For the last decade, the wealth industry has said that technology is the future of the sector.
It will help with back office issues such as onboarding to more client-centric ideas such as attracting customers to firms.
Wealth managers and IFAs may need to work technology into their business plan but no one discusses how costly it is.
Do the benefits of implementing of technology outweigh the financial costs for IFAs?
“The cost of implementing technology in a wealth management firm will vary significantly based on a number of factors, ranging from the size and complexity of the business, to the number and nature of legacy systems being replaced or integrated via application programme interfaces (APIs),” said Kevin Russell, proposition director at SEI Wealth Platform in UK.
“The bulk of implementation costs do not derive from the technology or platform itself but from the need to commit resources and structure the business internally at the wealth manager to ensure a successful transition.
“This cost can be managed by working with a partner who is not only experienced in implementations across a range of wealth management businesses but able to offer significant professional support and training throughout the implementation process.”
Steve Owen, head of Elevate proposition at Standard Life, said that implementing tech has ensured services remain effective but the monetary costs, and time required, to introduce new technologies can vary greatly.
“However, in my experience as well as large investments, some of the smaller lower cost developments can be the ones that have had the fastest and biggest impact on advisers,” he added.
One of the big costs can be when a wealth firm implements technology that does not fit its business model.
“There are commercial and reputational risks to implementing technology badly. Undoubtedly, technology can bring benefits, but the return on investment needs to be carefully considered for every development,” said Matt Lonsdale, relationship manager at BNY Mellon’s Pershing.
“There is little point investing in technology if the improvement is negligible. Equally, investing substantial sums in a big bang approach to revolutionise your business is full of reputational, regulatory and commercial risk.
“There have been many high-profile re-platforming issues which have led to a change of direction. These are often due to moving an entire business to a new, yet-to-be-built technology stack.
“In this case, the cost is much more than just monetary; it is reputational. A negative impact on client experience can take years to repair.”
Zahid Bilgrami, chief executive at Defaqto, added: “Poor implementation could not only result in significant expenditure but also have a limited impact on driving efficiencies. The use of technology to future-proof is a key component for successful and sustainable business growth. Effective solutions will save on time, money and effort, allowing advisers to work smarter and deliver the best outcomes for their clients.”
Another costly issue can be inactive tech and is a rather expensive waste if not update enough.
Lonsdale added: “Inactivity also brings risks, since a lack of investment might make your business unattractive to employees and clients.
“Out of date technology exposes firms to regulatory risks. For instance, missing a 10% portfolio depreciation and not alerting clients (a key Mifid II requirement) because your spreadsheet is corrupted is not a good defence to the regulator.
“Firms stand at risk of failing to recognise that each piece of new regulation requires more data to be collected, held and reported – and these changes will just keep coming.
“So, if there is a risk with implementing technology and a risk with inaction – what is the answer? In our experience, successful technology changes are implemented in line with a defined strategy, with consideration given around what to retain in-house, what to buy-in and which tasks could be better outsourced.
“A steady and incremental approach recognises the importance of technology development and allows firms to prioritise and evaluate between the seemingly urgent and exciting ‘shiny’ elements of technology (e.g. client portals) and the behind-the-scenes operational benefits which can transform internal business processes, all while managing the day-to-day business essentials.
“The main question firms must ask in order to follow this low risk but effective approach is: ‘do we have a solid and future-proofed foundation?’ If you don’t, your change must start here.”
Despite an variety of problems when tech goes wrong, there are too many benefits of technology in the advice sector to list.
How do they compare to the costs?
Daniel Percy-Hughes, director of regulatory change and compliance at wealthtech provider Synechron said: “It is a high priority for wealth managers to invest in technology and implement digital strategies in order for them to navigate increased competition and market volatility.
“With the rise of robo-advisers and a long bull-market, it is now critical for wealth managers to demonstrate complete transparency, while leveraging technology to enhance their offerings and deliver greater client value.
“We are seeing wealth managers, financial advisors, asset managers and buy-sides examine user experience upgrades while at the same time balancing this with legacy system updates.
“Key areas of focus include account onboarding, relationship management, customer analytics, and client portals, and the use of artificial intelligence to provide alternative data sources and gain broader client and market insights.
“Investment in these areas can improve productivity and efficiency, but importantly allow wealth managers to spend their time building and maintaining relationships with existing clients and prospects.”
But as much as the benefits can outweigh the costs of implementing technology, there needs to be a balance.
A wealth management firm or an IFA should not to overload its service offering with just technology as clients still want that face-to-face approach.
Neil Campbell, client services director at Old Mutual International, said: “At the same time there is a need to recognise the delicate balance that must be achieved between the advantages that technology and automation can provide for customers, versus the need for human interaction and it will very much depend upon the operating model of any particular business.
“From a cost saving and regulatory / compliance point of view, with clients being globally mobile and having assets in multiple countries, regulatory changes in major economies will often impact what businesses do and how they evolve, whether directly or indirectly.
“Whilst the future is that of an increased demand for online/digital experiences, it will depend on how the changing regulatory environment influences how technology is developed.”
Overall, the benefits of implementing tech mostly outweigh the short-term costs of having technology.
What can technology do to help the wealth sector in the long term?
“Implementing an end-to-end wealth processing and wealth management service is a significant decision for a wealth manager,” said SEI’s Russell said.
“It is not a short term fix. The technology landscapes of many wealth managers consist of legacy systems demanding high maintenance efforts and significant costs for annual upgrades and patch working between systems which are not sustainable.
“Implementing a service for the long-term addresses these challenges and ensures a firm is able to manage cost, mitigate risk and maximise opportunity in a variety of ways.”