Tech-driven profitable growth in Wealth and Asset Management (WAM)

Unlocking profitable growth efficiently at wealth management organizations: strategic technology implementation across the value chain

Advanced technology is no longer an enabler but a game changer

Technology is no longer merely an enabler but a game changer as the new breakthroughs in technology change the rules rapidly and continue to disrupt. In the wealth and asset management industry, technology is driving change across the end-to-end value chain. It has transformed investment decision-making; increased efficiency in the front, middle and back offices; reduced costs; improved the customer experience; democratized access to investment products and services; and enhanced risk management and compliance.

The wealth and asset management industry is facing a wave of innovation that has compounded during the pandemic, driven by advanced technology. Applications of artificial intelligence (AI), blockchain, metaverse, and augmented and virtual reality (AR/VR) are not only transforming business models, customer interactions and experiences but also developing new asset classes. Industry participants are prioritizing digital transformation and are making big strides to enable growth and compete in the marketplace. According to the 2023 EY CEO Outlook Pulse survey, 97% of financial services CEOs expressed that digital and technology transformation will be their priority in 2023 for revenue growth and operational advantages. At the EY organization, we see wealth and asset managers making great strides in technology transformation. However, they are still not the front-runners among the broader financial services industry. This is critical, and reliance on legacy technology can cost firms their clients. According to the 2023 EY Global Wealth Research Report, 37% and 35% of clients in Asia-Pacific and Europe, respectively, plan to switch their wealth managers, primarily due to lack of technology and digital capabilities.

Seizing the potential of advanced technologies — and even new business models — will become increasingly important with the accelerating pace of innovation and disruption. However, this cannot be achieved by building on existing legacy systems, as they contrast with new digital solutions that offer interoperability, automation, data consolidation and flexibility. The flexibility and modularity of technology infrastructure will be critical to find growth and succeed in a complex, fluid, multidisciplinary digital ecosystem. Regardless of the competitive advantage — such as fund manufacturing, wealth advice or specialist service provider — the ability to connect digitally with participants within the financial services industry and beyond to transform operations and offer seamless experiences will separate leaders from the rest.[1] For instance, forming ecosystem partnerships with cloud platforms or FinTechs can enable wealth and asset managers to enhance client experience, expand distribution, drive product innovation and develop scalable solutions resiliently, while moving from fixed to variable cost structures, shifting operations outside organizational boundaries and reducing the cost of compliance.

Technology-driven transformation opportunities across the wealth and asset management value chain for sustainable, profitable growth

Today, wealth and asset management firms have multiple opportunities for emerging technology implementation across the value chain to transform operations for sustainable, profitable growth. Taking a holistic and strategic approach, with well-defined objectives, clear focus and communication, can unlock value in the form of reduced costs, improved efficiency, seamless customer experience and secure, streamlined processes.

Here are seven areas where advanced technologies can help transform functions across the complete wealth and asset management value chain and position firms for sustainable profitable growth:

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1.????Virtual wealth management services: Today, by leveraging video conferencing technology with virtual financial planning and content creation tools, wealth managers can make financial advice more interactive, productive and informative.[2] [3] In the future, the combination of metaverse and AR/VR devices can help transform this into a virtual lounge where clients can meet with advisors to access personalized financial advice in augmented reality or simply chat with them. In-person meetings can be translated into the metaverse, providing clients with additional tools, content and realistic experiences virtually. This would allow wealth managers to expand their client base beyond geographic boundaries. According to the 2023 EY Global Wealth Research Report, 48% of clients prefer receiving financial planning advice with advisers via virtual tools. Some firms are trying to take it to the next level: Two of the largest European wealth managers are experimenting with offering advice to clients in the metaverse.[4]

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2.????Financial planning: With generative AI, advisors can automate investment research and due diligence tasks to focus on the high-value aspects of the business, such as client relationship building and prospecting to expand their practice. One of the use cases involves leveraging generative AI-based chatbots as a knowledge resource for financial advisors that can feed from the firm’s internal repository of research and data and external sources.[5]

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3.????Customer service: Generative AI can significantly improve customer service by hyper-personalizing almost every aspect of it — from inquiry responses, to email newsletters, to customized insights from account statements.[6]

