Wealth Managers need to ‘democratise’ their services to thrive in the Hyper-Personalised, Digital Banking Era, warns Avaloq

Wealth managers and private banks need to ‘democratize’ their service and product offerings to a wider audience of affluent clients to compete and grow in the new hyper-digital world, warns Avaloq.

If firms do not democratise their proposition, they risk losing market share and failing to capitalise on the profound, digital-led transformation of the sector. The finding comes from global tech leader Avaloq in a major new sector report, ‘Democratisation of Wealth Management – a Unique Business Opportunity’.

According to the report, the wealth management sector faces deep structural margin and transformation pressures, rooted in a mix of rapidly changing client demands, tighter regulations and new, fiercer competition from a combination of FinTechs, neo-banks and ‘big tech’ all trying to gain a foothold in the market. For Avaloq, these challenges can be traced back to four megatrends: wealth shifts, socio-behavioural changes, technological evolution and economic & monetary turmoil.

Martin Greweldinger, Group Chief Product Officer, Avaloq, said: “A new generation of tech-savvy, wealthy clients, with a high demand for seamless digital services, is behind the unstoppable nature of these megatrends. But rather than be an obstacle to growth, we see a significant opportunity for wealth managers that bring high-end wealth management services to the affluent segment. This democratisation requires wealth managers to deliver personalised advice at scale while addressing the specific needs of this new affluent clientele through a balance of industrialisation, innovation and individualisation.”

“Global personal wealth is forecast to grow by a further 4.5% by 2024. Even the more pessimistic models, which account for post-Covid-19 impacts, predict a rise in global wealth. The affluent segment is predicted to accumulate further wealth and grow in numbers. This is where the market provides a new growth opportunity, particularly for digital wealth advisory,” Greweldinger continued.

Avaloq warns that ‘plain-vanilla’ value propositions are no longer acceptable for a diverse clientele that ranges from an evolving, tech-savvy (U)HNWI segment to affluent high-earning millennials. Used to superior, digital-first experiences from ‘big techs’, these clients take bespoke, holistic, and impactful advice for granted. To satisfy their demand for hyper-personalised services, traditional financial data needs to be combined with datapoints like client lifegoals. Conversational banking, portfolio modelling tools, behaviour-based risk assessments and virtual assistants have become the key tools needed to support such value propositions.

In its report, Avaloq lists a five-step agenda, balancing industrialisation, innovation and individualisation efforts to successfully democratise wealth management:

1. Embrace the cloud. Cloud technology drives efficiency, scalability, and resilience. Compared to internal IT infrastructures, cloud-based platforms ensure robustness of the current functional scope and provide institutions with straight access to novel capabilities. By saving costs and reaching higher efficiency levels, it allows banks to focus on differentiation.

2. Embrace ecosystem API models. World-class user experience, smart advice tools, AI-driven recommendation engines, and security tokenisation are some of the capabilities required to excel in the future – a task which no company can do alone. A prerequisite is an open API-based platform which allows integration with partner solutions at pace and with reduced risk.

3. Leverage technology for profound financial advice. New advisory tools can ease the burden of providing bespoke advice to large pools of clients, while reducing inherent biases in human-driven activities. New technology enablers are a true source of innovative products and business models and allow for bespoke, holistic and impactful advice, at scale.

4. Harness data to gain insights. Data insights are crucial for enabling financial institutions to fully leverage the data treasury from clients and across the value chain. Data-driven techniques allow for insight generation, effectively augmenting the skills of professionals, helping them, for example, recalibrate product offerings and increase retention.

5. Reinvent the customer journey. Digital requirements and the desire for personal advice will force banks to rethink all activities, by adopting a frictionless, persona-tailored client-journey approach. Applying a customer-centric approach is essential for enabling hyper-personalised interactions and enhanced individualisation.

“Wealth management is a highly profitable, very personalised business, where relationship and trust remain the key to success. But, as for many industries before, we believe that wealth management is at the brink of an industrialisation. Technological innovations will enable wealth managers to serve a growing affluent segment efficiently, with a personalised service so far reserved only for (U)HNW individuals. For us, this will define the leading firms of the sector over the next decade,” said Greweldinger.