Managing finances for corporate, institutional, and individual investors has become more complicated in recent years. As the digital economy speeds up the pace of business and financial transactions become more automated and extended across international jurisdictions, the need to enhance investment reporting, tracking, accounting, and other capabilities has grown.
Related: Dani Fava on the Involuntary Tech Revolution, Artificial Intelligence, and Asking Questions
At the same time, however, the financial markets around the world are becoming increasingly challenging as stocks, bonds, currencies, commodities, alternative investments, derivatives, cryptocurrencies, and all types of investment face the unyielding pressure of an economy trying to right itself after the first serious pandemic in a hundred years. This is complicating the efforts of wealth managers and financial advisers to maintain top performance, largely due to the fact that opportunities in this market tend to be highly specialized and short-lived.
Unfortunately, existing processes and infrastructure at most wealth management firms and RIAs is not geared for this environment. Not only are they too slow, but they also lack the scale and flexibility needed to capitalize on many of the digital economy’s emerging opportunities. But expanding this environment is both unwise and unproductive considering the costs involved and its reliance on manual operations.
Faster and Leaner
In the recent past, we have seen many leading wealth managers and RIAs turn to wealth technology to streamline and enhance their operations. Technology is continually proving itself to be a key enabler of successful investment strategy and execution, largely due to its ability of ingesting and analyzing massive volumes of data to spot trends and opportunities that would otherwise have gone unnoticed, much of which is valuable for only very short periods of time.
Still, many enterprises are not taking full advantage of these tools and technology, even after investing in wealth tech, because it’s not the technology alone that produces these results but the practices and culture on which they depend.
In a cloud-driven economy, savvy wealth managers have access to all the data they need to determine how best to achieve investment success. At the same time, this data can be leveraged to predict future risks and economic downturns with far greater accuracy than in previous generations.
In a modern cloud environment, investment processes are unshackled from the kind of rigid infrastructure that limits data analysis and informed decision-making due to high operating costs and the overall difficulty of managing resources and platforms. In the cloud, wealth managers are able to employ a wide range of automated tools and technologies to assess the key metrics in risk management, gain/loss projection, and other rapidly evolving data points. At the same time, the cloud enables the development of numerous automated services and self-help tools that remove much of the direct customer service burdens from staff members so they can devote more time to innovation and the development of new investment strategies.
New Business Imperatives
While wealth managers and RIAs are dealing with emerging technology areas such as cloud computing and automation to drive better results, they also need to contend with emerging business priorities. This is visible in a changing demographic and the emergence of new asset classes.
The target customer set of a wealth manager or financial adviser is changing rapidly. There is a nearly $30 trillion intergenerational wealth transfer that is happening from baby boomers to millennials. These customers will become the dominant segment over the next 10 years and wealth managers will have to develop specific products and services to cater to this segment.
Secondly, there is an explosion happening in digital assets where broker-dealers are building “tokens” on various kinds of underlying securities. The digital assets present a huge opportunity because millennials are interested in that. However, there is a lack of awareness and custody infrastructure to make this mainstream. As these develop further, wealth managers and advisers will need to build solutions on these new asset classes for the emerging customer segments. The technology needs of these emerging customers and products will require greater investment in wealth tech.
Related: Tech Extravaganza
Better Preparation
All of this helps to mitigate financial strain and provide opportunities to train wealth managers and advisers on leveraging the new generation of wealth tech to better prepare for the next financial crisis – particularly when it comes to establishing the right positions that stand to provide maximum returns during the recovery.
In many cases, these opportunities will impose unique risk and reward factors to individual investors, depending on their holdings and exposure to various conditions. This requires unique tools within the wealth tech environment, many of which are being developed in-house with direct input from the financial professionals who will use them. In this way, wealth management firms create their own set of defining capabilities that differentiate them from the competition and drive greater levels of success.
To capitalize on wealth tech, however, organizations must take a hard look at their entire data footprint to identify key areas that are inhibiting the development of technology-led initiatives. Both the cloud and new analytics capabilities are crucial to this transition, but this should not be limited to client-facing front-end tools and processes. Mid- and back-office systems—which have traditionally been written off as cost centers—can be transformed into valuable assets with the right technologies, namely agile development, automation and artificial intelligence. In this way, wealth management firms can provide full support to improved insight generation, better decision-making and higher levels of personalized service.
Above all, wealth tech is about democratizing data so that its full value can be leveraged across the entire products and services portfolio. By freeing data from traditional silo-based architectures, all members of the investment management organization can push their productivity levels to new heights, unleashing the ability to make decisions with high degrees of confidence and the knowledge that they can quickly pivot in a new direction should a strategy prove unsound.
With wealth tech as part of an optimized data environment, wealth managers are finding they can greatly diminish their risks while substantially increasing their rewards.
Nageswar Cherukupalli is SVP and head of Infosys Capital Markets Unit, where he leads the strategy for capital markets industry strategy for Infosys. Nageswar started at Infosys in October 2002 and in his current role, Nageswar has focused on bringing digital transformation solutions to financial services organizations to generate customer value, improve customer experience, and build flexible technology platforms.