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4.????Compliance: Wealth and asset management is a highly regulated industry, and intelligent automation (IA) can be used to verify compliance with regulatory requirements by streamlining the process of data collection and reporting. IA involves automating end-to-end processes intelligently using the right blend of automation technologies, including robotic process automation (RPA), digital forms, optical character recognition (OCR), natural language processing (NLP) and machine learning (ML). For example, reading complex investment management agreements to create investment guidelines is a challenge, and compliance breaches can result in expensive penalties. IA can help reduce the risk of breaches through the combination of OCR, NLP, ML and RPA to scan, read and extract relevant information from the investment management agreements and transpose this information into compliance rule coding screens, accurately and with no risk.[7]

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5.????Asset tokenization: The application of blockchain or distributed ledger technology to fractional investing into real assets by their tokenization is potentially an area of significant long-term growth as democratization of alternatives continues to grow. This can make it easier to invest in assets that were previously illiquid, as well as provide greater transparency and security. For instance, some of the large alternative asset managers partnered with FinTechs to offer qualified investors exposure to private equity/credit and secondary transactions through tokenized feeder funds.[8]

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6.????Settlement and clearing: Blockchain can help streamline settlement and clearing processes for investment transactions. With a distributed ledger recording transactions in real time, blockchain can reduce settlement time and costs and improve the overall efficiency of investment operations. For instance, a US-based exchange-traded products specialist launched a traditional index fund with bookkeeping on blockchain. Like a traditional mutual fund, the transfer agent stores the primary record of fund share ownership on its own books and records but also keeps a secondary record on Stellar or Ethereum blockchains. This allows the investors to trade tokenized fund shares on blockchain through the fund issuer’s digital wallet.[9]

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7.????New asset classes: Emerging technologies also create new investment avenues. Non-fungible token (NFT) digital assets, including artwork, comic books, sports collectibles, trading cards and games, present in various metaverses are drawing a lot of interest from collectors and enthusiasts, indicated by the ever-increasing trading volumes and prices. The 2023 EY Global Wealth Research Report revealed that millennials (55%) are far more likely to be satisfied with the performance of digital assets than the average wealth management client (29%), implying a greater level of comfort with digital-first financial products among younger clients. These products could drive the next wave of growth in the industry, although much still needs to be done in terms of regulation and market stability. Wealth and asset management firms have started to seize the opportunity as we are now seeing the launch of the first tracker certificate tracking the indices, including the leading developers of metaverse platforms.[10] The industry could soon witness investment products offering a portfolio of NFTs and digital assets.

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Where can wealth and asset managers start?

Applying a transformation mindset is a prerequisite in an organization’s ability to drive profitable growth. To bring this transformation mindset to life, firms need to take a holistic and strategic approach as opposed to a plug-and-play solution to get it right. By following the three-step action plan below, organizations can develop the right approach tailored to their needs:

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·???????Define strategic goals and objectives based on the firm’s current capabilities, understand critical gaps to be addressed and then develop the roadmap for transformation.

·???????Identify the technologies critical to success, track their maturity in terms of the solutions in the market and develop the necessary ecosystem partnerships to execute implementation.

·???????As technologies mature and experiences evolve, treat the transformation roadmap as a living guide and constantly assess progress.

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

[1] Lee, Mike; Wightman, Mark; and Veissid, Andre, “Six ways asset managers can prepare for an uncertain future,” EY website, 2 February 2023.

[2] “Our new video consultation – personal and convenient,” UBS website, accessed June 2023.

[3] “Merrill Launches Virtual Video Studio for Financial Advisors,” Bank of America website, 14 February 2023.

[4] Walker, Owen, “UBS and Julius Baer grapple with offering wealth advice in the metaverse,” Financial Times website, 6 November 2022.

[5] “3 applications of generative AI in financial services,” CB Insights website, 3 April 2023.

[6] Schmidt, Blake and Albright, Amanda “AI Is Coming for Wealth Management. Here’s What That Means,” WealthManagement.com website, 24 April 2023.

[7] Birkin, Alex and Dutta, Debraj, “How intelligent automation can transform wealth and asset management,” EY website, 10 January 2020.

[8] “Hamilton Lane and Securitize to Tokenize Funds, Expanding Access to Private Markets for a Broader Set of Investors,” Hamilton Lane press release, 5 October 2022.

[9] Basar, Shanny, “WisdomTree to Launch its First Blockchain-Enabled Fund,” Markets Media website, 10 October 2022.

[10] “New certified tracker on the metaverse! The virtual age has arrived,” BNP Paribas.