Sponsored By Orbium
Why wealth managers must become masters of their data
Orbium’s second C-level survey highlights the stark differences in performance between those who are on top of their data and those who aren’t, writes Ian Woodhouse
Private banking 4.0 is upon us. Digital technology and a highly focused business strategy – not so long ago “nice-to-haves” – have both become “must-haves” in this world of discerning and demanding clients. Firms that lag behind are seeing the results in depressed bottom lines.
This is the story to emerge from the initial results of Orbium’s C-level survey 2020. We asked the C-suite at private banks of all sizes across Europe and Asia about their future ambitions on strategy, operations, performance, clients and staff. It revealed an interesting picture of the relationship between these areas and participant’s use of technology to drive profitability and growth.
Initial results show that wealth managers expect continuing pressure on both revenues and costs. When it comes to gross margins, 38 per cent expect to see declines due to pressures on pricing, low interest rates and investor caution on risk and volatility. And an incredible two-thirds also expect costs to rise due to operational complexity and inefficiencies in the middle and back office.
Understanding the challenges
Their views are being influenced by several factors. Firstly, heightened uncertainty about the state of the global economy – thanks to the trade war between the US and China – has led to volatility and fluctuating markets across virtually all traditional asset classes. This has been compounded by low and even negative interest rates in Europe and the US. Taken together, this environment makes it harder for wealth managers to provide growth for their clients’ portfolios at a profit to themselves.
Secondly, uncertainty and low interest rates have triggered a discernable shift by some clients into newer asset classes like ESG and non-financial passion and lifestyle investments including cars, wine, art and property as they try to find safe havens for their wealth and look for growth. Many private banks admit to being unable to offer clients advice on, and access to these assets.
Thirdly, retaining clients and signing up new ones to grow the business have become increasingly difficult. Competition has intensified due to new entrants and consolidation among existing players – as well as from the rise of the family office.
In addition, next generations of family clients are not so loyal as their elders and have needs and demands that can be met profitably only with a modern, digital strategy. Faced with these challenges, many of the weaker players admit they do not have the right structure and strategy to grow.
Managing the paradox of personal data
Orbium’s survey reveals that to weather the storm created by today’s market dynamics, wealth managers are increasingly turning to technology to help them deliver comprehensive, client-centric multi-channel services. While today only 23 per cent offer this, 76 per cent of respondents expect to be able to do so by 2025.
But – there’s always a but – this will demand excellent data security and guardianship. Our survey shows that many respondents are concerned about “the paradox of personal data”. On the one hand, using data effectively has huge potential to help them grow profitably and deliver the services clients want. But on the other, it presents major risks to the firm if it is not managed securely and in a regulatory compliant manner e.g. GDPR in Europe. Many aren’t yet up to speed when it comes to addressing this. Only 33 per cent currently make risk and security measures a top IT priority, although this will rise to 55 per cent by 2025.
Strategy and structure as solutions
Our initial survey findings point towards an acknowledgement that wealth managers need not just to digitalise but also to adopt business strategy, processes and structure appropriate to a digital business. It’s about learning to use data as an asset but also protecting it to avoid it becoming a liability. Many still may need to adjust their data approach and are seeking help to better meet the challenges ahead and to future-proof themselves for success.
The good news is, as we continue to analyse the responses from our survey, we will provide some valuable insights on where firms need to adapt to be in line with the values and life goals influencing their client’s wealth needs. Armed with this knowledge, wealth managers should be able to make informed choices about how to develop more effective strategies to make focused and relevant investments that will bring profitable growth - watch this space.
Ian Woodhouse is head of strategy and change at Orbium