COVID-19 repercussions are still being felt, so what happens next?
A new report from Aite Group and Temenos has revealed the transformative power of the pandemic for the wealth management industry. Those that committed to digitalisation have come out on top, evidenced by US domination of the report data. Hannah Wright explores the COVID-19 repercussions, and what it all means for the future
In the face of the pandemic, US-based wealth management firms pulled ahead from their European and Asian counterparts, according to a new report from industry analyst Aite Group and banking software company Temenos.
Based on a survey of 31 global firms, the report investigated the impact of COVID-19 on wealth management firms. Amongst the respondents, 54% have experienced a negative impact from the crisis whilst 22% believe their business has been positively impacted.
Of all the factors which bolstered organisational resilience this year, the ability to rapidly transition to a remote workforce and the availability of a digital engagement platform were of paramount importance. In fact, the report highlighted that performance of wealth management firms directly correlates to their digital capabilities.
Consequently, it comes of little surprise that the business performance of wealth management firms has blown hot and cold around the world.
Alongside improvements to client communication and service efforts, well-capitalised US wealth management firms were more likely to have prioritised the modernisation of their front-to-back technology capabilities over the last 20 years.
These long-term investments, in place when COVID-19 hit, meant they were more prepared to deal with the widespread disruption from March 2020.
US firms were also increasingly likely to embrace digital client engagement, which was matched by consumers, as the report also revealed American clients had the greatest receptivity for digital engagement.
Conversely, firms in Europe did not fare so well. Social distancing was particularly damaging for European wealth management firms, indicating their business models remain defined by traditional, full-service client engagement.
In Asia, firms also reported high levels of dissatisfaction with their digital capabilities, with around 50% of respondents being only partly satisfied or not at all satisfied. Client receptivity to digital engagement also ranked the lowest among the three regions.
Communication is King
As an overwhelming sense of uncertainty showed little sign of dissipating, wealth management clients have demanded greater levels of communication. Nearly 70% of firms surveyed in the report experienced client communication levels well above those of 2019.
Over 50% of all firms reported a major increase in the number of clients demanding digital engagement, whilst no single firm registered a drop in client demand for digital. Previously, firms that invested in and supported digital transformation had complained of low returns on investment. However, as adoption rates caught up with expectations, 90% of firms now report some degree of satisfaction with client receptivity to digital engagement.
The traditional adviser-led business model, that has dominated the industry for the entirety of its existence, was turned on its head in the face of social distancing rules.
According to the data, around half of all respondents noted negative impacts from the measures. The issue was particularly challenging for wealth managers attempting to secure prospective clients. Winning new clients typically calls for the establishment of a personal relationship between a financial advisor and a prospective client. With the prohibition of in-person meetings for a large portion of 2020, only 41% of firms globally were either partly satisfied or not at all satisfied, regarding the ability of advisors to prospect for new clients since the start of the crisis.
The report anticipated that the digital shift amongst wealth management firms is here to stay. As a second wave of infections advances far and wide, virtually all industry participants have outlined a course of action, in attempts to upgrade their communication technologies, client management and reporting systems.
In addition, the report cited several specific technology improvements that must be addressed right away or over time, namely: upgrades to digital engagement; digital communication; client reporting; customer relationship management; and financial planning platforms. The extent to which firms can realise these actions depends on their budget, with 43% of firms reporting negative impacts on their business attributable to budget constraints.
Whilst many wealth management firms may feel as though they ventured to hell and back in 2020, the industry has sprung into action and the long-overdue technological advancements have begun to take shape. The future is clear for wealth management, and the future is digital.