Third Financial Software explores how it sees technology as giving wealth managers the ability to keep and retain clients at a time of generational challenges.

The following item is a guest article from Ricky Ali, who is managing director, Third Financial Software. The views of the author aren’t necessarily shared by the editors of this news service but they are pleased to share these insights and invite readers to respond. Email tom.burroughes@wealthbriefing.com

At a time when the Financial Conduct Authority, the UK regulator, is receiving multiple new applications every week, it is tough to stand out in such a buoyant market. The industry is changing and technology is playing a key role in the arrival of a new type of wealth manager. A technologically advanced, performance conscious, cost aware, highly communicative manager. Technology provides a competitive advantage say 100 per cent of firms. 

Research shows that clients will look at investment performance, fees and service as the three most important factors when selecting a wealth manager. This results in margins continuing to be squeezed to retain competitiveness and thus, opportunities sought to reduce costs and continually improve service.

Technology allows firms to be adaptable with their service offerings and to make sufficient efficiencies to continually drive down costs. 

Integrated portfolio management technology solutions provide a foundation to allow firms to realise gains in efficiencies and to service their clients with high quality reporting, digital interaction, advanced relationship management tools and the ability to explore new areas and to offer new products and services. With one in three clients accessing their wealth manager’s mobile app on a weekly basis, it really has become the new norm. 

The top feature expected from a digital offering is a portfolio valuation; closely followed by areas such as investment performance, market commentary and direct communication with their investment manager. Some 83 per cent of wealth management firms say efficient IT and operations will help gain and retain clients. 
 
Keeping pace with regulatory change, compliance and data security can be timely and expensive. Firms risk serious reputational damage if they fail to remain compliant, which will impact both retaining and winning new business. The impending MiFID II directive requires firms to engage more with their clients by increasing the frequency of client reporting, disclosing charges on funds and research to an even more granular level than the Retail Distribution Review programme of UK reforms enforced and pro-actively informing clients of shifts in depreciation of portfolio values. Firms also have the challenge of ensuring that corporate clients, charities and certain types of trusts pay an additional annual fee for a legal entity Identifier to ensure accurate transaction reporting to the FCA.

However, recent research suggests close to 40 per cent of managers are not prepared for the “unbundling” of research costs, according to the Electronic Research Interchange.

Although understanding of the new legislation peaks in larger firms, over one quarter of all firms do not have the technology or infrastructure in place for compliance, with 73 per cent of firms unaware of penalties of up to €5 million (around $5.3 million) or 10 per cent of annual turnover for non-compliance.

Technology can help. Automating areas such as client report pack production, periodic review tools, pre and post trade compliance, portfolio depreciation monitoring and transaction reporting can save a significant amount of effort and allow for a more effective use of time to add value to the service being provided. Taking advantage of a securely managed hosted offering as part of an integrated solution can also reduce risk and allow firms to focus on their core business without needing to build up teams and knowledge in ancillary areas.

In terms of retaining and winning new business, the next generation are also more technology focused than ever. In a 24-hour connected society, people expect to be able to access services anytime, anywhere. If the bank you use for ordinary retail facilities didn’t have mobile banking then you’ve probably already started to look for another bank. Whether we like it or not, this industry is heading in the same direction. 

People expect to see an aggregation of their wealth and to access products & services whenever it is convenient, not just at an annual meeting. With 38 per cent of 18-49 year olds indicating that significant improvements are required to their wealth manager’s digital offering, it is increasingly obvious that there is still a long way to go before the younger generation are content with the technology on offer. 
 
Digital engagement is becoming paramount throughout generations. In fact, 87 per cent of those aged 50+ would use a mobile application if it were available. There is an ever-increasing pressure for wealth managers to offer digital facilities to retain clients and win new business. There has been a flood of digital entrants into the UK, with various types of offerings looking to take advantage of the “digital rush”. The market has understandably reacted and following the initial confusion on what is meant by terms such as robo-guidance, robo-advice, online discretionary etc. it appears that firms are slowly starting to find their way. 

Many are using digital technology to enhance and evolve their current offerings as opposed to feeling the need for it to be completely revolutionary to what they already offer. Having a fully integrated digital offering with a front to back office system provides the flexibility to enhance existing services and also retain the option to move into new areas. 
 
Other areas that can inhibit growth include inefficient operational processes. Achieving operating scalability to support both organic growth from existing clients and strategic growth from new business can be difficult without the right tools.
 
Modern systems can take advantage of the latest developments in technology to ensure adaptability and allow firms to work smarter. There is currently a large-scale move away from traditional legacy systems that have been bolted onto over the decades and pushed & pulled in ways that they were not designed for, to try and achieve what newer systems can do with far less effort. This move away from legacy systems comes at a time when over 80 per cent of firms are reporting that the IT department’s biggest challenge is poor legacy technology not providing scale. 

Computer programming in education is becoming increasingly popular. Newer software offerings gain from having large pools of quality resource to drive their products forward, whilst older technologies are becoming increasingly difficult to support with dwindling levels of expertise and provision available for such technology stacks.
                                                            
A single golden source of information that is accessible from anywhere can make all the difference when it comes to winning new business. Technology can provide tools to maintain a rich set of data in order to aid in managing relationships effectively, run successful marketing campaigns and develop the sales pipeline. Having information on existing clients and relationships readily available with easy access will also allow for effective communication to retain business and to spot opportunities. 
 
A recent study suggested that only one in three of the next generation use the same wealth management firm as their parents, highlighting the shift in requirements of wealthy clients over the past decade. This shift has no doubt come as a result of the improved technology available to wealth managers, which allows them to enhance their offering and standout from the crowd when it comes to the three key things investors looks for; performance, cost and service.