DIGITAL TRANSFORMATION IN THE WEALTH MANAGEMENTINDUSTRY

Digital space. Conquered.

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TABLE OF CONTENTS

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Executive Summary

Digital Disruption

New Opportunities

Personal Touch

Mobile a Priority

Personalizing Experiences

Advanced Analytics

Analytics Inform Personalization

Embedded, Efficent Analytics

Transparency and Trust

Digital Compliance

Testing Is Critical to Success

Wealth Management’s Shifting Demographic

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The digital revolution is disrupting all industries, including the wealth management sector. Whi-le the movement towards digital transformation has been embraced by much of the financial ser-vices industry over the past several years, wealth management and private banking firms have re-mained relatively stagnant in these areas.

However, with their revenues under pressure from a growing host of innovative digital FinTech competitors, particularly the new breed of Ro-bo-Advisors, wealth management firms are lear-ning that digital transformation is a necessity.

RATHER THAN SEEING NEW DIGITAL TECHNOLOGIES, CHANNELS, AND BUSINESS MODELS AS A THREAT, WEALTH MANAGERS CAN EMBRACE THE OPPORTUNITIES THAT THE DIGITAL TRANSFORMATION PRESENTS TO ENHANCE THEIR BUSINESS PROSPECTS.

• To be a successful digital innovator requires more than digitizing traditional business processes.

• Wealth managers must be able to reimagine and reinvent their business in a way that delivers valuable new services and compelling customer experiences.

• They must also be vigilant and stay ahead of evolving regulations and compliance requirements around digital activities and transactions.

While Robo-Advisors are looking to grab mar-ket share from established wealth management players, studies show that these customers still welcome personal engagement. Wealth mana-gers have an opportunity to turn the tables on Robo-Advisors by incorporating the most attrac-tive features of Robo-Advisor user experiences within innovative personalized services.

At the heart of digital transformation is the customer experience. It is through sophistica-ted leading-edge customer interfaces that FinTe-chs are disrupting the wealth management sec-tor.

To compete, wealth management firms must respond with equally compelling and consistent customer experiences across all channels—web, mobile, social media, email, and video. With the mobile phone rapidly becoming the main portal through which customers engage with wealth managers and applications, creating optimized mobile customer experiences is an important goal.

In offering new services, the quality of the user experience, minimizing risk exposure and ensuring compliance are critical. Wealth managers must ensure that options are presen-

ted in the clearest and most compelling manner across devices and channels, that users can ea-sily select options, and that response times are rapid. They also need to be able to record, store, search, and quickly retrieve digital sessions ba-sed on specific criteria (products sold, versions of terms and conditions, customer ID, etc.)

WEALTH MANAGERS CAN GAIN AN ADVANTAGE BY EMPLOYING STATE-OF-THE ART TOOLS THAT CAPTURE AND REPLAY USER INTERACTIONS, ENABLE DESIGN TEAMS TO IDENTIFY AND FIX WEAKNESSES IN USER INTERFACE DESIGNS, HELP OPTIMIZE CUSTOMER CARE AND ENSURE THEY MEET PRESENT AND FUTURE REGULATORY REQUIREMENTS.

• Key factors to consider in choosing such a solution are its openness, ability to import and export data and comply with data protection regulation, ease of search and retrieval, ability to compress data, comprehensive reporting capabilities, maintenance requirements, and ability to accommodate changes in real time.

EXECUTIVE SUMMARY

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The digital revolution has given rise to a new breed of digital FinTech competitors that are siphoning off revenues from established wealth management firms. As a Capgemini study shows, while global high-net-worth wealth is at an all-time high, and is up more than 70% since 2008, the profitability of wealth management firms has decreased over this same period.1

THE CHIEF THREAT TO TRADITIONAL WEALTH MANAGEMENT FIRMS ARE ROBO-ADVISORS, WHICH PROVIDE AUTOMATED ALGORITHM-DRIVEN PORTFOLIO MANAGEMENT ADVICE, WITHOUT HUMAN FINANCIAL ADVISORS, VIA A BEST-IN-CLASS CUSTOMER EXPERIENCE.

