How can technology help wealth management firms improve onboarding?
As more companies in the financial services sector adopt cutting-edge technology, customers have an increased expectation of what their financial providers should be able to do. If a company cannot complete tasks promptly or lacks essential capabilities, customers are likely to seek a new provider.
The wealth management sector is a prime example of this. Until quite recently, investing was reserved for the wealthy, but WealthTech solutions have helped to open the market. Today, anyone with a smartphone and disposable income can access investment opportunities.
When trying to attract customers, showcasing the simplicity is vital. As such, onboarding is one of the most important parts of the customer experience. This is the first interaction a customer has with a firm and can set their expectations. Subjecting customers to lengthy and tedious processes can be highly detrimental to customer retention. In fact, a report from Wealth Dynamix found that around 68% of clients abandon onboarding processes halfway through. Given that the average length of onboarding in wealth management is between 14 and 22 days, and the need to contact the customer ten times, it is clear that onboarding in wealth management needs to improve.
Yohan Lobo, Senior Industry Solution Manager, Financial Services at M-Files, explained, “Firms only have one chance to make a first impression. If the onboarding process is inefficient or wastes the client’s time, the relationship will begin on a sour note or may not even progress as some simply give up.”
However, it is easy to assume streamlined onboarding is exclusively for the benefit of the customer. In fact, effective onboarding is not just about ensuring the customer is happy, it is also extremely useful internally. Lobo added, “For most clients, convenience is a top priority. If firms can satisfy this requirement from the start, they will drastically improve their chances of retaining the relationship and growing it over time.”
This was a sentiment shared by Fredrik Davéus, the CEO and co-founder of Kidbrooke, who explained that streamlined onboarding can help firms reach more customers by reducing costs. He said, “Many still have high onboarding costs limiting the type of customers they can serve (i.e. ones that can commit large amounts up front).”
Jurgen Vandenbroucke, Managing Director at everyoneINVESTED, also pointed to the internal benefits wealth management firms can face from streamlined onboarding processes, such as a desire to increase the number of clients served, without increasing the number of advisors.
Another driver for effective onboarding is to keep pace with regulatory changes, such as the Consumer Duty Act in the United Kingdom or the Retail Investment Strategy in Europe. Vandenbroucke said, “Many new regulatory initiatives aim at preserving investor protection when human encouragement or advisor support is lacking. The early stage of investor onboarding is very important in this respect. Accurate client profiling and a future-proof measurement of all aspects of the client’s risk attitude contribute to matching investor preferences with product outcomes. At everyoneINVESTED we turn compliance into performance, and upgrade investor onboarding from a set of legal must do’s to the embarkment of a long-term investor relationship.”
How technology can help
There are countless technology-powered onboarding solutions in the market that can now help firms transform their digital onboarding. While it can be tough to find the best services, there are a few key areas where technology can make a real difference.
Kidbrooke’s Davéus urged firms to seek digital solutions that allow self-service and lets them complete various stages in their own time. This will help the customer fit the onboarding process with their schedule, even if they only have a few minutes free each day. Some of the other key solutions to look out for are digital risk profiling, decision support and digital signatures.
Artificial intelligence (AI) has generated a lot of hype over the years, and it is one technology stack that is really helping to transform onboarding for wealth managers. M-Files’ Lobo explained that by embedding AI, a firm can automate the classification and review of client financial or regulatory information, accelerating account opening or fund transfer. The technology can also help build initial insights and recommendations instantly.
He said, “AI solutions can further utilise data provided by the client during onboarding, leveraging this information to create customer profiles with personalised investment ideas. Creating tailored recommendations manually is time-intensive, but adopting technology will augment the skills of investment professionals, allowing them to offer their service to more clients whilst still delivering a personal touch.”
According to Lobo, automation may be the most transformative tool for evolving onboarding processes. By automating labour-intensive, manual processes like document creation, can ensure important files are shared promptly, while automated document workflows for communications can ensure important information is never lost.
“Ultimately, wealth management firms should be vigilant and assess where they can reduce the administrative burden on staff. Replacing costly and slow manual work with tech-driven alternatives allows employees to focus on delivering returns for clients, where the bulk of their attention should be focused.”
For Vandenbroucke, the best use cases for technology within onboarding are the solutions that can remove as many barriers as possible. One of the biggest barriers for people is time. People are precious with their time and getting them to spend it managing their finances or exploring new investments can be tough.
This is where behavioural finance can help. By understanding human behaviour, firms can build screen-flows and services that are suited to a user. This profiling process begins with onboarding. By collecting the correct information, a WealthTech solution can understand the client’s financial situation and provide services relevant to them.
“A very powerful example of applied behavioural finance in the context of investor onboarding is micro-investments linked to digital payments. People have many reasons, or excuses, not to invest: no time, no interest and – especially in the case of young people – no money. This can easily be countered by promoting to ‘invest your spare change.’ By activating the service people allow that all their expenditures are rounded upwards and the roundup is automatically invested. For example, when spending €13.40 the expenditure is increased to €14 and 60 cents is invested.”
Advice to wealth firms
Questionnaires still dominate onboarding processes within wealth management, but Vandenbroucke believes firms should stop spending budget on questionnaires to meet the regulatory requirement of suitability.
He stated, “To meet regulatory compliance on the assessment of suitability as part of investor onboarding, it is standard practice that investors are appointed to the profile that best fits their balance between risk and reward, based on a number of standardized questions. This approach suffers from at least two shortcomings. First, as stated by Nobel laureate Daniel Kahneman “people are poor forecasters of their future emotions and future tastes.” Questionnaires are unlikely to be good predictors of actual future behaviour. Second, investor profiles restrict to an assessment of the client’s willingness to bear risk in order to obtain higher returns. Behavioural finance convincingly argues that actual human behaviour is more refined.
“As digital transformation continues democratizing access to financial services, regulatory bodies are increasingly turning to tested, quantitative, and client-centric methodologies to strike the right balance between client expectations and product outcomes, he said.”
Rather than relying on static questionnaires at the point of onboarding, technology allows firms to get more up-to-date information on their investors. New technology can collate information from customer interactions, assess an investor’s activity and manage this against significant moments in their life, such as buying a house or having a child. Firms can proactively respond and adapt to shifts in client mindsets.
Lobo’s advice to firms was to look internally at what is needed, rather than looking for the most impressive solutions. It can be easy to be swayed by capabilities, but the platform might not always be the perfect fit for the company. Instead, it is better to look internally and understand the challenges with the onboarding process and pick a solution that would actually resolve them. A simple audit of onboarding procedures can quickly highlight the pain points and that will make it much easier when looking for the perfect solution.
Lobo added, “It’s also crucial to remember that no one knows more about onboarding than the staff members who navigate this process daily. Offering employees the chance to share feedback, report any pain points, and make suggestions for potential improvements is not just beneficial, but essential. It can provide a clear roadmap towards creating a seamless onboarding pathway, making staff feel valued and integral to the firm’s success.”
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