby Boomers and even 54 percent of ultra-high-net-worth individuals also expect to use anytime, any-device technology within next four years. As the comfort level with digital applications grows, and investors are no longer limited by the size of their bank accounts, a new demographic forms: anyone with discretionary income.
  3. Investors are raising their expectations. As technology helps unlock wealth and open investment opportunities to more individuals, it will also raise customer expectations. Our survey found that investors now demand more from their wealth providers, including customized solutions (72 percent); access to wider investment options (64 percent); greater cybersecurity (63 percent); and the use of the latest technology (62 percent). Unfortunately, providers aren’t as prepared to meet these needs as their clients think. For instance, 63 percent of investors believe their providers are prepared to ensure cybersecurity, versus only 48 percent of providers who say they are. But, here’s the kicker: Nearly half of investors say that they will switch providers if their expectations aren’t met.
  4. The new role of FinTechs. More incumbents with trusted financial brands aim to build, buy and partner with FinTechs. Our research shows that 59 percent of wealth providers are making it a priority to acquire FinTech capabilities by 2021. This will allow them to appeal to the tech-savvy demographic, as well as augment the value of their own services with advanced analytics and artificial intelligence.

Rising to the occasion: how banks can emerge as winners

With these changes hitting the wealth management industry hard, how can providers weather the road ahead and emerge as digital leaders?  According to the report’s findings, there are five pathways to compete in the wake of digital disruption.

  1. Clearly define your transformation process. Create a business architecture map that aligns your business requirements with technological capabilities across the organization. Then, outline the customer’s ideal journey to determine how to add value to their experience in the future. Lastly, analyze the potential financial impacts of your digital investment. Here, you’ll need a visionary to champion the business case and ensure buy-in, even if return on investment (ROI) is not immediate.
  2. Put the customer front and center. Appeal to a wider range of modern clients by offering a strategic mix of digital solutions and human expertise. Attract new, digitally native clients with technology. Retain them in three ways: Form relationships, build trust and offer personalized advice. Along the way, use advanced analytics, CRM systems and predictive models to deepen your understanding of clients’ behaviors and stay ahead of their ever-changing needs.
  3. Invest adequately in new technologies. Although a “given,” this marked survey participants’ top-cited pathway to success. In addition to acquiring FinTech capabilities, replace aging, legacy infrastructures with new, more agile technologies that allow you to quickly deploy new features and functionalities. Your digital investments should promote collaboration (both internal and external), improve the customer experience, ensure compliance and minimize security risks.
  4. Bring the right people on board, and:
  5. Foster an innovative culture. These two pathways go hand in hand. Almost a third of survey respondents said that acquiring the right employees with the right talent is essential to transformation. Offer specialized training on the latest digital trends and technologies so that everyone speaks the same language. And, of course, encourage employees to explore new ideas. Your people form the foundation for digital transformation. Without them, the rest of your efforts—your technology, your processes and your culture—mean nothing.

Four years from now, the winners will be fully integrated, digitally driven businesses: “omni-providers.” These leaders will seamlessly serve their diverse customer base across channels; they will blend specialized expertise, digital tools, 24/7 service, and a broader range of financial advice and services. As we move toward 2021, there’s no time to waste as we embrace, explore and implement digital transformation. Those that fail to begin to accommodate for these mega changes now will quickly fall behind, go out of business or get acquire at a lower valuation.

Are you ready to rise to the challenge? Now is your chance to harness the storm before others get caught off guard.

Steve Ridder is senior advisor, Financial Services Practice at Cisco. His work focuses on the banking sector and he specializes in harnessing innovative technologies to help banking institutions transform their business objectives.