Well, there’s a new player in town – end-to-end third-party platforms. They’re like secret weapons that wealth and asset managers can use to tackle these challenges head-on.

These platforms bring some serious benefits to the table. They can help slash costs in the middle office and operations, open up exciting new business opportunities, and even create fresh revenue streams.

But here’s the kicker: picking the right platform isn’t child’s play. The top brass, including the CEO, must be in on it. It’s a two-step process. First, you’ve got to get a grip on your challenges, and second, take some savvy action to beat them.

Navigating Challenges in Wealth and Asset Management

Challenges abound! It’s a tricky trinity of rising costs, narrowing margins, and the ever-increasing demands of clients. Let’s break it down and see how these factors are reshaping the industry!

Note: Source information vetted from the BCG’s “Scalable Tech and Operations in Wealth and Asset Management.”

1. Escalating Costs in Technology and Operations

Major asset managers have seen their cost-to-income ratios (CIRs) gradually increase since 2018, reaching 74% in 2022. Smaller asset managers with less than $300 billion in Assets under Management (AuM) have experienced a more pronounced jump, reaching 78%. Meanwhile, in the wealth management sector, smaller players with AuM below $150 billion have encountered an even steeper rise, surpassing 82% in 2022. What’s fueling this surge in costs? It’s technology spending.

Notably, investments in application development and hosting have surged, reflecting the growing demand for new capabilities and the migration to the cloud. Moreover, the ever-evolving landscape of regulations adds another layer of complexity and cost.

2. Shrinking Margins and AuM

The industry faced an unprecedented event in 2022 when global Assets under Management declined by around 15%. This unfavorable outlook is exacerbated by the persistence of higher interest rates and sluggish GDP growth anticipated through 2025. Wealth and asset managers also find themselves caught in a web of relentless margin compression due to several market trends, including the growing presence of passive investments, digital competition, and the consolidation of industry giants. The result? A decline of 3% in return on assets (ROA) annually from 2018 to 2021.

Moreover, product fees have taken a substantial hit, with active funds experiencing an 11% decrease and passive funds witnessing a significant 35% drop since 2017. Model portfolio services have also seen a 12% margin reduction since 2017. Asset-servicing margins for typical wealth management mandates have plummeted to as low as 12 basis points. These challenges can be attributed to technology integration, scale advantages, and increased transparency.

3. Intensifying Client Demands

Client expectations are continuously on the rise, prompting wealth and asset managers to make significant investments. Notable areas of expenditure include hybrid advisory services, direct indexing, and managed portfolio solutions, all geared toward enhancing personalization. Clients increasingly seek complete transparency in their investments, particularly concerning sustainability and alignment with personal values. While fintech is a crucial enabler for wealth and asset managers to transform their business models, operational adjustments are equally critical for effectively adapting to the evolving landscape.

Given the formidable nature of these challenges, wealth and asset managers are exploring a viable solution – partnering with third-party service providers. As the industry transforms, outsourcing essential services becomes an attractive pathway to achieving operational efficiency and cost-effectiveness. This strategic shift allows wealth and asset managers to focus on their core competencies while efficiently addressing their multifaceted challenges.

Adapting Tech Solutions in Wealth and Asset Management

This surge directly responds to the escalating demand for streamlined digital experiences and automated operations. Notably, the share of third-party technology investment has soared by over 10% since 2018, impacting routine operations and strategic initiatives within wealth and asset management firms.

To comprehend these transitions, let’s deconstruct the conventional technology stack utilized by wealth and asset managers, identifying six key layers:

1. Digital Front End and Engagement: This layer is designed to provide multi-channel interfaces that manage customer and advisor interactions seamlessly.

2. Smart Workflows: These workflows structure, orchestrate, and automate processes, integrating them with various business solutions.

3. Core Business Capabilities: Offering product and service logic across the value chain, covering advisory, portfolio management, execution, and asset servicing.

4. Central Data and Analytics Platform: Acts as the hub for data ingestion, storage, and governance, enabling a unified client view and supporting AI and analytics-driven use cases.

5. Core Booking System: Functions as a central repository for customer and account data and transaction processing and facilitates reporting and third-party integrations.

