• August
  • 2018

The Automated Future of the Wealth Management Industry

Drastic changes in regulations governing the wealth management industry promise to alter the way these businesses operate. Driven by the grim consequences of the global financial crisis, the regulators are dedicated to make the private banking industry more transparent, stable, reliable and customer-centric. These regulatory amendments usually come at cost of reduced margins and, in some cases, drive the traditional business practices obsolete. For instance, the recent introduction of MiFID II that is restricting the commissions and kickbacks paid to asset managers by interested third parties has influenced many European industry players to reallocate more funds in ETFs and/or consider robotizing the financial advice process.

Interestingly, the regulations alone do not constitute the only factor disrupting the wealth managers’ operations. The rapid technological evolution has led to a widespread digitalization trend, which influences a growing number of players to make amendments to their operations. In pursuit of preserving competitiveness, the companies are motivated to closely follow the customer demands, which may seem rather controversial – the tech savvy consumers expect cheap, user-friendly and high-quality service that employs the latest technologies available to market. However, although almost nobody doubts that the industry is going to alter, it is quite challenging to gauge the magnitude and the direction of these changes. Our recent analysis of large British asset managers suggests that there are various approaches industry leaders follow on their quest for market dominance in the digital era.

Automated financial advice (robo-advice) is a new area of the wealth management sector, which has been rapidly evolving in part as a response to the combination of regulatory pressure, changing customer demands and innovation. The intuition behind the new service implies digitalizing the wealth allocation process which had been formerly provided by a team of trained physical financial advisers. The existing robo-advisories have been gathering the trust of the customers over the past years, but their impact on the future of the industry is still largely unknown. Will the robo-advisers eradicate the need for traditional wealth management services? Which categories of customers are more likely to exhibit demand for fully automated financial advice? Are there more opportunities in creating a hybrid offering, that could merge the capabilities of the digital service and a human adviser?

A half-day conference organized by Kidbrooke Advisory, Ortec Finance and Microsoft that took place in Stockholm on April, 19th 2018 featured a panel discussion among the most prominent wealth management industry professionals. The panel discussion participants shared their vision of the aforementioned challenges within the sector as well as their opinions on the future of automated financial advisories. In addition, the organizers of the event have presented their insights on the challenges encountered by a company aiming to introduce an automated financial advice offering, the digital future of banking services and the core trends of the customer demands. The document below summarizes the key points of the event, elaborating on the contemporary issues encountered by the wealth managers and their solutions suggested by the industry leaders.

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