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Embracing technology is essential in wealth management. Our clients expect – as they should – that we’ll stay on top of trends and use digital tools for their benefit where it makes sense. The challenge is leveraging advanced technology to transform client interactions, increase our efficiency, and maintain our competitive edge in a constantly changing market.
Legacy technology is an issue for many wealth management firms, who may face internal resistance to change. When budgets are used to update legacy tech rather than replace it, McKinsey points out that firms may be spending more than they should and missing out on ways to streamline operations, provide better client service, and increase profits.
Three cases in point: AI, cloud technology, and automation. All three can save time and money, and resistance to them keeps companies in the past instead of moving into the future. Younger clients likely expect firms to use all three, which means companies that don’t may lose out.
Those of us in the world of wealth management have a natural skepticism of change. That attitude is understandable – we’re managing people’s money and we should be cautious.
That said, McKinsey estimates that when firms invest in these technologies, they can increase operational performance and efficiency by up to 30%. Nobody can afford to ignore that opportunity.
A final note about legacy technology: We have to ask whether old tech can survive the Great Wealth Transfer. Megan Husmann of Apex Fintech Solutions emphasizes the need for advisors to adapt their technology to meet the needs of the next generation of investors amidst a significant wealth transfer. She identified adapting tech as the key to retaining these next-gen clients.
Update your tech to serve the next generation
This tells us that it’s time to look at how we can use digital solutions to transform operations and exceed client expectations. McKinsey has shared a case study to illustrate the point. They’ve identified the top issues as follows.
- Reducing time to set up client accounts;
- Streamlining mid- and back-office operations;
- Giving clients easy access to data; and
- Improving client communication.
The key to addressing these issues is to understand use cases for advanced tech. For example, some of the potentially transformative use cases for AI include creating content for client education, streamlining the decision-making processes for both RIAs and clients, and providing faster response times for client interactions with automation.
In the McKinsey case study, the client in question sped up the account set-up process from multiple weeks to just 30 minutes.
What could digital transformation look like in wealth management? While there’s no one-size-fits-all answer to that question, here’s a step-by-step hypothetical of a purpose-driven transformation.
- A wealth management firm begins with an analysis of existing and legacy systems, making sure to catalog where they’re inefficient and how they could be improved.
- Next, they conduct an analysis of clients’ needs and expectations with a focus on how technology can improve the client experience. At the same time, they analyze RIA needs and expectations.
- Once systems and needs have been analyzed, they create (or update) a simple tech budget to learn how it might accommodate digital transformation.
- Testing is a must and provides an opportunity to fine-tune the details of transformation. The company decides to take a page out of McKinsey’s book by running hackathons to determine which tech designs and tools will align leadership and provide the best experience for clients.
- After the hackathon, they use what they learned to design and implement new tech architecture. This includes deciding whether to keep legacy systems and supplement them, or to replace them entirely.
- With new tech architecture in place, they engage in internal coaching and mentoring to ensure team members understand new tech and embrace streamlined practices.
- Finally, they create new content for client education, notify clients of changes, and begin onboarding clients into the new system.
The result is engaged team members who have more time to assist clients, and clients who know their needs are prioritized. It goes without saying that these things translate to higher retention among employees and clients.
Final thoughts
The Great Wealth Transfer has already begun. Wealth management firms face reduced AUM and reduced profits if they don’t embrace the challenges of digital transformation now. Younger people who inherit wealth can and will seek advice elsewhere if they don’t feel that their needs and preferences are being prioritized.
Ultimately, digital transformation is something to be embraced, not avoided. Even if there’s some internal resistance, retaining clients with newly inherited wealth means meeting them where they are and making it easy for them to trust you with their money.
Matt Reiner is a CFA, CFP®, and partner at Capital Investment Advisors, a $2.8+ billion RIA in Atlanta. Reiner is also CEO of Wela Strategies, a sister company to Capital Investment Advisors, and is the founder and CEO of Benjamin™. Benjamin is an AI technology created by Reiner after seeing the gaps in technology used in his own firm. Reiner’s true passion is using his vast experience to coach other advisors across the country, helping them evaluate their firms’ practices and find the best strategies for future success. To reach Matt Reiner, visit www.MattReiner.com.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.