6. Cloud Infrastructure: Essential for scalable computing and network resources, providing foundational services from developer tools to cybersecurity.

The most notable shift towards third-party solutions is observed in infrastructure and data layers, primarily driven by the migration of workloads to the cloud. A select few “hyperscalers” have seized the market by swiftly scaling computing resources and software architecture, a trend gaining traction due to cloud providers’ compliance with stringent data privacy and cybersecurity norms. Conversely, wealth and asset managers find opportunities for differentiation in the upper layers by focusing on well-designed customer journeys and seamless multi-channel experiences.

Embracing Novel Approaches to Technology and Operations

Traditionally, prominent players favored the in-house development of complex, stable operating models across major sections of their technology stacks. However, the evolving landscape of customer needs and the prevalence of software as a service (SaaS) solutions have led to an increasing adoption of a “best-of-breed” approach. This strategy involves integrating an expanded range of third-party solutions throughout the tech stack. While it expedites access to innovation, its successful implementation demands robust integration capabilities and rigorous architectural standards to manage the inherent complexity.

Moreover, as integration challenges persist, a growing trend is the deployment of end-to-end vendor platforms by financial institutions, covering non-differentiating activities. This approach significantly reduces the necessity for proprietary technology development and, in some instances, diminishes the reliance on in-house staff. Certain vendors offer outsourcing solutions for routine middle office and operations functions.

Although these vendor-based options were initially popular among smaller players or minor office locations of larger firms, they’ve recently gained traction among major incumbents. The pursuit of faster time-to-market strategies fuels this shift, the broader embrace of open finance and ecosystem use cases, and the scarcity of in-house tech expertise.

Of course, each approach has distinct benefits. The “in-house-first” and “best-of-breed” pathways afford control over technology specifications, customization, and differentiation while ensuring control over operational and security risks. Meanwhile, end-to-end platforms bring advantages like lower maintenance costs, automated upgrades, simplified integration, and greater flexibility for operational changes. For firms lacking the scale to independently develop and manage their solution stacks, an end-to-end platform emerges as a compelling option.

Taking the Bold Step

Wealth and asset management firms face significant challenges, prompting a need for digital and operational overhauls. Traditionally, in-house initiatives have encountered delays and budget issues, leading to a search for new solutions.

One emerging solution involves transferring certain tech aspects to end-to-end platforms. Vertically integrated providers offer services across the value chain, potentially leading to substantial cost savings. Alternatively, the “best-of-breed” approach allows institutions to pick solutions from various vendors but reintroduces some risks.

1. For leaders (CEOs, CTOs, and COOs), strategic decisions hinge on key considerations:

2. Flexibility: Does the new setup facilitate swift responses to market changes?

3. Coverage: Can it serve diverse markets and tap into new opportunities?

4. ROI: Is there a strong business case for savings or new revenue streams?

5. Vendor Reliability: Can the vendor be trusted for security, reliability, and innovation?

6. Alignment: Is the vendor relationship sustainable considering potential costs?

7. Migration: Can migration occur without compromising project benefits?

The post Is the Clock Ticking for CEOs to Revolutionize Wealth and Asset Management Tech and Operations? appeared first on Indium.

The wealth management sector has evolved over the past decade and continue to do so at a faster pace. This implies that to stay afloat in this sector, wealth management firms need to adopt newer technologies.

Further ahead, we will explore the various nuances within wealth management industry.

The Concept of Modern Wealth Management

There are many developments taking place in the wealth management sector. These modifications will unavoidably make it easier for individuals of all ages to make investments and achieve their financial objectives.

However, certain aspects never change, such as agility, adjusting to new demands, and ensuring that client-centricity, trust, and openness are not jeopardized.

Many industries now see digitally driven solutions as the standard, instead of being a competitive edge. Thanks to the COVID-19 pandemic, this adoption has accelerated across industries.

Businesses may be transformed by technology, which can also improve interactions, user experience and produce specialized solutions that add significant value to satisfy customers.

In order to gather and use data, wealth management firms are now considering solutions driven by artificial intelligence and machine learning solutions. This facilitates the development of customized solutions for customers by wealth managers.

