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How to Achieve Digital Transformation

Disruption is occurring. Here are steps to plot your path.

By David K. Donovan

Wealth management has always been a relationship-oriented business. It requires a certain level of trust, faith and sense of community for people to hand over their life earnings, their college funds, their retirement money to a third party.

Digital is disrupting that connection. People are forming social bonds and networks online. Social skills are being measured by Twitter and Instagram engagement or Facebook likes. The millennial generation has built an unprecedented sense of trust with technology, particularly with their phones, and demands transparency in all of their transactions.

New robo advisory powered entrants such as Wealthfront or Betterment, which now have more than $5 billion in AUM, have raised an incredible amount of money building online tools that deliver automated or algorithm-based portfolio management advice. They offer automatic portfolio rebalancing or tax-loss harvesting and provide other services that help clients determine how to invest their money.  BlackRock’s acquisition of FutureAdvisor and UBS’ investment in SigFig are examples of how traditional firms are engaging with the new breed of financial technology.

While technology is forcing investment firms to adapt, past approaches aren't going away either. Even newer firms lean on human interaction to offer complicated financial planning to their clients, as evidenced by Betterment Plus, which offers an annual planning call from experts and email advice throughout the year.

Advisors will continue to play an important role in a hybrid model, particularly for high-touch asset classes. The levels of personalization and customer engagement afforded by this model will likely become a differentiating factor to ensure growth as the market matures.

In addition to these emerging hybrid models, changing market dynamics are also evident in the uptick in merger activities where technology platforms and scale are important to offer personalized customer services. TD Ameritrade’s acquisition of ScottTrade is an example where technology and robo advisory services will help meet the evolving needs of customers for both organizations.

Plotting a Path in the Digital World

Technology has the ability to shape the client experience. With more palatable and transparent advisory fees and other cost-effective services across commoditized asset classes, technology can increase the global reach of wealth management firms as wealth is redistributed across global and emerging markets.

As firms examine their transformation strategies and budgets to fund the path to digital, it is clear there is not a one-size-fits-all solution. However, there are some universal themes that need to be examined for transformation in 2017 and beyond:

  • Establish a multidisciplinary team: True digital transformation will impact every aspect of your organization and, as such, requires a multidisciplinary group to deliver real change. Any transformation project driven solely by IT, or by a strategy team, is likely to fail. It requires a mixture of skills and functions comprising IT, strategy, risk and compliance and, crucially, needs a C-level sponsor to ensure any recommendations are implemented. 
  • Establish a governance framework for digital transformation: One key to success is the development of a strategic plan for digital transformation. Each business unit, department and division within your company might be engaged in everything from mobile to cloud to creating a customer experience. However, if there isn’t an overarching governance framework tying those with your organization’s overall goals, you could have small short-term wins without meaningful long-term transformation.
  • Place the customer at the center of transformation: You have a team and a governance structure but simply cannot forget whom you are doing this for. It’s not an internal change program; it is focused on what you can do for your customer. Doing digital for the sake of doing digital, “I can build a mobile app for this,” without putting the customer at the center of your strategy will lead to minimal ROI.
  • Develop an multichannel approach: As an asset manager you should be able to seamlessly meet your customer needs whenever and wherever the customer desires across multiple channels. These channels are not all digital, but you need a consistent, integrated experience from mobile, websites and down through to your call centers in order to drive loyalty. That includes self-service, the ability to look up and review portfolio holdings or instantly speak with an advisor. This is not only a generational requirement, “I will target the millennials,” but across all client demographics.
  • Support the SMAC (social, mobile, analytics and cloud) Stack: Wealth managers, unlike some of the large retail and commercial banks, have less legacy technology and infrastructure. Moving from legacy, on premise architecture to one that is open (Open APIs), modular and agile to leverage the SMAC stack can offer the flexibility you need to deliver sustainable engagement.
  • Identify your own unique path: “Technology is making customization easier and cheaper each day” says Alexa von Tobel, founder and CEO of LearnVest. The path to transformation is not one size fits all. You have to look beyond the market noise and hype about what a competitor is doing to see what fits in with your specific strategic goal and objectives.
  • Define a talent acquisition strategy: Wealth managers have different strategies to target talent. For example, UBS has decided to build talent in house and create “digital garages.” Others are looking at third party partners and start-ups to get the scarce talent, while some are tapping into academia to build a pipeline of the future.

Digital transformation and algorithm-based advisory services are levelling the playing field for wealth managers with lower barriers to entry that empower new, nimble competitors to take market share. At the same time, client demands are changing as they expect similar experiences to those they get when interacting with the rest of the digital world.

Placing digital at the core of an operation that has, in some cases, been providing investment services for over a hundred years, comes with substantial technological and cultural challenges. However, in today's highly competitive market, traditional firms have an unprecedented opportunity to leverage new technology to transform their role and position themselves for long-term success.

Plus, if leveraged correctly, robo advisors can become smart colleagues that empower advisors and bring transparency to their clients. Although the personal touch will always remain a critical differentiator.

David K. Donovan is Senior Vice President, Sapient Global Markets.

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