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Creating Future-Ready digital wealth management platforms

The wealth management landscape is experiencing a profound shift as digital solutions reimagine how advisors serve their clients and investors manage their wealth. Digital wealth management platforms are at the forefront of this revolution, empowering financial institutions to provide personalized, data-driven advice at scale – all while enhancing client experiences. However, these platforms must evolve to meet rising expectations and embrace next-generation technologies to thrive in the future.

Why Future-Readiness Matters

In traditional wealth management, high-net-worth individuals (HNWIs) can access tailored advice and portfolio management. However, this model is often inaccessible to broader demographics. Digital platforms democratize wealth management, opening access to services historically reserved for an exclusive clientele. The future belongs to platforms that can balance this accessibility with the sophistication and personalization that clients demand.

Maveric Systems understands the nuanced challenges of wealth management, providing a robust foundation for implementing digital solutions. Their 3Cs Advantages of Contextualization, Competence, and Commitment ensure that digital wealth management platforms are designed with a deep understanding of industry dynamics, supported by technical expertise, and aligned with long-term strategic objectives.

Critical Elements of Future-Ready Platforms

Let’s explore what makes a digital wealth management platform truly future proof:

1) Hyper-Personalization:

AI-powered analytics can delve into a client’s financial profile, risk tolerance, and goals to create customized portfolios that are optimized and aligned with individual needs.

2) Holistic Financial View:

Platforms must integrate with a broad range of financial accounts, providing a consolidated view of an investor’s assets, liabilities, and overall financial health.

3) Gamification:

Engaging features like simulations, leaderboards, and educational content can boost financial literacy and make managing wealth an enjoyable experience.

Hybrid Models:

Blended “robo-advisory” models that combine algorithms with human advisor expertise will deliver an optimal mix of efficiency and personalized touch.

Seamless User Experience:

Intuitive interfaces and cross-device compatibility are essential to attract clients seeking accessible, user-friendly wealth management.

The Role of Emerging Technologies

Looking ahead, these technologies are poised to reshape the digital wealth management landscape:

Blockchain:

The potential applications include streamlined asset transfer, automated record-keeping, and secure fractional ownership of high-value assets.

Virtual/Augmented Reality:

These technologies can create immersive, interactive environments for client consultations, portfolio visualizations, and financial education.

Strategic Ways Forward

Here’s how wealth management firms can build future-focused digital platforms:

Focus on the Client Journey:

Map out the ideal customer experience, ensuring that every touchpoint delivers ease of use and meaningful value.

Prioritize Data Security and Transparency:

Handling sensitive financial information demands robust security protocols, ethical data usage, and clear communication to build trust.

Embrace an Agile Mindset: Be prepared to iterate and adapt platforms in response to changing technologies, investor preferences, and market conditions.

Find the Right Partner:

Work with a partner like Maveric Systems, which can deliver the specialized expertise needed to build and maintain a cutting-edge platform that instills client confidence.

Conclusion

The future of wealth management is undoubtedly digital. Platforms that successfully balance personalization, flexibility, and the seamless integration of new technologies will empower investors and advisors. By carefully considering these trends, wealth management firms can harness the power of digital solutions to attract new clients, improve satisfaction, and position themselves as leaders in a competitive and technology-driven landscape.

About Maveric Systems

Established in 2000, Maveric Systems is a niche, domain-led, BankTech specialist, transforming retail, corporate, and wealth management digital ecosystems. Our 2600+ specialists use proven solutions and frameworks to address formidable CXO challenges across regulatory compliance, customer experience, wealth management and CloudDevSecOps.

Our services and competencies across data, digital, core banking and quality engineering helps global and regional banking leaders as well as Fintechs solve next-gen business challenges through emerging technology. Our global presence spans across 3 continents with regional delivery capabilities in Amsterdam, Bengaluru, Chennai, Dallas, Dubai, London, New Jersey, Pune, Riyadh, Singapore and Warsaw. Our inherent banking domain expertise, a customer-intimacy-led delivery model, and differentiated talent with layered competency – deep domain and tech leadership, supported by a culture of ownership, energy, and commitment to customer success, make us the technology partner of choice for our customers.

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ESG & Alternative Assets – Impact on Wealth Management Investment Strategy

Changing Business Environment

The shift in economic policies in the US, UK & the European Union in the post pandemic period, involving high interest rates and tightening liquidity had its impact in the Wealth Management (WM) business too. After more than a decade of sustained growth, global volume of Assets Under Management (AUM) declined for the first time in 2022 by 10%. The declining equity & bond values, and corresponding decline in portfolio values, significantly contributed to this. At the same time, new business flows also declined with the Net Flow Rate of AUM falling to 1.6% in 2022 from 4.4% in the previous year.