The Different Kinds of Wealth Management

Wealth management, for the majority of financial advisers, is about establishing a long-lasting connection with their customers and giving them peace of mind knowing that competent wealth professionals in the wealth sector are looking after their assets.

A knowledgeable financial adviser can assist you with the various kinds of wealth management.

Let’s examine each of them more closely.

1. Financial Planning & Asset Allocation

This kind of wealth management is centered on giving you financial advice depending on your financial situation in order for you to accomplish both your short-term and long-term financial objectives.

Financial consultants will specifically assist you with budgeting, investing, retirement savings, tax preparation, and other tasks.

Choosing the right kind of assets is of utmost importance and a knowledgeable wealth manager will assist in managing risks and profits while varying the number of investments.

2. Tax Accounting

Tax payments and returns are the main emphasis of this branch of wealth management. Tax accountants may assist you with your taxes, which may be challenging because of investments you have made, by helping you determine what deductions you can make so that you pay less during the tax season.

3. Asset Management

As the name suggests, managing your money is the main focus of this kind of wealth management. By assisting you in purchasing stocks, bonds, funds and then keeping track of them for you, asset managers help you achieve your financial objectives.

Asset allocation and asset management are distinct from each another because asset allocation places a greater emphasis on high-risk, high-reward assets.

4. Estate Planning

Establishing a strategy for handling your estate in the event of your incapacity or passing is the main goal of this sort of wealth management. Works in conjunction with tax planning vertical as well since passing on the wealth invokes wealth tax in most geographies.

How Wealth Management Benefits You

The fundamental benefit of wealth management is that it combines various elements of money management and financial planning into a holistic solution centered on your individual requirements and goals.

Also, you get to have peace of mind with your finances as a personal wealth manager will be assigned to you irrespective of your needs. They will design and manage a custom investment strategy for you by using their expert expertise and in-depth understanding of your future aspirations.

These needs could range from structuring or transferring wealth to planning your rent payment structure.

Below are some ways in which you can benefit from modern wealth management.

• You get offers of impartial wealth planning guidance for all facets of your money.
• Direct communication with your wealth manager, which fosters trust and accountability.
• You get to have regular updates on the performance of your investments from your wealth manager.
• Access to a portfolio of investments tailored to your needs, risk tolerance, and stage of life.
• You have experts looking after your money, saving you time and trouble.
• Suitable investment possibilities have been sourced globally.

What it Takes to Be a Modern Wealth Manager

1. Certifications

Although qualifications may differ amongst Wealth Management organizations, a bachelor’s degree is the minimum certification needed in the industry. Additionally, if you want to stand out in the market, you should get certain qualifications in a discipline that is linked to money, like accounting.

2. Versatility

Modern wealth managers need to be versatile because the sector constantly evolves. Also, they have to be knowledgeable in areas of sustainable investments, be emotionally attuned to customers of all ages, and knowledgeable about intricate financial and economic concepts. They must also follow the regulations and bring in money.

In other words, a wealth manager of today must be a “Renaissance Person”.

 Advisors should take the initiative to keep their skills in tune with the current market demands. That way, they won’t rely solely on what their firms provide. This is known as continuing professional development (CPD).

Therefore, modern wealth managers and private bankers must ensure they are not left behind in terms of their professional development which is expected to be continuous.

3. Tech-savvy Abilities

Technology is undoubtedly the core of new age wealth management. Today’s wealth managers must embrace diversity and be tech-savvy.

Private banking is no longer only about men conversing with clients in rooms; instead, it has undergone significant transformation. In that regard, the industry has evolved in step with changes in other sectors.

Digital technology definitely plays a significant role in other skill sets, considerably more so than just knowing how to use Teams or Zoom to communicate with clients or fill out online forms.

Digital Transformation In Wealth Management

Better Customer Relationship and Improved Portfolio Management

Technologies like Advanced Analytics, AI & ML can transform personal data into more tailored insights for customers. It helps wealth managers to provide holistic advice to their customers and connect better with the new generation.

