The importance of digitalization and automated solutions in wealth management is self-evident for all providers – but there is still a wide gap between what clients expect and receive. While 69% of HNWIs are using online or mobile banking, only 25% of wealth management firms offer digital channels for their clients beyond email or phone. Additionally, some naively rate their business as digitally advanced when all they offer is a website…
Clients need more personalized services than ever, and traditional segmentation practices are not able to provide this level of personalization anymore. A 2018 study by TD Ameritrade found that wealth management firms with a specific target market were able to achieve a 35% higher median annual client growth and an 18% higher median profit margins than their peers.
The wealth transfer from baby boomers to the next generations over the next decades will disrupt the investment industry, but wealth managers and investment service providers do not only need to prepare for changing client behaviour and needs when Millennials will take over the wealth: Generation X is already strongly conforming to the digital behaviour of the Y and Z generations – to maintain connections with the younger generations, they are forced to use messaging apps and emerging technological solutions, making them more and more comfortable in this environment dominated by the younger generations.
To meet the expectations of this market, traditional investment providers should embrace digital technology as a transformational tool, rather than simply aligning the tech with their existing business strategy. Based on Dorsum’s market analysis, research and regular workshops with banking decision-makers, we have determined that the best way to set up a future-oriented service model is by establishing a flexible microservices architecture investment ecosystem.
Threats to traditional players:
What is an investment ecosystem?
An investment ecosystem consists of individually viable applications handling specific processes, which build a complex structure capable of supporting the entire investment client journey and all related needs. The ecosystem is built on a foundation – all individual applications can be easily connected to the foundation directly or through another application.
When considering laying down the foundation of an investment ecosystem, banks and wealth management providers should examine the option of a cloud-based solution. This choice will be remunerative both in the short and the long term, having numerous benefits, including a better client journey and all related needs. The ecosystem is built on a foundation and all the individual applications should be easily connected to the foundation directly or through another application. The main advantages of such an architecture are lower implementation costs, a significantly shorter implementation period, lower internal resource needs and easier 3rd party integration.
While the hurdles of development mentioned in the previous section are immense, traditional banks and wealth management providers need to realize the time pressure and expend resources on setting up a solid foundation for the future. It is not too late to start building a service capable of keeping newer generations clients yet, but now is the last-minute opportunity to act – with these extensive transformations and developments taking years to shape into a well-constructed ecosystem, incumbents not acting now will fall behind considering that the wealth transfer to younger generations has already started over the last few years.
There is clearly a lag in the adoption of technology in the wealth management sector, which makes it easier to stand out from the field of traditional players, assuming well-timed responses to client needs and market demands. Starting a future-oriented investment ecosystem construction now would also significantly lower the risk of losing clients to new players, like FinTechs and Robo-advisors, who are more in touch with today’s digital environment, and BigTechs, who match this mindset with an over-powering customer base.
Advantages of a flexible open cloud-based investment ecosystem:
- Independence from one large supplier – build a diverse ecosystem
- Quickly implemented solutions – keep up with FinTech competition
- No need for internal resources on new investment developments – new solutions can be integrated easily thanks to microservices architecture
- Convert FinTech rivals into partners – include them as part of the ecosystem
- Easily expand investment service range – 3rd party providers will have a solution for the needs
Interested to find out more? Download our complete White Paper on the subject, “Building your future wealth management solution – Setting up a client-centric investment ecosystem” here!