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Are wealth managers ready for a tech revolution?

It's no secret that technology is having a significant impact on most industries worldwide, including financial services (FS). Recent figures from PwC estimated that cumulative investment in financial technology – or FinTech – will reach $150 billion (£122 billion) within the next three to five years.

Furthermore, traditional FS firms believe more than 60 per cent of their customers will use mobile applications to access financial services at least once a month within five years' time.

Technology remains a double-edged sword for the industry, however. While there are great opportunities for growth using FinTech, innovations also create various challenges.

Household wealth in Australia, for instance, will climb approximately 83 per cent.

For example, the FS space is now more crowded than ever before, with traditional finance firms battling against tech and e-commerce companies for business.

This means organisations that are slow to adapt could find themselves struggling to compete quicker than they might expect.

Changes in wealth management

A recent report from Roubini ThoughtLab revealed that wealth managers could see significant changes due to technological disruption in the coming years. In fact, the organisation predicted the industry would transform by 2021, with huge shifts in consumer demands and advisor roles.

The research estimated that household assets would climb from $207 trillion to $296 trillion across the world's top 25 markets. While emerging nations are expected to contribute the lion's share of this growth, some developed countries are also tipped for big things.

Household wealth in Australia, for instance, will climb approximately 83 per cent, while Israel, France and Canada could see increases of 62, 52 and 50 per cent respectively.

This new wave of wealth will also have different ownership, as baby boomers pass down assets to Generation X and millennials through inheritance. Many millennials are also set to hit their prime money-generating years, with women comprising a growing proportion of wealth.

Meeting technology demand

In the Roubini ThoughtLab report, three of the top five factors expected to effect change in wealth management are linked to technology:

  • New technology, such as mobile, analytics and social media
  • Cybersecurity issues
  • Greater competition, including FinTech firms

"Technology may endanger many existing players. But it will also provide great opportunities to those who embrace it correctly," said Andrew Wilson, Senior Vice-President and Head of Asset Managers Solutions EMEA at State Street.

Wealth management and technology. Technology is playing a more important role in wealth management.

But how prepared are wealth managers to cope with the growing demands of investors? The Roubini ThoughtLab research suggests they may be stronger in some areas than others.

Notably, 63 per cent of clients expect their wealth managers to have robust cybersecurity and data protection protocols in place, but less than half (48 per cent) of firms were confident they had these capabilities.

Businesses performed better when it came to using the latest technology and sophisticated analytics to optimise client services, however. Sixty two per cent of clients want these benefits, and 58 per cent of organisations believe they deliver them.

The risk of falling behind

It appears that many wealth managers recognise the importance of technology and are adapting their offerings to cater to new investors and their demands.

But not all businesses are taking advantage of the opportunities that technology can provide.

As an independent financial investment boutique that specialises in structured investments, Affinity Capital is dedicated to leveraging the latest FinTech innovations to deliver value to our professional investors.

But not all businesses are taking advantage of the opportunities that technology can provide. A recent report from communications firm MRM quizzed various wealth management stakeholders and found some businesses are still living in the dark ages.

City AM quoted Sesame Bankhall's Managing Director Stephen Gazard as saying that a number of wealth managers remain "largely paper-based with no web or social media presence and no real understanding of the changing environment".

Can businesses such as this survive long in an increasingly competitive and technology-driven wealth management landscape? The evidence seems to suggest they may struggle.

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