The State of Digital Transformation in Wealth Management - 2023
6 Min Read

The State of Digital Transformation in Wealth Management - 2023

Published February 2022. Updated February 2023.

Continued Post-Pandemic Market Uncertainty

It’s an understatement to say that the wealth management industry is in the midst of significant change. Between digital transformation and the Great Wealth Transfer set to take place over the next few years, the entire industry is grappling with shifts in the way they do business in a post-pandemic world while respecting the client and relationship manager experience.

Perhaps the greatest lesson of the COVID-19 pandemic was the viability of non-traditional business models across the financial services industry. It is not only possible to provide personalized advice for customers through digital services like a wealth management client portal, but investors increasingly demonstrate their preferences for digital channels.

Meanwhile, 2023 began with significant market uncertainty. At the time of writing, there are a number of factors contributing to this. Inflation and rising interest rates carried over from 2022. World economies sit on the verge of a potential recession. Massive layoffs hit the tech sector, a strong client segment for wealth managers. Europe’s energy crisis isn’t over and neither is the conflict between Russia and Ukraine. Already strained relations between the US and China look to be deteriorating. 

As J.P. Morgan Wealth Management said in a recent sector analysis, “Brace yourself for a bumpy ride in 2023.”

Digital Maturity Among Wealth Management Firms

Much of the reason the wealth management industry has been slow to adopt digital transformation is in the nature of the work they do. They built their businesses on personal relationships and human interaction, qualities that have seemed at odds with technology. Add to this the confidence relationship managers have in their work, believing they can provide better services than impersonal robo-advisors and mobile apps.

To this end, institutional and alternative asset managers tend to show the greatest gaps in their digital adoption. Family offices are the furthest behind, with more than half of them lingering in the beginning stage of their digital journey. This may be due, in part, to the belief that they cannot automate their clients’ more complex financial situations without sacrificing the quality of service.

Company size also appears to be a factor in wealth management digital transformation, as larger firms have typically made greater progress than smaller companies. Among firms with more than $100 billion in AUM, 3% have just started digital transformation, while more than 40% of them are considered leaders in digital transformation. Yet, among mid-market firms, nearly 30% are considered digital transformation beginners and 56% of them are in progress.

What Are the Drivers of Digital Transformation and What Expectations Are They Creating That Wealth Management Has to Meet?

A ThoughtLab survey revealed these six megatrends currently driving the changes.

  • Shift to digital: Among survey respondents, 40% of investors want digital access to their accounts, and 89% prefer using mobile apps to manage investments and communicate with relationship managers.
  • Investing with purpose: Industry leaders expect to see a 34% increase in the number of investors deliberately seeking advice about social impact investing and ESG products.
  • Democratization: Clients want investment alternatives, including the option to invest in IPOs. More than half of respondents also said they want personalized financial planning and financial management services.
  • Higher standards: Nearly half of the respondents agreed the best way to build relationships with clients is to act in their best interest. Giving them the services they want (including digital) helps meet this need.
  • Lower, more transparent fees: Although more than one-third of the respondents said they are happy with their provider’s fees, this may be changing. Gen Xers are fee-conscious investors.
  • Switching providers: One-third of the respondents admitted they had moved 20% of their funds to providers that give them the services they want. Nearly half of them have plans to move more funds, presenting an opportunity for firms.

Wealth management clients are changing, and so are their expectations. They want a greater range of services than many firms can provide without digital adoption. Firms are already dealing with pressure from these challenges and must seek appropriate solutions to them.

  • Fee and cost pressures: Clients are increasingly fee-conscious and want to know what they’re paying for. At the same time, regulatory requirements continue to drive up costs.
  • Competitors delivering a better experience: Robo-advisors and FinTech are better prepared to offer products and services that match the digital expectations of today’s clients.
  • Client dependency on technology: Clients now enjoy real-time and curated content that caters directly to them, anywhere and anytime.
  • Client expectations: Clients want their investment firm to provide service on their terms — not the company’s.



The Great Wealth Transfer

Millennials and their financial habits may make the headlines, but Gen Xers are also next in line. They are now moving into a new era of their lives in which they have significant investable assets, and they stand to see the highest increase in the share of wealth through 2030, moving from holding less than 14% of U.S. net wealth to nearly 31% by 2030.

Not only are they actively building their own wealth (and doing so at a faster rate than their parents), but they are the recipients of the $83.3 trillion in assets Baby Boomers are starting to liquidate. Wealth management firms must start understanding the wants and needs of these new generations of clients.

