Wealth Management Leverages Digital to Engage Consumers in Era of Massive Wealth Transfer

money transferring between two smartphones
By Niel Maartens

5 minutes

Six considerations for credit unions

The events of 2020-2021 accelerated the digital transformation of the financial industry. 2022 saw geopolitical volatility and economic uncertainty challenge conventional wisdom. A consumer banking industry famously resistant to digital transformation found ways to remain relevant and competitive to appeal to the needs of digital natives, providing data-driven tech, online tools for more services and better customer engagement. Now, a different echelon of customer is expecting the ease, speed, control and better customer experience of digital solutions. At the same time, the millennial generation has matured into its time of investing, planning and wealth management. Additionally, millennials and Gen X are poised to be on the receiving end of the “great generational wealth transfer” over the next 10 to 15 years. These digital native generations, and other factors, are motivating the wealth management sector to evolve from the pains of friction experiences, manual processes and spreadsheet dependency. Let’s take a closer look at the factors informing how and why wealth managers at financial advisories, banks and credit unions will move into the tech platform era in 2023. 

1. The Great Generational Wealth Transfer Is Underway

Over the next decade, an unprecedented amount of personal wealth will change hands, as 70 million Baby Boomers prepare to pass an estimated $15 trillion in assets to the next generations. The sheer volume and complexity of these transactions represent opportunities for financial institutions to capture a new revenue stream. For wealth management institutions to be ready to meet the moment, they will need to master an array of new complexities from tax structures that change with each new administration to the increasingly globalized and environment-social-governance-minded millennial generation that will receive the wealth. Millennials who have endured more than their share of financial turbulence will need the help of banks and other institutions to make the most of their windfall. If advisors, banks and credit unions win a piece of the wealth transfer pie, they need to act fast to leverage better practices to track, analyze and assess risk across asset classes and geographies.

2. Succession and the Next Evolution of Digital Wealth Management Tools

With large sums of money come massive complexities. The younger cohorts value hands-on engagement, speedy transparency, and data-driven, tailored advice. Financial institutions need the ability to generate a holistic snapshot on a simple, tailored dashboard consolidating information from investments spanning multiple asset classes and worldwide locations, multiple fund and asset managers, banks, custodians and brokers. Technology can remove the analysis barrier between liquid financial assets with highly standardized data and non-financial alternative assets with highly disparate data. Many financial insitutions will seek to furnish single-platform tools to help millennials manage their wealth, rearchitecting the customer’s banking experience around their needs, allowing their customers to access and manage their financial lives all in one place.

3. Millennials Seek Hybrid Advisories to Manage Wealth

Most of the millions of the younger cohorts entering their prime earning years are not ultra-high-net-worth individuals. Still, they have little interest in antiquated, paper-based mechanisms to manage their assets. The millennials want to be treated as individuals instead of as a demographic group, and as such, they will gravitate toward wealth managers who will engage with them on a value-added level instead of handing them tedious administrative tasks. They prefer advisors who go beyond merely collecting commissions, instead offering data-driven insights tailored to their unique goals. But they don’t want everything delivered face-to-face; they want a hybrid advisory, a combination of in-person and digital services. While the younger cohort seeks customized strategic guidance from advisors, they also want a measure of control over their portfolio. They want the capability to build their own portfolios, selecting their asset mix and allocations, initial amounts and monthly deposit. They demand transparency in seeing projected values in average, optimistic and pessimistic scenarios—and in their advisors’ recommendations.

4. Tech Platforms to Enable Simplicity, Speed, Accuracy and Engagement

The wealth management industry must move to apps and platforms that enable customers to have a precise, swift exchange of their financial information in real-time. McKinsey reported that consumers prefer to use digital channels and remote interactions to execute most transactions like opening accounts, managing their portfolio and even receiving advice. Millennial investors thinking about retirement for the first time can be understandably intimidated by the process and have no desire to toggle between convoluted spreadsheets, websites and apps to manage their finances. Wealth managers who can leverage technology that delivers a holistic, simple snapshot of a person’s finances from a single platform stand to rise above the competition in 2023. Automation helps the wealth managers do their jobs better as well, enabling advisors to spend time on customer value instead of tactical tasks.

5. Mauritius’ Leading Bank Becomes Digital-First for Every Line of Business

Mauritius Commercial Bank, the longest-standing and leading banking institution in Mauritius, recognized that the industry was entering a platform era years ago and began transforming to a digital-first enabled bank. It has put itself in the position to meet the changing demands of its customers, stay ahead of competition, and quickly adjust to changes in the regulatory landscape or any future market shifts. Despite MCB’s rigid legacy systems, a widely diverse set of customer needs, and multiple channels and platforms, the bank was able to modernize and unify its architecture to get complete control of the customer journey, across all touchpoints and for every line of business. By leveraging a single app and unified platform, MCB has democratized investment, grown transaction volume, and implemented a world-class, fully omnichannel customer experience. The bank now has almost half a million subscribers on its mobile app, Juice, and a quarter million investment banking subscribers. Further, MCB launched a mobile app strictly to help small to mid-sized enterprises. Any financial institution not executing similar initiatives may fall behind in competition for younger customers.

6. Leveraging Tech to Win This Historical Inflection Point

Deloitte asserts that wealth management is at an inflection point and firms need to be daring in reshaping business models to deliver client-centric, holistic service. In 2023, the banking and wealth management industry will brace itself to see what the economy does after the Federal Reserve’s higher interest rates levels have their full impact(recession or stagflation?). A recession can often be a time to reflect and adopt technologies, since the opportunity cost is lower than in good economic times and digital tools can help cut costs in the long run. Integrating new technology can be an imposing prospect, but the availability of quick-deploying banking platforms with unified architecture that touches every line of business makes it entirely accessible. 

Niel Maartens is product manager wealth management for Backbase, Toronto.

Compass Subscription