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Act fast in the face of transformation in the Island’s wealth management sector

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Are we facing a wealth management revolution?

Chris Corlett is head of business development with MBS, a technology services business with over 300 clients in 40 countries, including many in Jersey. He writes:

The wealth management sector is critical to Jersey’s economy. It includes trust and company service providers, family offices, specialist funds and other niche businesses serving the world’s wealthy. It is also changing faster than ever before. Why?

There are a range of reasons, but two stand out for me: the changing expectations of clients and growing regulatory requirements.

Client expectations are changing because the clients themselves are changing.

We are experiencing the largest ever transfer of wealth to a new generation with very different views and desires from their parents. Ninety per cent of heirs are changing advisers, according to Deloitte. Analysis by Forbes Insights found the new generation want ‘personalised service enhanced by technology’.

There is rapid growth in the number of wealthy (often referred to as High Net Worth Individuals or HNWIs) and nearly-wealthy individuals (often called Mass Affluent) worldwide, notably in Asia. Forbes found over 60% of wealth managers see the Mass Affluent segment as highly important to their future growth: ‘today’s Mass Affluent investors represent tomorrow’s HNWIs’. The top challenge wealth managers identified was matching the speed with which the new Mass Affluent demand service. The most important factor to winning business in this segment that they identified is technology.

Several wealth managers tell me that face-to-face contact with clients is still paramount. Yet when EY surveyed wealthy individuals in 2019, they found 50% preferred contact via smartphone applications and 10% by face to face. That survey pre-dates the current crisis, which I suspect will have pushed this trend even further. Yet few wealth managers have mobile IT solutions in place.

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Regulatory change is here to stay

Many leaders in the sector complain that it has been beset by a stream of regulatory changes that place an ever-higher cost burden on their businesses. Don’t expect that to end any time soon. Rather, businesses will need to change how they achieve rapid, demonstrable, affordable, flexible compliance.

Digital transformation is essential to addressing both trends

Historically processes were highly paper-based. As a result, they were slow, costly to operate, error prone, hard to show compliance affordably as well as costly and slow to change.

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This has real business impact:

  • Analysis has shown that relationship managers, who are key to serving clients, spend about half their time on paperwork; remove that burden and you greatly increase your sales capacity at little or no cost.
  • Of the information captured from clients, typically 60 to 70% is held in a form that is not readily accessible, ie it is wasted. Research suggests that data will grow by a multiple of 4.5 over the next two years. That is unsustainable – something must change.
  • Processes can be so hard to change that for many businesses the cost of meeting regulatory changes consumes over 60% of their change budget, leaving little to fund real improvements for clients and the business itself.

This is not just about the customer’s viewpoint. It is also about the employee’s. Almost all employers are struggling to gain the skilled, IT-literate workers they need. All the wealth managers I speak to say the fight for talent is as bad as it has ever been and complain of lack of IT skills. Yet many do little to appeal to younger, tech-savvy workers who find paper-based, bureaucratic processes a huge turn-off.

Technology is crucial to addressing this. Digital transformation is a phrase some people love to hate, but it is accurate: technology is necessary to transform your processes and performance in response to these strategic challenges. Plus the right technology can greatly add to the value of your business, both as a buyer and a seller. A 2019 EY survey found 81% of wealth managers stated technological innovation will have a fundamental or significant influence on the businesses they buy – or sell.

Do not despair – technology really can help

Many wealth managers will say they have invested heavily in technology, principally in product administration and accounting systems. These will continue to be crucial. They are also evolving to build better capabilities to integrate with other systems. For example, Microgen and Touchstone merged to become TrustQuay, which is deepening its links with other solution providers to help wealth managers achieve the process automation they need to accelerate client service, cut costs and improve compliance.

I will pick out two types of system that really help.

Leading Enterprise Content Management (ECM) systems such as Laserfiche, (which is used by over 30 of our wealth management clients) can enable you to store all documents, files, emails, voice and video so it is secure and accessible anywhere by computer, tablet and phone. ECM systems can then seamlessly integrate with your existing systems and bring digital workplace tools (such as Workflow, Robotic Process Automation and Machine Learning) to automate your business processes, from on-boarding a new client via a secure portal to back-office processes including finance and human resources.

ECM systems can also greatly simplify regulatory compliance, including GDPR, by automatically capturing audit trails of activities and providing highly flexible reporting, including for internal, regulatory and audit purposes.

Good ECM systems can also integrate with the latest point solutions to automate specific tasks such as e-signatures and e-ID (electronic signatures and client identification and verification).

DocuSign is a great example: it is the world’s leading e-signatures system with over 60% of the market. Independent research from Forrester shows DocuSign can deliver a payback period of less than 6 months and a return on investment of over 120%. The returns in the wealth management sector – where clients and intermediaries can be in different jurisdictions, with very substantial costs and delays in couriering documents all over the world – can be far greater.

e-ID solutions can deliver even greater benefits. For example, IDnow is the largest provider of ID services in Europe. Its patented solution includes Artificial Intelligence, Machine Learning and exceptional access to over 190 national identity databases, as well as specially trained staff. As a result, its video-ID service can achieve a quality and speed of due diligence that few businesses could match. So buying e-ID rather than doing it all in-house can deliver big benefits, but it requires careful consideration and execution.

Maitland Group confirms these technologies can deliver substantial benefits: ‘A lot of our documents require multiple signatures and the majority of the people signing the documents are in multiple countries. Getting documents signed, especially with multiple signatures, could historically take up to three weeks. Since implementing Laserfiche and DocuSign most documents are signed within a day and sometimes within an hour, enabling far quicker processing times and ultimately better customer service.’

This need to invest in technology helps to explain the continued consolidation within the wealth sector. Bigger firms can achieve economies of scale that make it easier to build the necessary IT and change management capabilities.

However, smaller wealth managers with a clear busines and IT strategy can still compete. Many systems are now charged based on usage, making them accessible for all.

The changes outlined are certainly not unique to the wealth management sector as the same underlying trends are affecting many businesses. Given this, my recommendation is to avoid delay. In short: think big, start small, act fast – and

start now.

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