Wealth management firms, as Accenture reports, have been relatively slow to recognize the implications of the digital revolution, and their conservative tendencies have led them to be followers rather than leaders.2

Likewise, Capgemini finds that while digital technology is key to the future of wealth management, the wealth management industry’s digital maturity lags far behind that of the majority of other industries, including insurance and retail banking.3

Meanwhile, Robo-Advisors are winning significant market share at the expense of traditional players because of their attractive value and a lower cost offerings.4 Pioneers like US Betterment and WealthFront already manage around $2.5 billion of assets each.

Although global FinTech activity is concentrated mainly in the United States, Goldman Sachs forecasts that, over time, $660 billion in revenue could migrate from traditional financial services to FinTech payments, crowdfunding, wealth management, and lending.5 The opportunity has caused investments in FinTech startups to rise from $13 billion in 2103 to $19 billion in in 2016, according to the International Trade Commission.6

Swiss research firm Myprivatebanking.com found that pure robo-advice has risen from $19 billion in 2015 to $43 billion in 2016. The Financial Times estimates that the market for funds advised by hybrid robo-human services will grow to $16.3 trillion worldwide in the next nine years.7

As nimble digital competitors continue to take an increasingly larger share of the market, says Accenture, “responding to the digital imperative is no longer an option for incumbents—it’s a necessity: And as digital disruption accelerates, an increasingly urgent one.”8

Responding to the digital FinTech competitors need not be merely a defensive action for wealth manage-ment incumbents. Embracing the new digital techno-logies and business models that are available opens up vast new opportunities for wealth management firms.

Strategies for neutralizing Robo-Advisors include duplicating their capabilities or partnering with Ro-bo-Advisors to supplement and enhance in-house offerings. Wealth managers also can outperform Robo-Advisors by employing superior algorithms. As EY.com points out, most Robo-Advisors’ algorithms are based on financial theories that can be fragile, may have outdated historical information, and may not be flexible enough to cope with major changes.

Asset managers who deal indirectly with clients through private banks, retail banks, and IFA can re-move these intermediaries and deal directly with clients via Robo-Advisor-type interfaces and services. This is not only a way to target new types of clients and increase sales, but also a way to accrue more detailed information about clients, which in turn enables wealth managers to analyze, personalize, and optimize their offerings.

DIGITAL DISRUPTION

NEW OPPORTUNITIES

1 Capgemini and Salesforce.com, “Wealth Management in the Digital Age,” 2016.2 Accenture, “Reimagining Wealth Managementfor the Digital Age: Empowerment,Engagement, Agility,” 2014.3 Capgemini and Salesforce.com, “Wealth Management in the Digital Age,” 2016.4 Capgemini, “Digital Disruption in Asset and Wealth Management,” 2015.5 Goldman Sachs Global Investment Research, “The Future of Finance Part 3: the Socialization of Finance,” March 13, 2015.6 2016 ITA FinTech Top Markets Report.7 Finextra.com, “The unstoppable rise of robo-advisors,” August 17, 2016; https://www.finextra.com/blogposting/12982/the-unstoppable-rise-of-robo-advisors8 Accenture, “Reimagining Wealth Managementfor the Digital Age: Empowerment,Engagement, Agility,” 2014.

9 EY.com, “Wealth and asset managersawake to the new digital age,” 2015.

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While automated advisory wealth management services have their place, surveys show that cus-tomers want personalized service. As Cheryl Nash of Fresh Business Thinking notes, “The fu-ture of wealth management isn’t automated, im-personal or robotic. It’s personalized – based on an understanding of clients’ life goals, and combi-nes technology with service to help people achie-ve their dreams.10

WEALTH MANAGERS CAN GAIN ADVANTAGES BY PROVIDING USER INTERFACES THAT MAKE IT EASY FOR CUSTOMERS TO UNDERSTAND THEIR FIRM’S WEALTH MANAGEMENT CAPABILITIES, CONDUCT RESEARCH, ENGAGE WITH WEALTH MANAGEMENT EXPERTS FOR ADVICE, AND PERFORM TRANSACTIONS.

Because wealth managers cannot have deep ex-pertise in every industry, commodity, and tech-nology, collaboration among experts in various

areas is important. Tools that enable experts to share information among their peers and with clients will provide competitive advantages.

