28/08/18

Wealth Managers Underestimating Investment Needed for Digital Change

(Consultancy.uk) --The majority of wealth managers spend 10% or less of their organisational investment budget on digital change, according to a new study. While other factors such as changing customer demand and heightened regulatory burdens siphon off portions of this budget, by spending more on digital transformation, asset managers could address these too.

As companies work to make the most of technological innovations, and avoid falling prey to digitally disruptive competitors. An indicator of how pervasive the efforts for digital transformation are across all sectors, is the booming digital transformation consulting market, which is now worth more than $44 billion, as clients tap firms for support of their overhauls.

Despite vast commitments towards digital technologies, recent studies have shown that in around three quarters of the cases, digitalisation efforts fall short of achieving topline growth. Indeed, while the resources may be even heftier in the asset management sector, digital transformation in that sector too is hamstrung. In a previous report by consultancy Alpha FMC, the firm highlighted the factor of legacy IT setups as a partial cause of this. Now, researchers have added that a new report finds the sector is also underestimating the level of investment needed to marshal adequate digital change.

Alpha FMC surveyed 15 of the largest wealth management firms, operating in the UK and globally with a combined AUM of over £400 billion, including a mix of CEOs, COOs, digital directors, marketing directors and technology leaders. Of this cross section, only 35% of respondents said they would spend 5-10% of their budget to digital change, while a further quarter said between 2-5% of their spending involved digitalisation. This is partially because the industry sees itself as existing in a perpetual balancing act. Spend too much on digitalisation and the ability to meet spiraling regulatory burdens or changing client experiences may be compromised.

How much of your organisation’s spending is dedicated to digital change

The key problem with this attitude, however, is that it fails to acknowledge where these issues intersect, and that rather than being separate from ‘rival’ areas of spending, digital transformation could be leveraged to better meet other challenges. An example which Alpha FMC highlight to this end is the fact that 62% of wealth managers have not invested in FinTech, and have no plans to do so. This, despite FinTechs enabling firms to move swiftly to address changing demand, improve customer services, and lighten administrative work, enabling employees to add value elsewhere. Robo-advisers have had a significant influence on advisory and discretionary models and are now starting to build up some scale, so wealth managers face a retention risk if they lack a digital proposition able to engage with a younger, “pre-inheritance” audience. In this sense, asset managers simply cannot afford not to invest more heavily in digital change.

Encouragingly, all firms surveyed by Alpha FMC did have some form of digital project underway, over 40% of respondents identifying digital as one of their top priorities. However, a sizeable chunk of 46% of respondents admitted to the researchers that they are only just “getting organised”, while 27% felt they remain at least three years away from becoming leaders in the digital space. Despite clear ambition to improve their digital capacities, then, asset managers are still putting a proportionally low level of investment in digital across the industry appear low.

Commenting on the findings, Kenn Taylor, head of wealth at Alpha FMC, said, “Wealth managers are waking up to the importance of digitising their business in order to remain competitive. The wealth management industry has experienced regulatory pressures which have squeezed margins, but, in general, client retention has been high and inflows strong. However, client demands are now changing, and a digitised service is expected rather than a “nice to have.”