Average Client Business Volumes (CBV – average assets & liabilities under management) have also been on a declining trend, registering a drop of 11.7% in 2022, vis-a-vis growth of 12.5% & 6.4% in 2020 & 2021.

Added to this, the US investors have been showing an increasing preference to passive investments – Exchange Traded Funds (ETFs) & other mutual funds – during the last decade. In 2022, when active investments showed a net outflow of US $ 1 trillion, passive investments showed a net increase of US $ 0.5 trillion

To counter these pressures of declining growth, profitability & performance, one of the options available to WM firms is to look at opportunities for diversifying into new offerings with better margins. This also needs to be considered in the backdrop of the evolving customer preference for newer classes of assets viz. ESG compliant assets & alternative assets.

Diversification Into New Asset Classes

What are the opportunities & challenges involved in including ESG & Alternate Assets into a firm’s portfolio of offerings?

1) ESG Compliant Investment:

Environment, Social & Governance (ESG) compliant investing has become a key priority, given increasing social awareness & responsibility. There is also the potential future risk of regulatory non-compliance impact in investing in ESG non-compliant businesses. Some focus areas for ESG investing have been Climate Control, Air & Water Pollution Control, Data Protection & Privacy, and Deforestation.

Significant advances in energy transition to clean energy sources have also opened up new avenues for profitable investment, like Electric Vehicles business, and commodities like lithium, copper, nickel, uranium, etc., used in batteries, and businesses associated with these commodities. Thus, purely from a financial perspective too, ESG investing promises to be a good option with the expected widespread adoption of these technologies.

Research reports indicate that a good majority of the institutional investors are planning to increase their investments in ESG assets and global ESG investing is set to exceed US $ 53 trillion by 2025. About 2/3rds of the HNW investors are reported to consider the ESG score before taking investment decisions, indicating the strong growth potential of ESG investing.

WM firms face the challenge of acquiring capabilities for advising & managing ESG investment portfolios. They require specialized platforms for launching ESG related products & offerings and keeping track of ESG investments. They also need to acquire capabilities for ESG investment opportunities related data collection, analysis, identifying investment opportunities, risk measurement & tracking in terms of ESG performance, and regulatory & client reporting.

2) Alternative Assets:

Alternative assets like Private Equity, Private Credit, Private Real Estate, and Digital assets like Cryptocurrencies, NFTs, and Tokenized Passion assets (Art, Wine, Nature) etc. – are emerging as a preferred investment option. Investors seeking diversification in the UHNI segment and at Family Offices, are looking to increase their allocations in these Alternative Assets. Alternative assets carry additional investment risks & require expertise in understanding the product & the market. But they provide significantly higher returns for investors with deep pockets & a higher risk appetite. They also provide opportunities for increasing income & margins for the WMs. Market study reports indicate that Alternative assets, at US $ 20 trillion, accounted for more than one fifth of the total global AUM in 2022 but contributed half of the total global revenues.

Among alternative assets, Private Equity offerings have been popular in recent times because of the repricing and valuation corrections experienced due to tightening liquidity conditions. Wealth Managers have been cautious in advising clients in digital assets, especially cryptocurrencies, because of the huge fluctuations in value, and uncertain regulatory environment. However, interest in relatively safer digital assets like tokenized real-world assets (RWAs) is showing an uptrend.

Alternative assets are inherently more complex in many dimensions – liquidity, regulation, pricing etc. WM firms need to acquire both the talent in terms of trained advisors who can effectively manage the risks involved, & the technology in terms of trading & custody ecosystems to manage this asset class. Boutique firms specializing in Alternative Assets also pose serious competition to WMs in the conventional asset space, in acquiring market share.

Acquiring ESG & Alternate Assets Investing Capabilities

While diversification into these new asset classes through organic growth is an option, considering the specialized talent and technology platforms required to advise on & manage these asset classes, and time to market, WMs are looking at Mergers & Acquisitions (M&A) as a serious alternative. Both in the US & Europe there is increasing interest in acquiring additional capabilities, customers & markets through M&A. M&A activities had shown significant growth in 2021 & 2022. In terms of actual deals, the number of deals in the US wealth management sector for the 12 months ending May 15, 2023, is higher than the more than 300 deals concluded in 2021.

Some recent examples of M&A with focus on acquiring ESG and Alternative Assets investment capabilities are:

Acquiring ESG & Alternative Assets investment capabilities presents an opportunity to WM firms to grow their business & also avenues for increasing fee income.

