How can wealth firms get digitalization right? Elevate, don’t expedite

This is part 2 of a co-authored blog series with my colleague, Mike Lee, EY Global Leader, Wealth & Asset Management. ?

Integrating social and educational goals into transformation will create long term value.

Wealth firms have transformed their ability to connect with investors over recent years, as illustrated by 2020’s explosion in digital adoption. We’re now seeing a fresh wave of digitalization, with Asia-Pacific firms leading the push to harness data and analytics and integrate themselves into investors’ virtual lives.

However, the speed and scale of transformation can conceal what hasn’t changed. More clients are being reached digitally, but the large majority were already served by the industry. Hyper-personalization has become a widespread goal (as well as a heavily over-used term), but with no guarantee it will boost the wellbeing of investors or their dependents. And instead of competing with incumbents, many fintechs have ended up partnering with them. In short, improved experiences haven’t always led to improved outcomes. Is it time to redefine personalization?

We have written before that we believe matching a clear digital strategy with a strong sense of purpose holds the key to ensuring that transformation delivers for investors. In the rest of this blog series, we plan to explore how wealth managers can turn this concept into tangible actions.

In this blog, we start by taking a closer look at the process of digitalization itself. As firms scale up their investments, they must follow distinctive digital paths to avoid repeating the mistakes of the past. In a fragmented and homogenous industry, no organization can hope to gain a competitive edge by taking the same approach as its rivals. Differentiation is also crucial if firms are to avoid imitative innovation and achieve genuine improvements in client wellbeing. Firms must act with thought and purpose, not just for the sake of taking action.

In our view, the key to making digitalization distinctive lies in doing things better, not just faster. Firms must deliver something richer than speed, convenience or even personalization. They need to encourage, guide and educate, helping investors to join the dots and see the wider picture. That might involve:

• Deepening investors’ understanding of their investment holdings, and how these affect their own families and communities
• Helping investors to put their day-to-day financial choices into the context of lifetime planning and the long-term wellbeing of their families
• Educating investors on the trade-offs and second order impacts inherent in investment decisions, such as the social and employment implications of rapid decarbonization for businesses critical to local communities.

In short, digitalization needs to elevate, not only expedite. But it’s not just the understanding of existing investors that needs to be elevated. Transformation should also aim to create long term value for employees, shareholders and society, considering the “3Ps” of Purpose, Planet and People for profitable businesses as we rebuild after the pandemic. And yet while digitalization projects in the wealth industry invariably target greater efficiency, lower costs, reduced risks and better experiences, they rarely prioritize social purpose and value.

That’s understandable, but it’s missing something important. We don’t believe anyone in the wealth industry would deny the need to address inequality in our societies – inequality made worse in 2020 by the divergence between soaring stock markets and a steep downturn in the real economy. Nor would they disagree that the investment industry should take a leading role in improving financial and digital literacy, addressing savings shortfalls, reaching the underserved and unserved, and funding much needed public infrastructure.

We see an opportunity for wealth firms to create more value and differentiate themselves by embedding social goals, as well as educational ones into their digitalization efforts. One important aim could be to reach more people, democratizing investment and sharing its benefits with a wider clientele. That might be achieved by using public partnerships or unfamiliar ecosystems to engage groups that firms have previously failed to connect with.

Here at EY, for example, we aim to create long term social value through Ripples – a program that harnesses EY people’s skills and influence to solve global challenges, and which aims to have a positive impact on the lives of one billion people by 2030. We have also become carbon neutral during 2020, helped by two large scale US wind farms.

Of course, each firm should align its own approach to digitalization with its wider purpose, goals and strategic choices, and its role in delivering investment solutions. But at a time when the world seems so polarized, elevating the goals of digitalization will not only boost investor wellbeing. It could also help the industry to play a vital part in reconciling the needs of individuals with those of society at large.

The views reflected in this article are our own and do not necessarily reflect the views of the global EY organization or its member firms.