The services offered to customers are becoming increasingly richer, broader, and more complex, so that wealth managers who can provide com-plex offerings within simplified formats will gain a competitive advantage. Here again, an optimi-zed user-interface that enables customers to ac-cess resources and perform transactions will be paramount.

Wealth managers are challenged to create user interfaces that are consistent and optimi-zed across a number of key channels, including websites, mobile, social media, email, video, au-dio, and live videoconferencing. For some weal-th management firms, the challenge is to crea-te consitent and comelling experiences across a number of websites. Competitive advantages can be gained by wealth managers who deploy state-of-the-art user-interface optimization solu-tions.

PERSONAL TOUCH

10 FreshBusinessThinking.com, “Digital transformation introduces wealth management to a new generation,” Cheryl Nash, July 27, 2016.

11 http://marketingland.com/digital-growth-now-coming-mobile-usage-comscore-171505;http://www.radicati.com/wp/wp-content/uploads/2016/01/Email_Statistics_Report_2016-2020_Executive_Summary.pdf;http://digiday.com/publishers/mobile-overtaking-desktops-around-world-5-charts/12 http://blogs.forrester.com/julie_ask/15-11-10-2016_predictions_key_trends_will_transform_mobile_engagement

The whole world is rapidly going mobile, with mo-bile devices becoming the primary device throu-gh which users engage with the Internet. Studies by comScore, Radicati, and Zenith found that mo-bile now represents at least 65 percent of digital media time, with the desktop becoming a secon-dary touch-point for an increasing number of di-gital users.11

Forrester Research found that consumers pick up their mobile phones 150 to 200 times a day, con-

cluding that “mobile will act as a catalyst to trans-form businesses in the Age of the Customer.”12

The next phase of mobile computing will support advanced messaging with rich media and embe-dded social media connections. Wealth mana-gers can gain competitive advantages by kee-ping pace with the enhancements to mobile messaging and designing services and user interfaces that take advantage of rich new capabilities.

MOBILE A PRIORITY

MOBILE NOW REPRESENTS AT LEAST

OF DIGITAL MEDIA TIME

65%

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Optimized and innovative user experiences have given FinTechs and Robo-Advisors an edge in dis-rupting the wealth management industry. Wealth managers must now consider digital customer ex-perience a strategic imperative and move to trans-form their businesses.

As Aberdeen Research points out, customer jour-neys are complex and dynamic, buyer expectations and preferences evolve over time, and consumers may frequently change channels when interacting with a business.13 Aberdeen’s research showed that 58% of businesses use at least eight channels to interact with consumers, which is twice as many

channels as they were using four years ago.14

WEALTH MANAGERS, AS PART OF THEIR DIGITAL TRANSFORMATION, MUST BE ABLE TO DELIVER PERSONALIZED CONTENT TO CUSTOMERS ACROSS EVERY CHANNEL, AT EACH STAGE OF THEIR CUSTOMER JOURNEYS.

To create omni-channel personalized custo-mer experiences, wealth managers must be able to create 360-degree customer profile views, which are comprehensive profiles based

on aggregated information and personal data, in-cluding customers’ buying history, tailored to their personal circumstances, and intelligence gathered from customers’ activities across the venues they visit.

Wealth managers can combine the data they co-llect with demographic and psychographic data available from companies like TowerData, Expe-rian, and Mellissa Data. Third-party data brokers like Acxiom, Datalogix, Epsilon, and BlueKai also make data available to marketers, including user data from Facebook, Google, and other major ser-vices.

As Gartner notes, “ As advanced analytics capabilities such as predictive modeling become more widely adopted, organi-zations will be looking for the next step in analytics maturity to gain competiti-ve advantage and improve decision ma-king.”15

Advanced analytics like machine learning and predictive analytics can be leveraged by wealth managers to gain a number of competitive advantages, including gene-rating valuable intelligence that can be used to create customer profiles and in-corporated in customer experiences.

Machine learning algorithms have been developed for building extended com-prehensive customer profiles, while event processing systems can analyze a visitor’s clickstream to determine whe-ther a concrete action should be invoked

once a particular interest was detected.