Co-authored by Eswaran Swaminathan, and Venkatesh Padmanabhachari

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Leveraging Technology For Wealth Management Operational Efficiency

Profitability Pressures

The average global operating profit margin of Wealth Managers fell by 11.6% between 2020 & 2022. Wealth Management (WM) firms have been feeling the pressure of rising cost of operations, with personnel cost estimated to be a major factor. The pre-tax profit margins of WM firms declined by a little more than 12% between 2020 & 2022. This is in addition to revenue pressures due to contraction in Assets Under Management (AUM) due to macro-economic factors, fee income being impacted by increasing shift to passive investments, especially in the US geography, & competition from fintechs.

A technology transformation initiative with strategic objectives focused on leveraging technology to simplify operations, increase efficiency & reduce costs would be needed to address this.

Process Automation

With the goal of operational cost reduction and profitability improvement, tools for focused point-automation could contribute to larger operational transformation. Some examples of point-automation opportunities are:

1) Robotic Process Automation (RPA):

RPA has emerged as a key option for automation of voluminous manual processes like customer onboarding.

Customer onboarding has been a time-consuming and highly manual process in the Banking industry in general, given the large number of documents to be handled and KYC requirements to be complied with. This has gained focus in the wealth management business too, with businesses expanding to cover the affluent segment customers, increasing the number of customers. OCR is the main technology used for data capture from the physical forms and feeding into the systems. This had a handicap of being able to process only structured data and low success rate in processing handwritten data. Customer onboarding typically involves forms hand filled by the customer & investment manager’s front office staff. This also involves handling a lot of unstructured data in terms of different formats, different kinds of documents depending on the client segment, region, etc.

Improvements in OCR cameras and AI capabilities in terms of Natural Language Processing (NLP) & Machine Learning (ML) have now made it possible to automate customer onboarding to a large extent. Business rules can be defined to handle exceptions in terms of missing documents, information etc. This also comes in handy for audit & due diligence requirements during mergers, etc.

Another use case for RPA based automation is the extraction of data from physical financial statements, market reports etc. for financial analysis, which again has the potential to reduce manual effort & nimprove productivity.

2) Open API Architecture:

Investment managers often have access to a lot of ‘client permissible’ financial data from client systems, like portfolio performance & holding details with other investment managers, gains or losses from other investments or other sources of income, etc . to fine tune investment strategies, tax loss harvesting, etc. WM firms also integrate with external stakeholder systems like embedded service providers.

Adoption of an Open API based architecture helps automate these interfaces and automated processing of data & feeding to transaction systems.

Cognitive Technologies For Improving Productivity:

Predictive AI brings tremendous capability for deep personalization in identifying individual client preferences and tailoring the offerings.

Generative AI is increasingly being used for automating the administrative functions of financial planning – customer communication, market and investment analysis, etc. – for the advisor, helping free up time for improving quality of advice. A notable example of recent initiatives in this space is Tifin.AI, launched jointly by fintech Tifin & J P Morgan. The venture is an innovation platform that will enable fintechs to develop AI powered WM solutions for portfolio insights to advisors, enabling alternative investments, and employee benefits wealth management, based on Tifin.AI’s conversational AI framework.

Some examples AI enabled automation are:

1) Advisor Marketing & Communication:

Solutions based on generative AI software like Chat GPT help advisors deliver effective & highly personalized communications to their clients & prospects, relating to their portfolio and / or financial education. Some examples are:

2) Investment Assistance:

AI powered tools for market analysis & forecasting. Some of the solutions that have emerged in recent times in this space are:

3) AI Powered Robo Advisors:

Robo Advisors traditionally use algorithms to arrive at investment decisions based on a set of parameters like financial goals, risk tolerance etc., to select the right asset. AI enabled Robo Advisors use Machine Learning (ML) to create the best fit for the customer and automate use of customer financial data for tax loss harvesting, an enabler for offering Personal Indexing at scale.

With continuing evolution of digital & cognitive technologies, organisations need to continuously look out for opportunities to leverage them for improving operational efficiency.

Co-authored by Eswaran Swaminathan, and Venkatesh Padmanabhachari

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Personalization of Offerings – The Next Frontier In Wealth Management

Evolution of Customer Experience Personalization

Segmentation of customers & tailoring customer engagement based on segment traits has been in practice for quite some time. However, with advances in technology, today it is possible to capture salient features of every interaction with the client, either in person or through automated channels. Predictive AI tools leverage this data to advise the ‘next best action’ and make the engagement with the customer a highly personalized interaction, rather than a persona-based interaction. With advanced capabilities of transaction platforms, personalization of client experience is also moving on to the next level in terms of customizing products to suit personal preferences, leveraging technology.

