This is a sponsored article from Avaloq.

Never have the stakes been higher in the world of wealth management.

Banks that successfully embrace both today’s emergent technologies and the benefits of a phenomenon that Avaloq — the industry leader in financial software, services and digital technology — calls “the democratisation of wealth” will share in the profits of a market that is estimated by Wealth-X to be worth at least US$243 trillion by 2024.

This democratisation will give tech-smart banks the capabilities to deliver to a mass affluent market (that is the fastest growing segment in terms of both numbers and assets) wealth products and services that have until now been the exclusive preserve of HNWI and UHNWI clients.

Because this opportunity will be attended by a client-driven obligation to keep up with the march of technology — or risk obsolescence — banks that fail to understand the driving forces behind democratisation and do not provide solutions to its many challenges may face existential malaise. This risk is amplified by the growing numbers of neobank, fintech and bigtech competitors now encroaching on traditional — and traditionally technophobic — wealth management and private banking territory.

“Client needs are changing rapidly, as wealth shifts to the next, much more tech-savvy and demanding generation of (U)HNWIs,” explains Gery Dachlan, Managing Director for South Asia and Australia at Avaloq. “At the same time, technology is maturing to the point that banks can not only meet this generation’s demands for hyper-personalised services, intensely digital experiences and more sophisticated financial products, but that they can also do this at scale for their significantly larger mass affluent client bases.”

“Technology will increasingly blur the lines between long-established segments in wealth management, but the banks that harness it best will do so for the benefit of the very many rather than the relatively few.”

The formula for success: the three Is

Dachlan and his colleagues have come up with a pithy formula for Success in the soon-to-be-democratised world of wealth management that will increasingly unite the evolving (U)HNWI and Affluent segments. It centres around finding the correct balance between Industrialisation, Innovation and Individualisation. Or, as they put it in short: S=A·I³.

Technological developments and imperatives permeate both sides of this equation and each of its variables. In practical terms, for example, the industrialisation of wealth management at a bank can only begin with the recognition by a united and enlightened C-suite that their often piecemeal and disconnected patchwork of on-premises legacy systems need urgently to make way for a common platform centred around digital enablement and cloud-based technology.

“Cloud computing drives greater efficiency, reliability and agility within banks and, crucially, for those that want to succeed in the wealth management environment of the future, it provides them with a better ability to scale,” says Dachlan.

“Hand-in-hand with the cloud comes the ability to perform and automate data analytics that will give banks the ability to know exponentially more about their clients’ needs, behaviours and individual preferences than ever before. Technology allows for data-driven insights that mean relationship managers and investment advisors will be able deliver personalised advice at unprecedented levels of granularity at unprecedented scale in a cost-effective way.”

Innovation and individualisation will require, amongst other things, smart advice tools and artificial intelligence-driven recommendation engines to augment the world-class user experience demanded by clients now weaned on the instant and seamless gratification of Big Tech. From a technical perspective, this will in turn mean banks working with partners in a collaborative ecosystem on an open API-based banking platform.

“Banks will have to be able to integrate different solutions in a standardised way to deliver innovation at industrialised scale,” says Dachlan, “No bank can do that alone and without highly collaborative third-party technology partners.”

Banks will also need to incorporate new technologies — such as blockchain — and the innovative products they enable — such as tokenisation — if they are to prosper in the democratised wealth world. New asset classes are being created almost daily with real assets being represented digitally on the blockchain. And this tokenisation will allow banks both to offer new products at scale, while presenting clients with solutions based on a greater range of individual choices and more personalised stylings.

Reinventing the customer journey

Clients’ increasingly digital requirements and desire — en masse — for hyper-personalised advice are driving banks towards what Dachlan calls “a persona-tailored, client-journey approach”. This envisages banks employing technologies robust enough to chart a client’s needs from cradle to grave and to be able to anticipate and combine both life-changing events, behavioural changes and wealth landmarks throughout that life cycle.

“Take the example of an individual first going to a bank for student loans followed by some basic products such as life insurance and a mortgage,” he explains. “Say that individual comes into a windfall and overnight becomes a HNWI. In the old world, the private bank and its RMs would have no knowledge of that client even though he might have been banking with other parts of the same institution for 20 years.

“In the new world, a common platform will combine with advanced data insight tools to give a holistic view of the client’s wealth journey, risk preferences and socio-behavioural history. The RM in this instance will be empowered with knowledge and the client experience will be exponentially enhanced.”