Financial services firms must acknowledge harsh truths and hard lessons as they plan the next stages of their evolution
The events of 2020, particularly the COVID-19 pandemic and its consequences, have certainly held up a mirror to the business world. Aside from the need to ensure business continuity through disasters and have a solid succession plan in place, it has underscored the benefits digital transformation can provide throughout the value chain, from client-facing relationships all the way to back-office functions.
The new year promises a new chapter; with vaccination programs rolling out across the globe comes the promise of immunity to the virus and the start of a return to normal. Still, whatever “normal” state things go back to will likely bear only a resemblance to how things were pre-COVID – and the same applies to wealth management.
“This pandemic has actually created a legitimate amount of time to test and prove that certain things work,” said Paul Kalinowski, head of Digital Transformation at iA Wealth, said at Appway’s 2020: Obstacle or Accelerator for the Wealth Management Industry virtual roundtable event last month. “For a long time, we're going to work and transact business in a way that proves that digital transformation is viable.”
Kalinowski said that rather than a huge regression, he foresees an acceleration in the changes that the industry has gone through in the past months since the pandemic began. Because of that acceleration, he said, the industry has to devote the next year to building on the progress they’ve made on their digital journeys.
“Focus on the way that the client and the advisers experience working with our business,” he said. “We realize that we've broken the back of a lot of the previous resistance through necessity, and we expect to continue pushing in that direction.”
That’s not to say that all-digital is the only route firms should take post-pandemic. John Lane, head of Client Advisory and Wealth Planning Systems at the US-based Bessemer Trust (established in 1907), anticipated that Bessemer will develop a best-of-both-worlds approach. Annual in-person group engagements with clients in high-end hotels, which the multi-family office has hosted with great success over the years, could be reimagined as more intimate gatherings of smaller groups and broadcast to include other clients who’d prefer not to be physically present.
“I have also heard plans to develop new digital marketing material that represents the firm, which aims to maintain the nuance that gets communicated when you’re sitting with a client face to face,” Lane said.
Having realized the impact digitization can have on their business, many financial firms are likely to have it as a top priority in their 2021 agenda. But one lesson they must keep in mind, as crucial as any from 2020, is that every shiny new initiative’s success depends heavily on not-so-glamorous preparatory work.
“Digital transformation sounds super exciting and sometimes very glamorous, but the process can be very mundane. Everybody loves to talk about AI; very few people love to talk about grooming data and producing a lot of very well-labelled data sets. You have to be very disciplined,” said Manuel Geitz, head of Transformation, Wealth Management Americas at Deutsche Bank. “You have to ask yourself, what is the value of standardization and where is the value of customization actually higher than the standardization? And again, that goes back to strategy. It requires a lot of discipline on target architecture - lots of discipline.”
Aside from the technological systems, companies must head off resistance by acknowledging the human element. Kalinowski stressed the profound role of change management, which in part entails consistent messaging, consistent communication, and having subject matter experts available to address concerns and questions.
“We really made plans around setting up central teams and command centres, making information readily available whenever we're going through launches,” Kalinowski said. “We put that huge focus on making sure that as soon as anyone even felt like they were starting to run into issues, we could be there to support them.”
And as financial firms commit fully to providing digital experiences for their clients, they must do so recognizing that they’re not entering a blue ocean. Rather, it’s a space where consumer expectations of seamlessness and simplicity have been set by streaming service providers and e-commerce platforms.
“These tech companies have been built as digital businesses from the ground up, and they have capabilities that they can export easily into other industries,” Geitz of Deutsche Bank said. “Industry incumbent banks have not been built like that historically, and it can take longer to restructure something that’s been in place for decades or centuries.”
Western financial-services firms have not yet satisfied the prerequisites to becoming an “Amazon of banking,” but Geitz said that vision of the future has already arrived in Asia with the rise of Ant Financial. Well regarded as an AI-based wealth manager, the company with more than 1.2 billion clients worldwide was slated for an IPO with an implicit valuation of more than US$300 billion in November before Chinese regulators doused its plans.
“The more regulated and the more complex an industry is, the more you're protected from very quick digitization by fully AI-built organizations,” he said. “But in the end, you have to make complex things very simple for the client in order to compete.”
In the wake of the disruptive events of 2020, it’s hard to dismiss the idea of fintech firm becoming a dark horse in the financial services space. However, incumbent financial firms still have an edge; new players might try a “shock and awe” approach by generating initial attention and curiosity, but there’s no hiding their lack of history.
“When you're trusting your money and your life savings to a financial company, you want depth, experience, and stability as well as those seamless, client-focused experiences,” Kalinowski said. “If you can achieve digital transformation while retaining the trust of everyone you’re working with - that simply isn’t open to something flying in from another industry - that’s a real opportunity.’