This is becoming a differentiator in the Wealth Management (WM) business too. WM has earlier seen high personalization for the Ultra High Networth Individuals (UHNI) & High Networth Individuals (HNI) segments, with a high level of Advisor touch. With the increasing focus on the lower end of the retail segment of the WM business, & individual touch not being an option because of the numbers involved, wealth managers face the challenge of offering a personalized experience to these customers. On the other hand, studies have indicated a high degree of willingness of wealth management customers to share personal data with their wealth managers – even slightly more than their willingness to share personal information with their physician or a health worker – for a more personalized service or user experience. Significantly, the willingness is high among all age segments too. This indicates a huge potential for a more fruitful customer engagement through deep personalization.

Personal / Direct Indexing

Evolution of technology has increased the ability to capture & mine data at the individual level. It has also increased computing power and predictive analytical capabilities to process this data real time. Enabled by all this, personalizing customer experience in terms of product offerings and servicing for all the WM customer segments is gaining traction. Personalization of WM products is taking the form of enabling a larger segment of investors to have customized portfolios, rather than invest in passive products like ETFs or model portfolios. Access to personalized products such as Single Managed Accounts (SMAs) have typically been restricted to UHNIs & HNIs in the Retail segment and Institutional investors. However, advances in terms of next generation product platforms have enabled offering Direct / Personalized Indexing variations of the SMAs, at scale. Unlike traditional SMAs which offer completely customizable portfolios, Direct / Personal Indexing accounts typically offer limited customization within an overarching standard model.

The US has been the main adopter of Direct / Personal Indexing as part of portfolio strategy, which has become very popular among affluent clients. Enablement of trading in fractional shares and increased availability of zero fee trading accounts in the US have been key reasons for the increasing popularity of the product among investors.

AUM under Direct / Personal Indexing portfolios is estimated to have grown more than four-fold from about US $ 100 billion in 2015 to about US $ 450 billion as at the end 2022 & is expected to be a key investment option for investors going ahead. The last few years have seen major players in the WM business like Morgan Stanley, Blackrock, J P Morgan Chase, Vanguard, Franklin Templeton, Charles Schwab, Fidelity etc. move into Direct / Personal Indexing space, reflecting the perception on future growth potential of this product.

Why Personal / Direct Indexing?

Benefits of a Personal Indexing portfolio to a customer are in terms of:

1)Tax Loss Harvesting

The investor is having a profit from other sources or investment with other advisors, and a book loss on one of the stocks in the portfolio. The investor can realize losses on the individual stock, replacing it with a similar stock not forming part of the index on which the portfolio is modelled. The loss can be offset against profit from other sources, reducing tax liability and improving net gains, without a large deviation from the portfolio strategy.

2) Value Based Investing

Investment in an alternate stock, similar in profile to the index stock, but preferred for other criteria like higher ESG compliance score, industry / country exposure, etc.

However, investors opting for Direct / Personal Indexing need to be actively involved in managing their investments, preferably with the help of a professional advisor. The strategy also makes sense only where there are other sources of income, the profits or losses accruing from which can be effectively managed. The WM firms benefit too, in terms of higher fees as compared to managing passive investments and also a stronger customer connect to grow their business.

Approach To Enabling Personal / Direct Indexing

A technology driven product, offering of Direct / Personal indexing product requires WM firms to acquire additional capabilities in terms of specialized technology platforms, besides trained manpower. This would include automated capabilities for advisory, trading, & portfolio management for this product, integration to client systems through digital channels for understanding client’s financial position & identifying tax loss harvesting opportunities, robo advisors capable of advising on tax loss harvesting opportunities & identifying alternate investments, Robotic Process Automation, etc.

WM firms have the option of building these capabilities inhouse or acquiring them inorganically. The last few years have seen multiple M&A deals in the US geography with focus on adding Direct / Personal Indexing product capabilities to their existing portfolio of offerings.

Some examples of acquisition activity with focus on acquiring Personal / Direct Indexing capabilities are:

An example of in-house capability development for Personal / Direct Indexing has been Fidelity’s Solo FidFolio platform.

Continuing evolution of platforms with more & more computing capabilities and technologies like AI, is likely to see further innovations in product personalization in the WM business in future.

Co-authored by Eswaran Swaminathan, and Venkatesh Padmanabhachari

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Why Do You Need a Digital Wealth Management Platform in 2024?