Analytic capabilities also can be embe-dded into wealth management plat-forms and applications, making them accessible to non-technical business users. Wealth managers who harness predictive analytics can gain advanta-ges by analyzing market trends and patterns to predict future outcomes. These insights can be passed along to customers within advisory services.

As Capgemini notes, “the most astoni-shing added value probably concerns the capacity of predictive analysis to an-ticipate the needs of clients, by allowing behaviors comparisons amongst peer groups, spotting specific trends, even before they appear, and therefore being able to generate more revenues.”16

PERSONALIZING EXPERIENCES

ADVANCED ANALYTICS

13 Aberdeen Research, “Getting Ahead In Customer Analytics: Which Technologies Do You Need To Succeed?” June 2016.14 Aberdeen Research, “CEM Executive’s Agenda 2016: Aligning the Business Around the Customer,” May 2016.

15 Gartner, “Predicts 2016: Advanced Analytics Are at the Beating Heart of Algorithmic Business,” Alan D. Duncan, Alexander Linden, Lisa Kart, Nick Heudecker, Jim Hare, November 6, 2015.16 Capgemini, “Digital Disruption in Asset and Wealth Management,” 2015.

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Advanced analytics enable wealth managers to aggregate and analyze customer data to create 360-degree profiles in order to personalize interactions and offerings, as well as to enable wealth managers to provide analytical-based services directly to customers.

As personalization levels increase, it’s crucial to be able to understand and analyze both overall digital trends and drill down to the level of single interactions whilst at the same time remaining compliant. Being able to capture, keep tamper- proof records, replay, and drive insights from every digital session in real time and across web and mobile will enable wealth managers to optimize the services they offer to gain a competitive advantage.

The ability to drive insights from customer behaviors should ideally be combined with the ability to take personalized operational actions. For example, being able to trigger real-time personalized marketing campaigns based on visitor behaviors, or being able to filter specific digital customer sessions based on various attributes (location, demographics, journey) and proactively reach out to the associated customers with outbound campaigns or messages will have a significant impact on wealth managers’ business.

Embedded analytics are being incorporated in applications to make analytics accessible to non-technical business users. Nucleus predicts that in the next seven years, 90 percent of bu-siness users will interact with analytics at least once per day but only 15 percent will realize they are doing so.

Wealth managers can gain advantages by employing leading-edge tools – such as vi-

sual replay of digital sessions – to embed analytics in their daily processes. Moreover, they can benefit from easy-to-deploy and open analytics systems that can integrate with other solutions, pour data into data lakes and signifi-cantly enrich the overall customer understan-ding.

What is certain is that the number of digital channels and the amount of content and data

is going to explode. Therefore, wealth managers can only benefit from implementing today enter-prise-grade analytics solutions that will be able to cope with infinite data in the future. This in-cludes the ability to efficiently compress data, to minimize total cost of ownership. In such a dyna-mic and fast paced economy, they also need to choose systems that do not require endless con-figurations and high maintenance, if they want their operations to be agile.

ANALYTICS INFORM PERSONALIZATION

EMBEDDED, EFFICENT ANALYTICS

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For a growing number of customers, trans-parency and trust is an important issue. A way to encourage customers to use weal-th management digital channels is to give them the confidence that interactions are smooth and secured, that their transactions and money are not at risk even if something goes wrong during the interaction.

Full transparency ensures that clients have ac-cess to all relevant information, including port-folio data, performance reporting, and fee struc-tures. It is important for wealth managers to be able to resolve disputes quickly by showing exact-

ly what the user was presented on screen and with a digitally signed record.

In the highly regulated wealth management in-dustry, as robo-advice proliferates, it will be cru-cial to protect clients and make sure they are not misled, especially when advising and selling a re-gulated product.

In an industry in which transaction amounts can easily reach high amounts, informing visitors that digital sessions are being recorded for quality and monitoring purposes could be a significant competitive advantage and a big step forward in

winning customers’ trust and ongoing business.

Testing and monitoring online channels perfor-mance, while understanding the impact perfor-mance has on customer behaviors, will ensure that the user experience is optimized for each step in the customer journey.

