Category: Blog

The pandemic stimulated a big shift towards digital banking and wealth management turning 2022 into the wealth management industry’s disastrous year amid a major war in Europe, rolling lockdowns in China, double-digit inflation, high rise in interest rates around the world, etc. Wealth management is becoming more consumer-friendly, affordable, and accessible than ever before. As the serviceable demographic of the wealth management industry changes to millenials who are coming of age in terms of their investing prime, there is a need to shift the methods and technologies in the space to accommodate their tastes and preferences.

Tech-savvy millennial customers have come to expect on-demand access to their portfolio data as well as 24X7 monitoring and customer support. Forward-looking wealth management firms are adopting Data science, Robo advisory, and Portfolio analytics solutions to power their management and operations strategy in order to tailor them to suit this customer demographic.

However, there’s a lot of ambiguity and misinformation out there on what these technologies can and cannot do. This is leading to fearmongering amongst the Wealth management community that Human Advisors are slowly being phased out in favor of their Robo/Tech counterparts. Here we’ve tried to clear the air on what Investment Technology is capable of and what lies outside its scope.

Robo Advisors:

Fiction: Robo advisors are here to replace human Wealth Advisors.
Fact: Robo advisors offer a customized investment strategy and recommendations based on data gathered on investor’s risk tolerance, objectives, time horizon, and other background demographics. Although Robo Advisors are an extremely powerful tool, they have their limitations, especially in the case of individuals with complicated investment goals such as estate planning, taking care of dependents, or saving for illnesses. Robo advisors can assist Wealth Managers or Investors as part of a holistic investment plan, however, they are not a one size fits all solution.

Wealth Management Platforms:

Fiction: Wealth Management platforms are not used by High Networth (HNI) Clients.
Fact: HNI Clients expect exceptional customer service and availability 24X7. Online wealth management platforms help them monitor their portfolios and finances on the go and help them have more insightful conversations with their wealth managers. HNI clients, in fact, prefer a ‘High touch’ approach, a blend of Human and Robo capabilities. Technology gives them instant access and insights into their finances and Wealth advisors can step in when they face a particularly complex problem or financial goal. This ‘High touch’ approach helps free up advisor time to cement client relationships and focus on strategy rather than daily operations.

Analytic Solutions :

Fiction: Portfolio analytics platforms make your decisions for you.
Fact: The portfolio analytics platforms of today crunch through Terabytes of data from international data sources such as Reuters, Bloomberg, and Moneycontrol among others. They provide recommendations based on your portfolio data and risk tolerance, however, the final decision is left to the Wealth Manager or Investor.

About Valuefy:

Valuefy is a premier investment technology lab with cutting-edge solutions serving the leading financial institutions across the globe. Its Wealth Management Solutions has been enabling Wealth Managers globally by providing production–grade investment technology for an uberized customer experience. Reach out to us!

A 2018 report by data firm Wealth X that analyzes the state of Ultra Wealthy Individuals ( $30m or more in net worth) brought to light that Asia posted the greatest jump in the number of Ultra HNIs at 18.5% while their net wealth grew by 26.7% almost twice the rate seen in the United States.

This rise in Asian affluence has captured the popular imagination, the chart-topping success of the Blockbuster Jon Chu film ‘Crazy Rich Asians’ depicting the ultra luxurious lives of Asian billionaire heirs and heiresses is a prime example.

However, amidst the hullabaloo raised by the Ultra HNI& HNI tycoons, a growing segment of ‘Mass Affluent’ Asians with comparatively modest incomes of US$100,000 to US$1,000,000 are the ones prompting a gold rush in the Wealth Management Industry.

What’s the market opportunity?

Asia holds the second largest concentration of private wealth in the world with $47.3 Trillion in private wealth compared to North America’s $50.8 Trillion. Over the next 5 years, this is projected to hit $70.7 Trillion speeding past North America to claim the number one spot.

What are the challenges?

Despite the growing wealth of the region, the Wealth Management industry has captured only 20% of the market. This is because traditional Wealth Management firms have focussed on the growth of Ultra HNIs at the cost of the ‘Mass Affluent’ the fastest growing wealth segment in Asia at a CAGR of 9.8%.

However, the conventional approaches used in Western markets are failing in Asia due to the unique Asian cultural milieu of tech savviness, inherent distrust of external advice and an unwillingness to pay for financial advice.

Hence a tailored strategy needs to be developed keeping the millennial ‘Mass Affluent’ Asian in mind to tackle this market effectively.