Compared to their parents, Gen Xers and Millennials like to be more involved in their investing. They prefer to do their own research and want to understand the options available to them and how they fit in their overall investment plans. They pride themselves on their DIY skills, so earning their trust and business will take more effort.

Firms that think they can wait until tech-savvy Millennials are ready for their services will be left behind. Gen Xers value convenience, and more than one-fourth of them prefer communicating with their relationship managers by text. Nearly half of them would use video chat if the platform were available to them.

Pandemic Impacts on the Industry

Perhaps the greatest lesson of the COVID-19 pandemic was the viability of non-traditional business models across the financial services industry. It is not only possible to provide personalized advice for customers through digital services like a wealth management client portal, but investors increasingly demonstrate their preferences for digital channels.

The pandemic also affected the wealth management client experience and risk tolerance. Pre-pandemic, wealth management clients were risk-averse, preferring safer investments. Surprisingly, younger clients are already taking steps to lower their risk. For the foreseeable future, clients across the board have altered their investing outlook in the wake of the pandemic.

Encroaching Competition

Wealth management firms are facing increased competition from FinTechs and robo-advisors aiming for their market share. These groups can provide many of the digital offerings clients want, but they lack customer awareness. So far, wealth management firms have used this to support their higher fees, but that’s a position that will likely change.

Another interesting change is the way the wealth management industry segments clients. As they stop looking at them solely through the lens of wealth status, they are starting to see that some high-income clients may not be as profitable as they originally thought. With this perspective, firms that accept clients based on net worth may be losing out on revenue.

Hence, thanks to new technologies regarding device-independent client engagement over different interaction channels and automated investment solutions such as robo-advisory, the individual and mostly less complex requirements of many clients and wealth management potentials can be served with cost-effective digital and automated solutions.

Mergers and Acquisitions

Some wealth management firms have taken action by acquiring FinTech and robo-advisors and adding them to their existing suite of services. Morgan Stanley and Goldman Sachs acquired E-Trade and United Capital. Schwab and Vanguard already offer automated solutions that can streamline stages like the wealth management client onboarding process.

There is no doubt that technology will play an increasing role in the advisory world. For that reason, analysts expect groups like Facebook, Amazon, and Google to enter the wealth management space. By adopting digital technologies sooner rather than later, firms will be better able to withstand that wealth management disruption.

CapGemini, in a recent 2023 wealth management trends analysis, predicted that industry consolidation would continue. M&A activity will boost a firm’s capabilities to reach new client segments and markets with new products and services. Consolidation becomes a means to achieve more scale. 

How Pioneering Firms Are Addressing Challenges

Digitally mature firms are already addressing these challenges by shifting to a client-centered approach. Companies that adopt a client-centered approach are 60% more profitable than their product or service-oriented counterparts. This approach requires a 360-degree view of the customer and tools for anticipating customer needs and wants.

This is changing the role of relationship managers to a degree. They are still available for contact and personalized support. Resolving complex issues typically requires a human touch. Implementing automation, digital self-service, and a wealth management advisor portal actually boosts relationship manager efficiency and frees them up to be there for their clients when they need them most.

CapGemini observes that many firms in 2023 are focusing on automating core functions and accelerating cloud adoption in order to empower relationship managers with digital tools, actionable data analysis, and efficient digital workflows because client engagement and satisfaction improve when relationship managers manage their time well. They conclude, “Those who recognize and eliminate time consuming tasks, leverage advanced technology, and automate when possible can dedicate more attention to client-facing activities.”

Keeping the Wealth Management Digital Transformation Accountable

Digitally mature wealth management firms have noticed improvements across several key performance indicators. For example, firms reported a 13% increase in productivity, which led to an 8% increase in AUM and a nearly 8% increase in revenue. They garnered a 7.3% increase in market share and increased shareholder value by nearly 6%.

Making Digital Transformation a Reality

Ignoring digital transformation is no longer an option for wealth management firms. They need solutions to fill the gaps between the traditional business model and the increasing demands of the customers who want digital services.

As you begin developing and implementing your digital strategy, it’s imperative to prioritize your needs based on business impact. You don’t have to roll out the entire plan at once and will find the change easier to handle when it’s done in increments.

Accelerate the digital transformation and start seeing results sooner through a software platform like Liferay. Learn more about Liferay’s solutions for financial services and wealth management

Originally published
February 8, 2022
 last updated
February 27, 2023
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