Emerging Models of Digital Wealth Advisory


Emerging Models of Digital Wealth Advisory

A joint discussion paper from Deloitte and Avaloq

Many wealth managers are nowadays investing in innovative digital technology across their operations. However, this rush to technology does not always deliver the intended outcomes. Like many major industrial shifts, while the impetus for change may well be derived from technological innovation, understanding how to benefit from it is not so straight forward. The threats, pressures to achieve, and need to keep up with innovation in the digital field are continually evolving. Wealth managers and private banks are finding that they need to be strategically astute about how they deploy technology. They are beginning to appreciate that digitisation is not only about the technology itself, but that there are also implications for banking culture as well.

Key changes in the wealth management industry

Digital transformation of the wealth management industry is not a pure technological challenge. As the likelihood of returning to pre-crisis revenue margins is remote, wealth managers need to reinvent their business model to adapt to existing clients’ changing needs and to capture new clients while reducing operating expenses on a relative basis. In this respect, client proposition needs to be redefined and that this can be achieved by developing digital capabilities, that will serve Pull and Push strategies that will need to be applied depending on the objectives to reach.

Technology usage: Defensive vs Offensive

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What is the impact of digital technology on the industry?

While there are a wide range of technological trends potentially impacting the wealth advisory business model, ranging from blockchain to the internet-of-things, three that are most pertinent are:

  • The advent of the robo-advisor
  • The heavy investment in fintechs
  • The open banking movement

Reinventing the advisory model

As wealth managers and private banks enact their digitisation strategies, a number of new models for advisory business can be seen to emerge. The challenge lies in the ability to build such capabilities in a way that still enables agility in delivering client value, while delivering on cost efficiency at the same time.

It also needs to take into account existing and upcoming regulations to turn them into a competitive advantage through the use of technology.

Robo advisory could be one example of relevant technology but the banks often wonder howthey should proceed for providing so-called robo-advisory services.

According to Deloitte’s study on robo-advisory, there are three main methods of building such a capability:

  • Build in-house from scratch or on current platforms
  • Partner with a fintech
  • Buy a third party provider with its technology and client base

In short, a collaborative approach with external financial technology companies is likely to be necessary and beneficial for the incumbents willing to gain more digital maturity and reduce time to market for innovative solutions. While building on the existing integrated banking platforms may deliver a more holistic client experience and increased level of automation. Those choices will need to be done based on current organisation maturity, existing digital capabilities and IT architecture agility.

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