Wealth Management platforms can help capture this segment

The Asian Mass Affluent who have mostly made their money in the tech and finance industries are very tech savvy. Catering to them requires a tech-enabled high touch approach that blends the best of human talent with cutting edge technology. Using new age Wealth Management platforms and leveraging Artificial Intelligence and Robo advisory driven insights can help differentiate your wealth management practice in the eyes of the customer.

How can Wealth Management platforms drive value for tech-savvy clients?

• Empower customers with 24×7 monitoring:

Clients who are tech savvy prefer to be on top of their portfolio and be more involved in active management. Delivering a custom app experience that allows them to monitor their portfolio and reach out to wealth managers instantly can help customers feel more empowered. Wealth Management platforms with Client and Advisor apps help both stakeholders stay on the same page at all time.

• Drive trust with Analytics, and AI driven advisory:

The Asian cultural milieu values empirical evidence and scientific approaches especially towards investing. Wealth Management platforms that can back up investment recommendations with detailed analytics and AI driven insights will help create trust towards the Wealth Manager and temper tendencies to make erratic and irresponsible investing decisions.

• Offer premium customer service:

Wealth platforms can help managers automate up to 60% of their daily operational tasks including Client on-boarding, Portfolio construction, Portfolio monitoring, and Rebalancing. This gives Wealth Managers the time to reach out, build relationships and maintain constant contact with demanding customers.

• High value for money:

The Mass Affluent tend to be more frugal with their investments as they have mostly self-made fortunes. They tend to look for value when shopping for luxury goods or for services. Wealth Platforms can help bring down costs of serving each client and this benefit can partially be passed on to the customer to give them better value for their money.

Traditional Wealth Management firms can vastly benefit from partnering with new Fintech kids on the block to digitize their offerings. A well-implemented partnership can bring with it a host of benefits including uplift in the bottom line, saved time, saved costs and an increase in customer penetration.

As the wealth management landscape is undergoing a sea change, with people choosing to go the DIY route through Robo Advisors and Passive investing, it has become imperative for traditional firms to make the switch to digital. If you’re thinking of digitizing your practice here’s a quick 5 step guide to consider before placing your bets.

Clearly establish the goals of digitization:

What is the problem statement and what exactly are you looking to acheive. Are you looking to save time spent on operational tasks? Are you looking to increase efficiency and client loads per relationship manager? Are you looking to reduce costs? Are you looking at improving customer satisfaction with digital offerings? Benchmarking this data before and after the exercise will help you measure your degree of success.

Consider the ripple effects on people and processes:

For your digitization strategy to be successful, it must consider the impact of transformation on company culture and on people and process. Are your wealth managers ready to adopt technology? Are they willing to take time to unlearn existing practices? It’s essential that transformation doesn’t result in parallel processes due to a lack of trust or usability of the adopted tools.

Assess and prioritize:

Don’t bite off more than you can chew, prioritize your goals and identify short, medium, and long term milestones. Eg a 5% improvement in manager productivity in the first 6 months or a 3% reduction in costs in the first month. Proper prioritization by key stakeholders will trickle down to the rest of the team and reduce apprehensions about the transformation.

Develop a clear timeline:

Building up your digital capabilities isn’t a one-time thing. Allocating the resources, getting the organization on board, outlining the investments is a continuous process. It helps to have a clear horizon of when each step needs to be taken. Develop a high-level plan and define the key architecture of changes to be implemented. Some key questions should be answered in consensus to avoid miscommunications later on. Should you partner with a Fintech or develop an in-house solution?  Should the focus be on the web or on the app? Should there be a one time launch or an iterative process? Should you buy a readymade solution or develop a customized one?

Make the move:

Once you’ve made the decision to digitize your practice, developed a consensus and defined your roadmap, it is essential to act to get the ball rolling. Large organizations especially those in traditional sectors such as Wealth Management and Banking can be notoriously prone to inertia and resistant to change. Once you have your key stakeholders on board, make your first step soon to avoid digitization plans being shifted to the next quarter to accommodate immediate concerns and short term goals.

Technologies like Big data and Artificial Intelligence are being adopted to create a high touch ecosystem in the Wealth Management space. Forward-looking wealth management firms are turning to Robo advisors to help churn massive amounts of unstructured data into recommendations, insights, and decisions to aid their Wealth Management Professionals.

Here are some of the key aspects being revolutionized by Artificial Intelligence.

• Customer service

Wealth Management firms are slowly catching up to the advances in Artificial Intelligence and Big data as they become vital differentiators in the battle to provide exceptional value and customer service. Wealth Management platforms are now capable of automating Customer KYC, Multi-asset integration, Account aggregation and

Performance attribution to give the customer all the information they need in one place. The simplified user experience of these platforms is freeing up advisor time to focus on investment strategy and giving an engaging customer experience to clients.

