Key takeaways

  • The wealth management sector has principally operated on human-centered client relationships, rapport and trust.
  • A new wave of ‘robo-advisors’ – algorithms that automatically manage funds and asset portfolios – are presenting a challenge.
  • Wealth managers don’t appear to be meeting client expectations of digital sophistication.

Fintech’s transition from obscure portmanteau to household name has already been one of the defining business stories of 2016. But amidst the ongoing efforts of these scrappy startups to reshape the financial services industry, many sub-sectors still remain sheltered from the storm.

One small but extremely lucrative offshoot – the micro-world of wealth management – has kept fairly insulated from fintech’s ongoing disruption, chiefly relying on existing client relationships and human-centric operations to maintain its bottom line.

But that may soon change. As a new report from PwC reveals, digital platforms are gaining ground, offering automated algorithm-based ‘robo advice’ that cuts out the middleman. Indeed, wealth management’s status as a secure enclave from fintech may soon be coming to an end.

A new perspective
of wealth

Released last week by PwC’s Strategy&, Sink or swim: why wealth management can’t afford to miss the digital wave has revealed a fundamental disconnect between wealth management companies and the clients they serve.

Drawing from both industry interviews and global survey insights of 1,000 high net worth individuals (HNWIs), the report sought to align the prevailing attitudes towards digital technology among the wealthy with the degree of innovation on offer from the firms that manage their assets.

In the process, it painted an illuminating picture of the well-to-do, one that reveals them as digitally-savvy, forward-thinking, and open to incorporating cutting-edge digital technology into their wealth management practices.

Technology habits
of the rich and savvy

Throughout North America, Europe and the Asia Pacific, wealthy individuals across all age ranges possess uniformly high levels of digital literacy. An overwhelming 85% of HNWIs use more than three digital devices, placing the world’s wealthy among the most connected of digital citizens.

Putting these devices to good use, more than two thirds of HNWIs engage in online and mobile banking, while 40% use digital services to keep an eye on their portfolios or to monitor investment markets. Overall, a near-unanimous 98% accessed the internet or smartphone apps on a daily basis.

Not surprisingly, younger HNWIs were more avid technology users than their older counterparts. A significant three quarters of those under 45 said they were confident and enthusiastic about technology, with two-thirds open to trading their personal data to tailor digital services to their needs. By comparison, nearly 60% of older HNWIs were negative about sharing their personal data in such a way.


wealth management technology

breeds dissonance

It is not a big leap to envision the world’s wealthy as keen technophiles. What is surprising, however, is how wealth management companies haven’t kept pace with the enthusiasm of their clients.

It seems the wealth management industry has been slow to integrate new digital services. Only a minority of firms have implemented automation or digitisation to their back office. The wider sector, meanwhile, mainly sees technology as a means to streamline administration tasks.

Regarding other digital services, just a quarter of wealth managers provide digital channels to their client base beyond phone and email. Only one in ten uses social media to engage clients, and many are only now beginning to invest in web portals or simple mobile apps.

This disconnect has led to a form of technological cognitive dissonance. During the interview process, several wealth management firms rated themselves ‘digitally sophisticated’, despite only offering clients little more than a website.

wealth management technology digital threats

Nothing gold
can stay

The consequences of wealth management’s failure to adopt new technologies can already be seen when clients are asked to rate the digital performance of their firms and advisors.

More than 50% of all HNWIs thought it important that their financial advisors or wealth managers offered a strong suite of digital services, a figure that rises to almost two-thirds among younger HNWIs and those based in the Asia Pacific region. Yet, when asked to assess what they value most about their current wealth managers, HNWIs ranked technical capabilities and digital offerings a lowly eight out of 11 options.

Ultimately, only 39% of HNWIs said they were likely to recommend their current wealth manager, a figure that falls to less than a quarter among clients with portfolios of over US$10 million.

Even more alarming for wealth managers: a third of HNWIs who do not currently use ‘robo services’ indicated they would consider using them in the future, a figure that rises to almost half among HNWIs under 45.

leads the way

For an example of what a well-executed robo-advisor can achieve, look no further than China’s leading online money market fund Yu’E Bao. Owned by e-commerce titan Alibaba, Yu’E Bao’s functionalities include fund management, online shopping, fee-free money transfers – even payment of mortgages and utility bills.

A runaway success that is helping to stem the flow of capital out of China, Yu’E Bao has a user-base of 260 million and over US$90 billion in assets. What is most remarkable, however, is how most of its users are under 30.

Betting your bottom dollar
on digital

The wealthy’s general enthusiasm for digital technology is not seamless: concerns still prevail around privacy and security. Additionally, clients ranked rapport as the second-most valued aspect of a wealth manager after return on investment, indicating future room in the market for wealth management firms.

At the same time, however, clients are constantly looking ahead for the next big thing, meaning they’re increasingly interested in robo-advisors and digital services such as online portfolio management.

By avoiding technological innovation in favour of human-centered operations, wealth management firms are fast approaching an impasse. To prepare for these obstacles, they might profit from adopting a similar enthusiasm for technology as those who entrust them with their fortunes.