Understanding across all digital channels and de-vices, how visitors engage with different types of content, what processes are causing abandon-ments and why struggles occur, will help wealth managers provide superior customer experien-ces.

Digital transformation offers opportunities for wealth managers to gain advantages in managing compliance, including lower risk and compliance costs, fewer litigation cases, and reduced reputa-tional risk. Wealth managers can gain advantages by deploying digital risk and compliance systems that can adapt quickly to changing regulation and investor demands.

Besides providing electronic audit trails, digital sys-tems can perform automated portfolio checks and deliver timely alerts, such as early-warning alerts for credit defaults. Some tools enable wealth ma-nagers and clients to run real-time portfolio simu-lations and risk scenarios, or warn them if their portfolio has exceeded predefined risk tolerances.

Digital risk management systems will be able to track, record, and document all user activity and data entry for as long as needed (similar to what is required for call centers in financial institutions). Wealth managers will be able to generate ad-hoc reports and quickly search across the data to su-pport audits and compliance.

TRANSPARENCY AND TRUST DIGITAL COMPLIANCE

IN CHOOSING A CUSTOMER EXPERIENCE OPTIMIZATION TOOL, WEALTH MANAGERS SHOULD LOOK FOR A SOLUTION THAT CAN HANDLE THE EVER GROWING AMOUNT OF TOUCH-POITS AND DATA INVOLVED IN

CUSTOMER JOURNEYS. KEY FACTORS TO CONSIDER IN CHOOSING A TOOL INCLUDE:

Armed with the right strategy, organization, and analytical tools, wealth managers will be able to reinvent their businesses, future-proof their operations, and flourish in the ever-changing digital

economy as it continues to evolve.

Openness (can be used as digital hubs supporting bi-directional data flows to import and export of data).

Ability to compress high volumes of data efficiently.

Ability to easily search and retrieve data.

Ability to easily create reports based on free text.

Ability to accommodate content changes in real-time.

Because the customer experience is at the heart of digital transformation, user expe-riences must be optimized to yield the best results. A number of key user experience factors must be optimized, including ease of use, perfor-mance, visual appeal, and overall enjoyment of the experience.

Besides customer interfaces, internal user and

partner interfaces must be optimized to achieve the best results. Fortunately, digital customer ex-perience optimization solutions are available from companies like Glassbox. These solutions will ena-ble wealth managers to capture user sessions and pinpoint design flaws, bottlenecks, and difficulties users are having with an interface.

The best interface optimization tools enable or-

ganizations to record, automatically index, replay, and analyze every web and mobile app sessions in real time—including every click, tap, and swi-pe—to understand what does and doesn’t work. Designers can see the paths users are taking and understand why abandonment is occurring at any particular points.

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TESTING IS CRITICAL TO SUCCESS

As more and more millennials displace Baby Boo-mers as family wealth managers, the shifting de-

mographic within the wealth management arena will result in more computer-savvy clients.

Among younger clients, online channels have become one of the most important information sources for investment decisions.

• Survey data shows that more than 47 percent of ultra-high-net-worth individuals use Facebook, and more than 40 percent of high-net-worth individuals under the age of 50 view social media as an important channel for communicating with their bank.

• A Deutsche Bank study found that more than 33 percent of all new banking business with customers between the ages of 16 and 39 is conducted fully on the Web.

Not only clients are demanding digital tools and experience. According to an Accenture survey, younger generation advisors are clamoring for more digital tools—largely because they recogni-ze the value of such tools in cultivating and ma-naging client relationships more successfully.

WEALTH MANAGEMENT’S SHIFTING DEMOGRAPHIC

17 PWC, “Taking Wealth Management Digital,” 2013.18 Ibid.19 Accenture, “Reimagining Wealth Managementfor the Digital Age: Empowerment,Engagement, Agility,” 2014.

TYPICAL WEALTH MANAGEMENT CUSTOMERS TODAY ARE AT LEAST

AND THE SUBSEQUENT GENERATIONS WILL HAVE GROWN UP WITH DIGITAL TECHNOLOGY.

65 YEARS OLD

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Digital space. Conquered.