Wealth Managers Face a Digital Dilemma

By Brent BeardsleyJorge BecerraBruce HolleyDaniel KesslerFederico MuxíMatthias NaumannTjun Tang, and Anna Zakrzewski

Digital technologies are transforming just about everyone’s personal and professional lives. Wealth management clients are no different, and they expect the experts managing their wealth to be on the cutting edge of change. Yet this change is developing slowly.

Of course, digital technology has already enabled capabilities that even one generation ago would have been unthinkable. The rapid evolution of mobile technology and the ubiquity of feature-rich “smart” devices increasingly allow clients to interact with their wealth managers anytime and from anywhere. Cloud computing provides on-demand, real-time access to unprecedented computer power and storage capacity, permitting complex transaction processing for all clients. Big-data applications enhance the ability of wealth managers to capture, analyze, and interpret vast amounts of data—including information related to the behavior and preferences of both existing and prospective clients—and to leverage the knowledge they gain to create highly customized solutions and advice. On the client side, social-media platforms such as Facebook and Twitter—as well as private groups and forums—foster the instant dissemination of ideas and allow large groups of like-minded individuals to connect and discuss market developments and investment

In our view, the continuing development and adoption of digital communication will reshape the way products, services, and advice are provided to wealth management clients. Indeed, although the traditional private-banking relationship will continue to emphasize face-to-face contact and the sense of trust that such contact engenders, technology will radically redefine and enhance that relationship. In so doing, technology can also change the dynamics of what constitutes competitive advantage.

For example, digital technology can enable rapid, intuitive, round-the-clock navigation through financial situations, including deep exploration of individual positions, risk exposures, and asset performance in real time. Instant access to individualized research, news, and product-related information—combined with tailored simulations—can help guide wealth managers and their clients toward the best course of action and the right solution for a multitude of situations. The capability for seamless, instant interaction among relationship managers and product specialists through tablets or smartphones to discuss investment opportunities can become the norm.

Such a scenario sounds very promising for all stakeholders. Yet change is coming more slowly to wealth management than to other industries, with many players unable to leverage digital technologies in a way that truly enhances their offering. (See the exhibit below.) According to our benchmarking survey, digital services are still predominantly Web-based. Although the use of tablets and smartphones is picking up, another two to three years will likely pass before these devices reach the same high level of trust and usage among wealth management clients that other Web-based digital services enjoy.

Moreover, while access to portfolio and account information (including relevant research and market data), payment functionality, and the ability to trade are commonly offered to wealth management clients, sophisticated functionalities that make use of big data and advanced computing power—such as personalized portfolio monitoring, simulations, and identification of investment opportunities—are far from typical.

Least developed in most wealth managers’ digital offering is communication functionality, which constitutes the natural bridge between digital services and the traditional means of providing advice. For example, few banks enable video interactions between clients and relationship managers (RMs) or send relevant alerts to clients. Such alerts can empower clients to act instantly on events that affect their portfolios, such as the downgrade of a particular stock by the wealth manager’s research experts. Still fewer allow for community interactions such as advice-sharing or following the investment strategies and portfolio compositions of peers. On average, only 1 to 2 percent of any wealth manager’s employees are dedicated to managing digital interfaces. Many banks have no dedicated resources at all, indicating a hesitation to invest in this area.

Efforts are also quite meager in the broader social-media arena. Only 30 percent of survey respondents offered at least one social-media function specific to wealth management. The most frequently used social-media functions are rather static RM profiles on professional networks such as LinkedIn, as well as basic company information on platforms such as YouTube. Commenting functions and advisor- and expert-generated content, which comes closest to offering genuine investment expertise, are among the least common features, with only 2 percent and 5 percent of respondents providing these services, respectively.

Our findings clearly demonstrate that no winning model has yet emerged for digital technology in the wealth management industry. Although digital solutions have gained momentum with some wealth managers, to date these solutions have merely enriched or supported aspects of traditional online or mobile offerings, rather than delivering a well-defined, coherent value proposition that reshapes the way wealth management services will be provided in the future.

With the stakes as high as they are, now is the time for wealth managers to take action on developing sophisticated digital capabilities. Client expectations will continue to rise, and digital communication will increasingly become dominant in everyday life. Early movers that best balance traditional, relationship-led wealth management with intuitive, simple-to-use digital products and services will gain an unparalleled competitive advantage over the next few years. A few leading players have already started reconsidering their digital value propositions and service models and have unlocked significant investment budgets. Ultimately, taking a wait-and-see approach is not a viable option.

In order to compete in the digital race, we see the following imperatives for wealth managers:

  • Define a clear ambition. Define your vision, objectives, target segments, and digital value proposition before taking hard action. Doing so will ensure crucial and often lacking alignment with internal stakeholders (such as the front office and project teams) and with external stakeholders (such as regulators).
  • Identify a primary focus. Concentrate on a few simple, high-value client journeys across channels. Trying to provide too many pathways and functions, especially at the outset, increases both complexity and costs.
  • Build a compelling client experience. Start with an intuitive functionality that enables a unique user experience. Keeping things easy and actionable at the outset will help drive adoption and advocacy. Resist the temptation to try to bring the full breadth of sophisticated RM tools to all digital channels.
  • Test and refine continuously. Early on, achieve thorough and rapid prototyping that involves continuous iterations with both the front office and clients. This approach will help refine and shape the digital offering and maximize its overall effectiveness.
  • Establish operational readiness. Ensure a clear perspective on the operational and policy implications of digital banking. This will help you efficiently address time-consuming and complex fine-tuning well ahead of your launch date.
  • Drive rigorous change management. Transform your institution into a “digital organization” that features strong commitment from senior management, rigid prioritization, agile solution development, and proactive alignment with all parts of the company.
  • Enable RMs with digital tools. Ensure that the RM value proposition is enhanced through digital technology.