• Decision making and goal setting

Robo-advisors can now recommend tailor-made portfolio advice based on sophisticated portfolio intelligence and analytics. These data-driven insights help Wealth Managers chart the right course and temper instinct driven investing.

• Accounting precision

Wealth manager can leverage Robo Advisors to get rid of tedious and repetitive tasks. The ability of Robo-advisors to crunch terabytes of portfolio data helps improve the reliability of predictions and helps minimize human error.

• Omnichannel monitoring

Wealth Management platforms of today are slowly beginning to cater to mobile first audiences. Major functionalities such as Portfolio construction, Monitoring, Reporting, Analytics, and Rebalancing can now easily be accessed on the go.

Looking to transform your Wealth Management practice? – Get in touch

The Human Wealth Manager is a very precious resource, and often extremely expensive,  with median salaries of well over 100K (Census data collected by WSJ). In such a scenario private wealth management firms often tend to overwork and spread thin their accounts, in some firms, it was found that Wealth managers were juggling between 200 to 500 portfolios in a work week. This led to many wealth managers working well over 80 – 100 hour work weeks.

However pulling such long work hours often mean that Wealth Managers often become less efficient and often develop depression, anxiety, immune disorders that affect their quality of life, efficiency, and their decision-making capabilities.

How can Artificial Intelligence make a difference?

AI is helping Wealth Management firms optimize their Wealth Management process and reduce the strain on Human Wealth managers by automating a lot of the research, onboarding, goal setting, and operations that goes into wealth management.

Leading Investment technology firms such as Valuefy are creating sophisticated Wealth Management platforms and Robo advisory services that crunch through Terabytes of data in seconds compared to hours of manual research. Big data analysis is helping Wealth Management professionals create better models and strategies for their firms by factoring in more strategies and variables and thereby tempering the tendency to make biased decisions.

These platforms are also helping Human Managers organize their portfolio lifecycle better by leveraging real time insights. This helps Wealth Managers at large firms managing 200+ portfolios a day dedicate their attention to macro and micro trends and take corrective action or rebalancing if necessary.

Using these big data platforms can also help Wealth Managers have data driven and nuanced conversations with their clients. It can help clients feel at ease and assuaged to have hard data backing up their investment strategies. Overall it helps Wealth Managers to be proactive and respond to trends quickly, leaving customers feeling more valued.

The major benefit, however, is that it helps Wealth Managers free up their time by almost 20%. This translates to almost a whole day a week, which can be better utilised to reevaluate strategies, cement relationships, prospecting and more rather than day to day portfolio management operations.

To learn more about how AI can help your firm reach peak efficiency, set up a free consultation today – Set up a Demo

Are human advisors being edged out by the Robo Advisory revolution? That is the question that’s troubling the wealth management industry moving into 2019. The future of wealth management seems to be in a state of flux, human advisors are apprehensive about the developments in Robo advisory, they aren’t sure whether Robo advisors are here to help them, supplement them or replace them entirely.

The answers aren’t clear at this point, however, Roboadvisory is forcing the industry to take notice and modernize to stay relevant. Roboadvisory is taking the wealth management space by storm, catering to millennials, these firms are mobile first, customer friendly, and transparent. They are a vast improvement on the opaque and inaccessible fashion in which traditional wealth management firms operate.

Millennial investors are curious about how their money is being invested, and Roboadvisory is helping them gain control and confidence over their finances. Investors are increasingly choosing Robo advisors as they are more accessible (Most platforms have web and mobile apps), more streamlined, and offer more value, especially to those with uncomplicated financial goals and needs.

What does this mean for traditional wealth management firms?

Traditional wealth management firms need to embrace the changes that are taking hold of the industry and adapt if they want to survive. Artificial Intelligence is helping temper the decision-making process, helping investors derisk their investment strategy in favour of a more holistic and data-driven approach. AI insights that are culled out from terabytes of data can help both professional advisors as well as laymen investors, make better decisions.

It may not be the solution for investors with complex needs and larger estates, but it can help those who cannot afford the high fees charged by traditional wealth management firms (around 1%-2% of AUM). Also, the low minimum asset requirements on Roboadvisory platforms (around $1000 – $10,000) as compared to high requirements of traditional firms ($100,000) make Robo platforms a lucrative option for beginners.

Robo-advisory in their current form is catering largely to DIY investors and supplementing traditional advisors, leading to a High Touch approach (Mix of tech and human advisory). Adaptable wealth management firms stand to benefit from this expansion of their customer universe, they can bolster their bottom line from being able to serve both small-scale investors as well as High Networth Individuals with complicated investment goals.