By 2024, digital platforms are projected to manage over 35% of global wealth, signaling a transformative shift in wealth management practices. This statistic underscores the critical importance of digital wealth management platforms for banks aiming to stay competitive and meet the evolving demands of today’s investors. For C-suite executives in the banking sector, leveraging these platforms is not just a strategic move—it’s imperative for capturing growth opportunities and delivering superior client experiences in a digital-first world.

These platforms represent a paradigm shift in managing wealth, offering unprecedented convenience, personalization, and efficiency. For C-suite executives in banks, understanding the strategic importance of these platforms is crucial for capturing growth opportunities and meeting the evolving expectations of affluent clients

The Rise of Digital Expectations

Today’s investors, especially millennials and Gen Z, who are set to inherit significant wealth in the coming decades, demand digital-first experiences. A recent study by Deloitte highlights that over 60% of wealth management clients prefer digital interactions for managing their investments. This shift underscores banks’ need to adopt digital wealth management platforms that offer a seamless, intuitive user experience across all digital touchpoints.

Leading banks such as JPMorgan Chase have recognized this trend, investing heavily in digital platforms that provide comprehensive wealth management solutions. These platforms facilitate online portfolio management and integrate advanced analytics to offer personalized investment advice, setting a new standard for client engagement in the wealth management sector.

Enhanced Personalization through AI and Big Data

The power of artificial intelligence (AI) and big data analytics has transformed wealth management services, enabling hyper-personalized investment strategies that align with individual client goals and risk profiles. Digital wealth management platforms leverage these technologies to analyze vast data, identifying patterns and insights that inform better investment decisions.

Goldman Sachs’ Marcus platform exemplifies this approach, using AI to deliver customized financial advice and tailored investment solutions. This level of personalization enhances client satisfaction and loyalty, driving competitive advantage in the wealth management industry.

Operational Efficiency and Cost Reduction

Digital wealth management platforms offer significant operational efficiencies, automating routine tasks such as account management, compliance checks, and transaction processing. This automation reduces operational costs and allows wealth managers to focus on higher-value activities, such as client relationship building and strategic investment planning.

Citibank’s digital platform, for instance, has streamlined its wealth management operations, achieving a notable reduction in processing times and operational costs. This efficiency improves the bottom line and enhances the client experience by enabling faster, more responsive service.

Expanding Access to Wealth Management Services

Digital platforms democratize wealth management, making it accessible to a broader range of clients, including those with lower investable assets. This inclusivity opens up new market segments for banks, driving growth in the wealth management sector.

For example, Bank of America’s Merrill Edge offers an online wealth management service that targets the mass affluent segment, providing access to high-quality investment advice and financial planning tools. This strategy has attracted new investors, expanding the bank’s client base and fostering long-term loyalty.

Navigating Regulatory Compliance with Ease

Regulatory compliance remains a significant challenge in the wealth management industry. Digital wealth management platforms, equipped with advanced compliance tools, can navigate this complex landscape more effectively. These platforms ensure adherence to regulatory requirements through automated monitoring and reporting, reducing non-compliance risk and associated penalties.

Wells Fargo’s digital wealth management service incorporates robust compliance features, ensuring that all investment advice and transactions meet the latest regulatory standards. This proactive approach to compliance protects the bank and its clients and reinforces trust in the digital platform.

Strategies for the Future

As we look toward the future, several strategies will be essential for banks seeking to maximize the potential of their digital wealth management platforms:

1) Invest in Cutting-Edge Technologies:

Continuous investment in AI, machine learning, and blockchain technology will enhance the personalization, efficiency, and security of digital wealth management services.

2) Focus on User Experience:

Designing intuitive, user-friendly platforms is essential for meeting the digital expectations of today’s investors. This includes offering mobile access, real-time analytics, and integrated communication tools.

3) Expand Wealth Management Offerings:

Developing a comprehensive range of digital wealth management solutions, from robo-advisory services to sophisticated investment tools, will cater to clients’ diverse needs across different wealth segments.

4) Strengthen Cybersecurity Measures:

As wealth management services increasingly move online, prioritizing cybersecurity will be crucial for protecting client data and maintaining trust in digital platforms.

5) Embrace Regulatory Technology (RegTech):

Leveraging RegTech solutions can streamline compliance processes, ensuring that digital wealth management platforms remain aligned with evolving regulatory requirements.

Conclusion

The need for a digital wealth management platform in 2024 is undeniable. These platforms meet modern investors’ digital-first expectations and offer banks significant advantages in terms of personalization, operational efficiency, market accessibility, and regulatory compliance. By embracing digital transformation in wealth management, banks can secure a competitive edge, driving sustainable growth and building stronger client relationships in the digital age.

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