The future of Wealth Management is digital not digitised

Mass consumer digital wealth management isn’t the ‘next big thing’. It's the current big thing. Retail investing has dramatically increased to the point where it now accounts for almost as much volume as mutual funds and hedge funds combined.

Incumbents managing trillions of dollars in assets have not been immune to this change. But disruption, in any industry, is rarely a single event or trend. It happens when different forces collide – customer appetite for change meets the right enablers such as technology, regulation, funding, ease of switching and talent to name a few.

What began as robo advisors is now a wide array of digital challengers, offering low-cost access to new digital-first services either through dedicated fintech apps or banks, or other institutions who have integrated this functionality into their offering. Just look at the success of firms such as Moneyfarm and Moneybox.

Some offering ‘wealth-like’ platforms are focussed on, at least initially, helping consumers to manage everyday spending – for example, Plum which then also offers pre-packaged investments. Another example is Chip with its low friction ‘micro savings’ in the form of transaction round ups that can be assigned to pots, alongside a series of accounts and select investment options that can be funded in a matter of a few clicks in an app. Bite-sized savings to build healthy, sustainable habits rather than complex asset allocations in 30-year plans.

The most successful type of firm to launch in the UK, Nutmeg, was purchased by JPMorgan in mid-2021 to build its UK retail market footprint.

Most recently further evidence of how newer entrants are evolving at pace was US robo adviser Acorns purchasing GoHenry, a UK fintech focused on providing money management and financial education services to children. This combination creates the potential for Acorns to offer financial services in new markets and at every stage of a customer’s life: from their first bank account through to wealth management and retirement savings.

Add in a catalyst like the Covid-19 pandemic and it’s clear that incumbents must adapt and evolve.

All these disruptors have one thing in common – using digital infrastructure and processes to give investors more personalised, data-driven advice and engagement models.

Consumers have become so used to digitally native services in every single part of their life through the app-ification of everything from grocery shopping to buying and selling a home, they rightly question why managing their savings and investments is stuck in the past.

While the phrase ‘democratisation’ has become something of a cliché, these new firms have changed the perception of what it means to have a wealth manager. They have made identification easy, utilised virtual accounts and real-time payments, including FPS (Faster Payments) and Open Banking, to enhance the onboarding and account funding experience.

Contrast this to the account opening, risk assessment and paperwork – sometimes digitised as an online form – of the incumbents, often coupled with a payments experience that can take at least a day, sometimes longer, for funds to be credited into an account.

Inertia to change at the traditional firms isn’t because they don’t see demand for a better customer experience. It is deep-rooted in dated, batch-based technology. In this case two highly conservative industries, wealth management and legacy transaction banks have combined. The result is services that haven’t fundamentally changed in decades.

In this increasingly crowded market, incumbents have recognised there is a huge addressable market if they lower the barriers to entry with a compelling digital experience. They’re also increasingly looking to rapidly embed new services and capabilities that allow them to create specialist services for specific, and often underserved demographics, as well as differentiate their offering from competitors.

For example, instant matching deposits allow customers to fund and trade without the friction of waiting for payments to clear, while also benefitting from additional consumer protections and improved reliability. This is particularly compelling for new and perhaps more risk-averse customers who can be concerned about the status of funds while they are settling.

Removing manual processes through the automated reconciliation and allocation of investments to the right account, can dramatically improve scalability and reduce potential errors, in addition to accelerating retail customers’ investment journeys. Partnering with firms such as ClearBank can provide wealth managers with additional benefits, such as the provision of Client Money Accounts that allow them to hold the funds on behalf of their customers in accordance with their obligation to protect their money under UK regulation.

As the expectation of a truly digital experience continues to rise, firms will need to be radically leaner than they are today and set a rising bar for operational excellence. They will also need to move much faster than they have been used to.

However, we’ve seen innovative firms embrace a digital future, underpinned by trusted partners such as ClearBank who can power these new propositions with real-time, cloud-based infrastructure and services.

Keen to learn more about how we can help? Take a look at our services for the Wealth and Investing sector.

Authored by Sukhy Atwal, Head of Wealth, Pensions and Insurance at ClearBank