Enhanced Flexibility and Scalability

Like any other industry adopting to cloud provides scalability and flexibility to assets and clients being managed. It helps the firms to save on data storage hardware and maintenance costs. For better security and compliance, cloud is proving to be the best way forward for the industry.

Improved Compliance and Digital Documentation

Intelligent Automation can improve efficiency and accuracy in data migration and asset management compliance. Optical character recognition (OCR) and Intelligent character recognition (ICR) are being used for error-free and quick identification and transfer of data from paper to digital systems.

Conclusion

Today, a lot of digital technologies are being employed to improve customer interactions, reporting, and analysis. If technology is properly used, it may significantly improve how people connect with one another.

And how can Indium help in this area?

• Automate wealth management workflow thus integrating front office, middle office, sales, and back-office functions.
• Our award winning Tex.ai can be used to extract insights from various sources, thereby helping financial institutions create customized products and services and focused promotions to improve conversions and enhance overall customer experience.
• By leveraging our cloud solutions financial institutions can modernize their infrastructure, meet rapidly changing customer behaviours and expectations, and drive business growth.

The post All About New Age Wealth Management appeared first on Indium.

Even though the financial services industry has long been affected by technological advancements and disruption, many FinTech technologies have been hesitant to penetrate the lucrative wealth management market.

Due to the numerous stakeholders in the wealth management sector, we are aware that the market is considerably larger than merely advisers.

So, let’s take a broader look and explore some of the industry’s current trends that you should be aware of.

1. Re-Platforming

One of the largest developments in the field is Re-Platforming, which is also known as “upgrading.” Re-platforming is merely an upgrade that entails swapping out your platform’s outdated IT technologies for more recent ones.

Given how long it takes to implement new systems, this upgrade is crucial, and making these updates is important since it will affect your customers and how you interact with your provider.

Re-platforming or upgrading may be a laborious process that requires years to complete before you reach your desired level, but the results are rewarding.

2. Limiting Compliance Cost

The regulatory compliance reporting process may be simplified to a large extent by technology. As a consequence of continuous changes, businesses and professionals are increasingly using affordable solutions that streamline operational processes.

Partnerships with solution providers are anticipated to become essential for firms to quickly respond to changes in the regulatory landscape and to confidently fulfill regulatory requirements.

3. Regulatory Technology

Regulations may and usually do change. To ensure that it is always compliant, your business has to have a strong compliance system in place.

RegTech tools may assist your wealth management business cut costs on fines, manpower, and the cost of enacting new laws. In order to help your business with regulatory compliance, choose a RegTech solution.

Regulation technology is a significant development that wealth management professionals need to be aware of. Companies spend a lot of money each year dealing with compliance concerns, even if it’s simply making sure that you are being compliant.

RegTech reduces compliance-related problems while improving the effectiveness and efficiency of the whole compliance process.

It might be interesting to read about Challenges in the Wealth Management Industry and How can Tech Reshape it

4. Agile Distribution

Professionals in wealth management have turned their attention from goods to customer service. Companies are increasingly making substantial use of automation and insight-based solutions.

With the use of this technology, businesses may respond to customer expectations for individualized services and market developments.

The main goal of agile distribution is to enable next-generation capabilities by changing a company’s service delivery paradigm to one that is based on agile principles.

From a regulatory and operational standpoint, technologies like cloud computing, big data, APIs, and artificial intelligence allow businesses to adapt without having to implement whole new systems that are unable to match the shifting demands.

In other words, agile distribution refers to contemporary technology that is quick to respond to changes in operational, legal, and customer demand without requiring the implementation of new technology or specialized development effort.

This eventually makes it simpler to service clients and increase efficiency, enabling businesses to respond to changing client requests more quickly.

5. Use of Virtual Tools

Numerous changes in wealth management are undoubtedly being driven by technology advancements in the sector.

Despite the industry’s past reluctance to accept new technology, developing tools provide fantastic opportunity for businesses to increase their bottom line.

By assisting customers with frequent, automated reports of their assets, virtual tools can free up advisors’ time so they can concentrate on finding new clients and giving advice. Additionally, automating numerous customer contacts eases financial strains.

By facilitating data-driven judgments, virtual tools might also encourage investors to modify their behavior. And by proposing actions for customers, tools like next-best-action engines may assist advisers in streamlining their roles and duties.

