Wealth management of tomorrow: Is it human or hybrid?

In a world interspersed with digitalisation and upended by disruptive technologies, digital enablement translates into sustainability. This may prompt futurists to perhaps predict the end of the classic, relationship-driven wealth management model, labelling it unsustainable.

While this may not prove entirely accurate – most experts believe that private banking will always be people-led. However, wealth managers who are slow to adopt digital technologies may struggle to scale their client portfolios. This has encouraged several providers to veer towards technology to enhance existing – or create new – solutions.

“Digital wealth solutions are already an area of focus amongst most wealth managers as customers are preferring to interact digitally, especially the mass affluent segment. As stated though, there is still a desire from clients to see their advisor but mainly for the initial investment; all servicing already requires a digital solution to be competitive,” says Paul Cox, regional head of wealth development, MENA and Turkey, HSBC.

“Mobile is the only area that has not been fully integrated as yet, but this is just a matter of time. A fully operational wealth management ‘bank in your pocket’ is just around the corner.”

The Covid-19 pandemic, while ringing in numerous other changes, also accelerated the adoption of intelligent solutions. Besides requiring a change in behaviour from both clients and advisors, the wealth management business also marked an  increase in remote engagements, automated services and digital products.

“If there is one lesson to be drawn from the Covid-19 pandemic, it is the growing importance that technology will have in the future, being with regards to analysis, relationship management, advisory activities or investment management,” opines Ludovic Pernot, head of Private Banking Middle East, Liechtensteinische Landesbank AG.

“While we firmly believe the personal relationship between a client and her/his advisor and the trust based bound thus created is of primary importance in private banking, it is to be expected that financial institutions will introduce an increasing amount of technology in the relationship. The reach of the technology will probably differ from institution to institution but no doubt that the affluent and retail segment of the clientele will be faced with the like of robot advisors more and more regularly.”

Cox at HSBC builds on it: “In July, despite the challenges of the Covid-19 lockdown, HSBC UAE launched its online trading platform that enables customers to trade international securities on major stock exchanges in real-time. The platform – incorporated into the personal internet banking site – allows clients to personally manage their equity securities portfolio 24/7, and submit orders themselves with real-time execution.

“As importantly, when the UAE went into lockdown due to Covid-19, we were able to react and provide a different solution for clients, who were dealing with changing access to their advisor combined with extreme market volatility. Within seven working days, HSBC had a fully operational virtual solution for clients. Using video technology and digital signatures, our clients benefitted from being able to invest, redeem, change asset classes and de-risk.”

Meanwhile, Standard Chartered Bank launched a mobile fixed income platform in select African markets at the beginning of 2020. By July, up to 50 per cent of fixed income transactions were completed using the mobile app, Dr. Owen Young, regional head of wealth management for Europe, Middle East and Africa, confirms.

“The adoption rate for digital wealth management solutions has increased dramatically during the pandemic. The diversification of digital product offerings in investments has given clients the option to choose where to invest based on market volatility during the Covid-19 situation,” he adds.

Digital enablement may seem challenging given that it merits new systems to cannibalise from old practices and mandates a shift in cultural mindsets too. However, as digital comforts evolve, advisors will need to recalibrate, if not reboot, their suite of offerings for greater customer engagement and retention.

Consequently, a hybrid mode of play is expected to prevail, drawing on the intelligence of an automated system and the experience of a human advisor.

“Based on current trends, over the next few years, the wealth management provider model will expand and refocus, with divides between people and machines fading. As client needs shift, services and interactions will evolve in multiple ways. For years, wealth management advice meant a client paired with a dedicated human advisor. More recently, as algorithms have become today’s trending topic, many have chosen the technology-only route, citing the lower cost and around the clock access it provides. However, for clients that have material assets to invest, neither alone constitutes the future of the wealth management industry. The Covid-19 pandemic has revealed the importance of pairing the human relationship with the support of technology,” notes Young.

Robo-advisors: Next generation services
Similar to how fintech integrated technology into traditional finance sectors to offer innovative and effective solutions, wealthtech – a subset of the former – fused innovation with wealth to automate and enhance wealth management. Wealthtech has continued to garner interest worldwide, securing $474.1m of global investment in 2019, a KPMG report suggests.

Regionally, wealthtech has been vying for a spot amidst traditional firms and practices that have maintained dominance for years, serving high-net-worth individuals and families.

However, with shifting demographics, a set of technologically-savvy, wealthy millennials at the helm, and time and cost efficiency at the core of all decision making, wealthtech offerings such as robo-advisors are beginning to find their feet.

A near synonym for wealthtech, robo-advisors are digital platforms that offer automated, algorithm-driven investment advice – in short, they are automated financial advisors. Robo-advisors, on the back of technological innovation, have opened investment advisory options to a wider audience at lower costs.

But do robo-advisors entirely remove the human element? “Robo-advisors mix the advantages of low management fees from passive management and the use of technology to lower cost while retaining the benefits of a personalised portfolio that fit the risk tolerance of financial goals of the client. They do not completely obviate the human element, but make it more efficient, and more cost effective,” explains Mark Chawan, co-founder and CEO, Sarwa, a UAE-based robo-advisory wealth management firm.

“How much they use technology versus the human element depends on their approach. Some robo-advisors are pure technology-based, others offer a hybrid model, like Sarwa, where you use technology to onboard a client, and optimise portfolios returns, while offering access to human advice when needed.”

Despite gaining considerable ground globally, has the adoption of wealthtech lagged locally and regionally? “I would say so but we are surely now catching up. Even though we have a very high mobile penetration in the region, it has been mainly on social media platforms. Consumer behaviour started to change – especially with the new narratives of the pandemic.

Consumers are now more mindful and you see more and more adoption of online services and products. Convenience is becoming a key driver,” says Chawan.

Earlier this year, Dubai International Financial Centre invested in Sarwa, as part of its $100m FinTech Fund. Sarwa, which is currently regulated in Dubai and Abu Dhabi, has been growing at a 20 per cent month-over-month rate and is expanding in the region, its CEO confirms.

Moving forward, Chawan shares optimism regarding roboadvisors and their growth prospects.

“Robo-advisors are a major component of the transformation changing the way of developing and distributing wealth management services. With regulatory precedence, and ease of business today, you will see more and more players penetrating the market. We hope to see more alignment between regulators to make growth across markets smoother and more seamless. “Eventually, we want to eliminate the wealth gap here. And that’s a vision we believe is worth fighting for,” he adds.