Integrating Roboadvisory into their roster of services is helping banks and wealth management firms free up valuable advisor time. Advisor portals and apps are helping clients gain more transparency on the state of their portfolios, in turn helping clients and human advisors have more insightful conversations about financial goals and strategies.

An ecosystem where Roboadvisory platforms and Human advisors coexist will inspire an ecosystem of trust and collaboration by reducing information asymmetry that plagues traditional investing. Investors across the board will benefit from being able to monitor and assess the state of their own finances in real time.

The human touch can never be eliminated as algorithms cannot assuage investor’s fears or offer solutions for complex needs such as succession/estate planning, elder care, tax and healthcare planning. However, technology can help automate and streamline a large portion of conventional financial planning, helping human advisors focus on complex, unique challenges posed by individual portfolios and leaving the humdrum of financial planning to Robo-advisors.

As the adage goes, the best time to start investing is yesterday, the second best time is now. Millennials want to invest their money, however, a major roadblock that stops them is that they often consider their earnings too paltry to start investing. This feeling may often last till their late 30s or 40s until they start making reasonable incomes, the kind that the baby boomers were making in their early 20s.

Most traditional advisors have minimum asset requirements which are quite steep such as assets of $500,000 or more which puts them out of reach for the average Millennial. Traditional advisors also charge sizeable commissions, on average of 1% to 2% of assets under management. In such a scenario, Millennials are wary of traditional advisors as they have to beat the market by a large margin to even cover the high cost of commision and create any value.

Added to this, millennials also tend to have a heightened mistrust of financial institutions. This is due to the fact that most millennials grew up and had their most formative years during the great depression. The combination of these factors makes millennials hesitant to adhere to ‘status quo’ investment patterns, instead, they prefer to put their trust in tech-driven or DIY solutions.

The paradigm shift: from trusting people to trusting Artificial Intelligence

The biggest challenge in DIY investing is often getting started, what information to consume, what to disregard, and what to act on. The entire process gets a bit overwhelming as there’s information overload on the internet which tends to cripple modern-day investors.

Established news sites like Moneycontrol, Bloomberg, Economic Times, Financial times are all fine sources for investment advice, however, for a beginner investor, it can be a nightmare to track and monitor the news constantly and connect the right dots. Gathering the right inferences from a glut of data is what makes DIY investing so challenging.

Artificial intelligence based solutions offered by Robo advisors can help solve this problem, by creating curated and actionable advice according to goals set by investors. AI can churn through Terabytes of data, study market trends, make analyses and projections and give out predictions that minimize risks involved in DIY investing. The technology may seem complicated, but the end user benefits as they only have to act on ‘actionable advice’ while all the complicated algorithms do the number crunching for them.

Robo-advisors chart the best course of action by analyzing goals, risk tolerance, and investment preferences. Investors can monitor the entire process through simplified dashboards that offer different levels of granularity. Most Robo-advisors are clear and transparent and often intuitive to modern day users who use apps for everything from ordering food, getting around town, and even dating.

Why Robo-advisors? – Convenient, low fees and DIY

The interest in Robo-advisors as an ideal solution for millennial investors is being spurred by increased transparency, accessibility, low fees and best in class customer experience offered by them as opposed to traditional advisors. The ability to invest via apps on their phone or on the web has led to another spurt in the growth the category.

Most Robo-advisors charge up to 0.50% of total assets under management with most advisors offering free services until $5000 or $10,000, depending on their target audience. They also hold off on charging account-opening fees, withdrawal or account-closing fees, trading/commission fees, or account transfer fees and stick to clear and simple management fees to appeal to millennials.

Is a Robo advisor the right fit for you?

If you are just getting started in investing and want to dabble in the markets yourself while still minimizing risks, Robo-advisors are your best bet. Their simplified user experience can help you monitor your finances on the go, eventually developing a taste for investments. Robo-advisors can help you temper your instincts and make better decisions, all without incurring the costs and inconveniences that come with a traditional human advisor. Even experienced investors are choosing to go the Robo route and transition from expensive actively managed accounts to low-cost automated alternatives.

Robo advisory, however, is not a one size fits all solution. There needs to be careful consideration of one’s financial goals before settling on one. If you have a large and complicated estate, or you’re invested into many different types of assets a human touch may be necessary. They may also not be the right fit if you have specific needs that don’t fit traditional models such as succession planning, multi-currency portfolios etc.

However, these aren’t really the target audience for Roboadvisors. If you have a fairly simple and more straightforward portfolio and you just want to get started, then Robo-advisors are the perfect starting point for your investing journey.