6. Internet of Things

Despite the widespread use of Internet of Things (IoT) technology, the wealth management industry has been slower than others to do so. The time has arrived to start making future plans and offering your clients better product choices.

For asset managers, IoT devices open up new data sources, but capturing real-time spending and saving data does more than just allow them to give more tailored solutions.

Furthermore, it assists clients in discovering areas of their lifestyle that they might not have been consciously aware of.

IoT technology is typically employed for practical tasks like monitoring a client’s assets, but it may also be applied to improve operational efficiency, satisfy customers, and make products more affordable.

7. Augmented and Virtual Reality 

Tools like augmented reality and virtual reality are excellent for helping wealth managers connect with the younger customers who are beginning to take over the industry.

These innovative technologies not only assist in luring in younger consumers, but they also aid in educating them about the advantages of wealth management in a way that is more engaging and simpler to comprehend.

Long-term success will depend on how well a wealth management company can explain the value of their service to younger clients who may not be familiar with the services they offer.

AR and VR will be instrumental in helping forward-thinking organizations communicate with and educate their potential clients, which is something that wealth management firms must be creative about.

The most intriguing and promising technological advancements now in development are augmented reality (AR) and virtual reality (VR).

Despite the fact that it can appear like AR and VR have no role in wealth management, that is just untrue.

8. Machine Learning to Correct Bias Decisions

One of the pillars of wealth management is decision making. Even the most seasoned wealth managers are prone to making biased decisions.

This is unarguably why a wide range of sectors and companies have adopted the use of machine learning and found it to be profound.

The accuracy of the predictions made by machine learning techniques will increase with the amount of data you provide.

Successful wealth management companies can recognize when emotion or intuition is driving a trade and make rational change as a consequence.

The fact that the bulk of high-net-worth individuals are older and accustomed to conducting business in a particular way is perhaps the main reason why the wealth management sector has lagged behind the financial services sector overall.

On the other hand, you may be confident that you’ve done a fantastic job based on worldwide benchmarks thanks to these technological advancements.

How can Indium help

We at Indium, can –

• Automate wealth management workflow thus integrating front office, middle office, sales, and back-office functions.
• Our award winning Tex.ai can be used to extract insights from various sources, thereby helping financial institutions create customized products and services and focused promotions to improve conversions and enhance overall customer experience.
• By leveraging our cloud solutions financial institutions can modernize their infrastructure, meet rapidly changing customer behaviours and expectations, and drive business growth.

The post Top Technology Trends Driving the Wealth Management Industry  appeared first on Indium.

It is becoming increasingly challenging for advisers to provide their customers with sound investment advice due to rising levels of uncertainty and risk-related charges. To top it all off, the amount of change in the wealth management sector is further compounded by rising regulatory constraints, novel business models, and competitive trends.

What is Wealth Management and Why is it Important?

Wealth management takes place when a high/ultra-high net worth client consults a financial adviser to develop a strategy that will improve their existing financial status. A company or person without wealth management suffers from financial mismanagement which causes financial stress and, possibly, debt. We all require assistance at some time.

Common Challenges Affecting Wealth Management

The ultimate purpose of wealth management is to provide security and peace of mind so that you may enjoy the present moment to the fullest.

However, some factors tend to disrupt wealth management and we discuss them below.

1. Science Vs Human

According to a MagnifyMoney poll, 63% of Americans are receptive to adopting robots as financial counselors.

But keep in mind that this does not imply that robots will replace people as advisers; rather, it highlights the fact that many businesses have adopted the strategy of deploying robots as advisers.

Robot advisers have become more commonplace over the last few years. Some businesses employ sophisticated algorithms to generate individualized financial plans and asset allocations as well as to direct investors to pertinent studies.

Some companies have also developed tools and algorithms that produce real-time data analysis and suggestions for individual clients’ investments.

2. Newer Asset Class

With the gradual dominance of assets like cryptocurrency, Sustainable and responsible investing and ESG funds in the financial sector, investors seek newer avenues to keep up with these trends.

