By Vasyl Soloshchuk, CEO and Co-Owner at INSART
Josh Book
CEO of ParameterInsights
ParameterInsights is a data-driven research and advisory company focused in particular on the financial services sector and FinTech.
Major trends
There has been a rise of automated portfolio-management platforms that offer increasing ranges of wealth management services and capabilities beyond traditional tools deployed by advisors. These digitally led advice platforms are evolving from just automated portfolio construction and management. One example is a Canadian upstart called Planswell, that offers financial planning and makes use of account aggregation and “gamifies” saving and planning in the digital channel. We expect to see firms increasingly make the digital channel more engaging for investors to track their investments against goals, transfer in and contribute new money to their accounts more easily, and track the performance of their investments more transparently net of fees.
Another trend is the big incumbent firms mobilizing on their own product launches. In Canada, there is SmartFolio from the Bank of Montreal who were first to the market in 2016 and RBC, which have “soft” launched their own automated portfolio service called Investease making it available to employees and customers. Then, in the US, Wells Fargo has come out with Intuitive Investor and Bank of America Merrill Lynch has introduced Edge Guided Investing. Furthermore, we’re seeing the incumbent asset managers traditionally focused on wealth product manufacturing begin to mobilize around digital distribution strategies as well. Examples include Vanguard and Fidelity in the US, while in Canada Invesco has launched a service called Advisor Duo, which is tailored specifically for the independent wealth advice businesses.
“The entire wealth management category is evolving – with the main driver being digital.”
Building consumer awareness of wealth management is another concept that needs to be addressed. The fight for the existing kinds of assets under management is one part of the equation, but digital and automated platforms provide an opportunity for the masses to engage in wealth management and access markets and services that previously haven’t been available to them.
“People don’t understand financial services; the wealth management category has generally been an opaque and confusing landscape for consumers.”
From a technology perspective, these platforms are not groundbreaking, earth-shattering “innovations,” but what they’ve done is democratized a great deal of the “value” provided by wealth management services by making parts of it cheaper, more transparent, and simpler by using automation and digital business models. However, the population hasn’t yet been meaningfully engaged by these alternatives. Our research shows that even category awareness for “digital wealth services” or so called “robo-advice” has hardly moved up over the last 12 months.
Incumbent and upstarts alike need to find more creative ways to engage consumers in ways that call them to action. Saving and investing for the future has never been cheaper, easier or more transparent. This is a story that needs to be explained to the person who earns a good wage but has little investment assets and until now somewhat disillusioned by retirement saving if they even give it much thought at all.
The old models we’ve seen of product or service deployment in financial services of “build it and they will come” is no longer a recipe for success. Many of these firms have been built up over many decades either to deliver or to manufacture financial services or wealth-management products to customers in a certain way.
Today, the challenge is that the traditional approach is no longer necessarily the way to move forward. Thus, a lot needs to change to not only optimize or modernize service offerings with, for instance, digital tools, but also to reconsider business structures and deliver these products and services new ways. For example, firms must continually be analyzing data in order to engage customers in increasingly customized ways. Simply modernizing a client on-boarding experience to reduce administrative burden, while an important first step, is really only a table stakes development.
Capabilities required by digital wealth management
Performance reporting is essential for a new-era wealth management offering.
“Business models will need to adapt to these new and more modern ways of executing the business.”
As alluded to, personalization of services will play a key role, whether that’s going to be highly automated, digital, and hands-off, or a combination of automated processes and reporting, gamification, etc., with some form of human support or a chatbot. Data and analytics will be the main instrument to help wealth-management players understand clients needs more quickly and be able to respond in ways that drive engagement, optimal client behaviours and satisfaction.