Decision-making is arguably one of the most important parts of a wealth manager’s workload. As advancements in technology continue to accelerate, these managers have the chance to drastically improve their output.
Last week, the investing world was saddened by the passing of Harry Markowitz, the father of the Nobel Prize winning Modern Portfolio Theory. This is a widely popular investing model that attempts to maximise returns by building a portfolio that combines low and high-risk assets. While this model has been criticised since its creation, it is still an important theory for managers.
There are countless other popular theories used during decision-making processes, but central to all of these is data. Despite this, many wealth managers are not able to maximise their usage of it, or even lack access to it. In fact, 63% of financial advisors have no access to data and technology to gain a competitive edge in client engagement and investment performance, according to Capgemini’s recent World Wealth Report.
Gareth Wilson – EVP and Head of UK Banking and Capital Markets – Capgemini said, “Accurate, integrated, and timely availability of data is paramount to win business in a hypercompetitive market. While financial services firms are looking for alternatives to costly, complex and risky technology transformation, we are hearing advisors continue to indicate their firm’s refusal to invest in tools and research resources to keep them abreast of the latest market trends. A bleak future awaits if data does not become a priority for firms.”
Data concerns seem to be the biggest challenge managers face with their decision-making capabilities. To make informed decisions, they must ensure they are using accurate, complete and reliable data. But on top of this, they must ensure data is regularly updated.
Tom Hopkins, portfolio manager at BRI Wealth Management said, “Financial markets are inherently volatile, and uncertainty can arise from geopolitical events, economic shifts, or unforeseen circumstances (e.g the covid pandemic). Rapid market fluctuations can impact investment decisions and require wealth managers to make timely and well-informed choices while managing risk and ensuring portfolio performance, meaning it’s extremely important that all the data received is reliable and trustworthy.”
Another layer to the data challenge is the overwhelming amount of it. We’re in a data age where information about our daily lives is stored in datasets to be used by companies and governments for various means. While this means consumers can enjoy more personalised services, most companies are using enough data to truly offer improved services. The reason for this is because they are reliant on people. Instead of using technology to collate and sift through information, many wealth managers are still heavily dependent on human processes, but the sheer magnitude of data available makes it impossible for a human to effectively analyse.
ForwardLane CEO Nathan Stevenson said, “Wealth management firms are grappling with data overload. There are so many information and data sources that they need to analyse and to make matters even more challenging, these data sources are often stored in disparate places. This means that it is difficult for wealth managers to easily get the full client picture, which in turn means it is hard for them to determine the next best course of action or to determine priorities. Helping wealth managers to aggregate all of this data is a key first step in overcoming this challenge.”
The only way firms can efficiently use these data streams is by leveraging technology and automating the mundane manual workloads. Fredrik Davéus – founder and CEO at Swedish financial analytics API developer Kidbrooke sees the biggest challenge being this reliance on human/manual processes. “It doesn’t scale well and is a compliance challenge when there is too much individual freedom which makes it harder to prove that advisors are promoting good outcomes across all clients.”
The problem with relying on manual workloads is that staff are forced to spend most of their time on admin tasks, to the point where between 60% and 70% of a relationship manager’s time is spent on non-advisory tasks, according to a report from McKinsey & Company. The main causes of this are no unified systems, manual data processing and lack of integration.
Improving decision-making with technology
To overcome the data challenge, many wealth management firms are looking to digitise their operations. While firms have been taking the initiative to adopt technology, failing to do so could see them lose their best talent. Around half (51%) of financial advisors are thinking of leaving their organisations for ones with better tech tools, according to a recent study by Deloitte.
By leveraging technology, wealth managers can easily collate information from diverse sources, such as investment platforms, banking systems, and market data providers. This can then be processed and analysed for insights into investment performance, risk assessment, suitability, liquidity, and market trends.
BRI Wealth Management’s Hopkins said, “Technology is enabling the industry to get this data from a variety of venues at a speed never seen before. Not so much in the decision-making process, but emerging technology is beginning to find ways to enhance the productivity of the wealth management industry. Whether it’s simple technology such as automation in rebalancing portfolios or using Generative AI to produce some of the simpler pieces of work. Automation and streamlining processes with technology can reduce the manual workload for wealth management professionals, allowing them to focus on higher-value tasks like decision-making and providing the highest quality service to their clients.”
One of the best ways to improve decision-making through technology, according to Kidbrooke’s Davéus, is with simulation. He said, “One key capacity is the ability to simulate the client’s financial situation going forward. This should cover the entire balance sheet and include realistic representation of market risk, tax and fees, rebalancing strategies, and any other client-controlled cash flows.”
A simulation model provides the wealth manager with the ability to test out various scenarios for customers and get detailed insights that can improve their decisions. These simulation models could be updated by customers so that advisors have up-to-date information. On top of this, advisors can add intelligence gathered from population statistics and their institutions’ research department to enhance their decision-making capabilities even further.
Kidbrooke recently argued that failing to have simulation models could even cost a wealth management firm customer.
While companies are on the lookout for the technology that will make them stand out from the competition, Capgemini’s Wilson emphasised that, “There is no “one shiny technology” that can transform operations overnight.” Instead, the answer lies with finding the right blend of tools that can offer real-time data visibility and expert advice.
He said the best way to improve decision-making is by empowering financial advisors with real-time data and tools that help them reduce repetitive or administrative tasks. “The relationship manager must become an architect,” he said. In addition to this, Wilson urged wealth management firms must change the culture away from the status quo where advisors do everything alone. Instead, there needs to be a supportive environment where everyone works together to help them get through complex regulatory, product, and competitive issues.
In line with this, firms should explore one-stop-shop digital workstations to orchestrate superior client experiences, which would go a long way to maximise productivity and decision-making. “This digital workstation will integrate processes, systems, data, and advisory tools across a single desktop interface. As a result, advisors can seamlessly access all relevant client information and functions, expediting the service delivery process and improving decision-making. In return, delivering superior client service.”
One area where Wilson is seeing a lot of attention is back-office automation and the implementation of AI-enabled tools to save time for advisors. He added, “Artificial intelligence (AI) can impact the entire wealth management value chain – from modelling data to assisting with building an investment portfolio. The dialogue format of fast-advancing generative AI technology may soon provide personalised offers, conversational virtual assistant support on complex queries, and specific wealth planning advice.” Wilson added that blockchain is also generating a lot of momentum lately. He stated that many advisors have noted enterprise support for advanced technologies like blockchain, cloud, and analytics, which is important to gain efficiencies while performing tasks.
Regardless of how a company leverages technology to improve their decision-making capabilities, Hopkins iterated that technology cannot replace the human. Technology should be used to enhance and complement the advisor, rather than seek to replace their expertise and judgement, as human insight is still crucial to making the best decisions. He concluded, “Experience in a wealth manager is priceless and cannot be replaced.”
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