The wealth management industry needs to adapt to this ever-changing demand, considering these newer asset classes are getting acceptance all over the world.

3. The Re-wired Investor

Younger investors’ decisions to buy and use wealth management services are influenced by the changing attitudes and expectations that this generation of investors brings to the Wealth management business.

The Re-wired Investor views advice differently than prior generations and anticipates engaging with advisers in a new manner. Investors, for example, no longer wish to be addressed as a segment but as distinct people with distinct interests and preferences.

Instead, they expect to receive advice tailored to their unique circumstances.

They also want to maintain control over their financial life, grasp the information they are given, and make critical decisions for themselves.

4. Aging Advisors

Two significant phenomena that will have an influence on the wealth management sector in the coming years are the wealth transfer from baby boomers to their children and many advisors reaching their retirement age.

There are further difficulties brought on by the aging of the advisor population. First, the deteriorating client-advisor relationships are a result of the widening age gap between advisors and the Re-wired Investor, which makes it difficult for some advisors to comprehend and adapt to the demands and preferences of a younger generation of investors.

Second, many advisers have been reluctant to use mobile channels, accept new technologies, and transition to new advising models that balance the use of both human and scientific knowledge. This problem is difficult to solve, and many established WM companies engage in training without seeing a big return on their money.

5. Regulatory Burden

Due to the range of their product offerings, WM firms have always had to manage operations that are inherently risky. These products could include financing, capital markets, and investments.

Additionally, businesses like private banks and their parent corporations now face particularly high expenses related to these risks due to the delicate nature and high profile of their client base.

The regulatory environment has changed swiftly since the 2008 financial crisis, and its full impact is yet unknown.

It is evident that the regulatory burden put on WM firms, their advisers, and their clients is becoming more complicated.

6. Retirement Age of Investors

A recent study shows that retirement age has been gradually declining. The trend here is that investors are preponing their retirement and yearning for early retirement.

Many investors only seek reassurance that they will be able to maintain their present way of life in retirement. This leads to increased pressure on wealth managers as they need to accumulate additional wealth within shorter span.

The process of delivering that assurance, however, is no longer as straightforward as it once was due to factors like growing healthcare costs and worries about the viability of government entitlement systems.

7. Expectations

Retail investors now more than ever anticipate having the same access to potentially high-yield asset classes and techniques as wealthy, authorized investors.

The rewired investor does not wish to receive usual service anymore, as was already said. Instead, given the low-yield environment that has followed the financial crisis, ordinary investors are beginning to demand the same level of access to high-yield asset classes and strategies as wealthy, authorized investors.

In years past, several start-up businesses have joined the market in response to the demand for return and for access to best-in-class investment solutions, which until recently were only available to institutional or high-net-worth clients.

8. Macro Environment

Both the financial crisis and its aftermath have significantly altered the climate for asset managers and investors. Investors currently have to deal with a situation where there are high inflation rates, and a falling pace of economic development.

Pandemic, monetary tightening by central banks have led to uncertainty. Investors now have far less sense of direction than they had previously.

It might be interesting to read about Data Enrichment for Enriching Customer Experiences

How Digital Technologies are Reshaping Wealth Management

Traditional wealth management is far from being the only service offered by modern wealth and asset management, which includes a wide range of services.

The emphasis is on the specific needs of each individual customer. It could be a pension concept that looks to the future. Perhaps it’s the selection of the best investment and financing for one’s own property.

Financial service providers are urged to automate and digitize their operations to make sure that comprehensive wealth planning is still scalable for many clients.

Only in this way will seasoned service providers be able to resist the demands of fintech and technological giants in the future.

The fintech sector has already risen by 300% over the previous three years and is putting itself in position to seize the new market opportunity.

Because of this, today’s experts in wealth management must keep pace with these disruptors.

Conclusion

We become more dependent on technology as it develops. The workforce is being influenced by artificial intelligence, particularly in the wealth management industry.

We recommend that new and old businesses try to take advantage of digital tech soon.

Indium Software has been delivering critical solutions in the areas of AI, Data & Analytics, Cloud for several leading BFSI institutions. To know more about the solutions we offer, please write to us at info@indiumsoftware.com

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