Wealth management strategies in the digital era

Banking

Published 18 Sep 2024
6 min reading
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Wealth management strategies in the digital era

The service digitisation process which may be observed for more than a dozen (if not more than twenty) years does not skirt the financial sector. Both banks and companies offering investment advisory services place importance on cutting-edge software aimed at facilitating the customers’ wealth management. What should the wealth management service look like in the digital transformation era and what strategies can be adopted by the institutions offering them?

Understanding Wealth Management

Wealth management is a comprehensive approach to managing financial resources to achieve long-term financial goals and security. It encompasses a range of financial services, including investment management, tax planning, estate planning, and risk management. A well-crafted wealth management strategy is tailored to an individual’s or family’s unique financial situation, goals, and values. This personalized approach ensures that all aspects of one’s financial life are considered, from growing investments to minimizing tax liabilities and planning for future generations.

Effective wealth management requires a deep understanding of financial markets, investment products, and tax laws. It also demands a commitment to ongoing monitoring and adjustments to adapt to changing circumstances and market conditions. By integrating various financial services into a cohesive plan, wealth management helps individuals and families navigate the complexities of their financial lives, ensuring that their financial goals are met and their wealth is protected.

Digital wealth management strategy — challenges

Both the banks and companies offering the wealth management service face a number of challenges connected with the digital transformation. According to the “Sink or Swim: Why Wealth Management Can’t Afford to Miss the Digital Wave” report prepared by PwC, the wealth management service is currently one of the least advanced ones in terms of technology. Though 69% of customers in HNWI (High Net Worth Individuals) group uses mobile banking services, only 25% of advisors offer contact over digital channels other than email. There are at least some reasons for such a situation:

age structure — a high share of customers classified into HNWI and UHNWI (Ultra High Net Worth Individuals) groups are seniors who do not demand any cutting edge solutions from banks or advisory companies and who rely on direct contacts with the advisors,
aversion to innovations — the richest customers believe the verified wealth management strategies should be used and it is needless to introduce new solutions,
technology limitations — many banks keep using older software, the extension of which with new functionalities is complicated and expensive.

Despite the obstacles which must be overcome by banks and advisory companies, the wealth management digital strategy may bring about measurable benefits. The authors of the report by McKinsey advisory company called “Key Trends in Digital Wealth Management—and What to Do about Them” observe the customers having access to the software facilitating wealth management report the 5 to 10 times higher satisfaction level than customers communicating with the advisors in a traditional way.

Also the costs are not irrelevant for the banks and advisory companies. Using the robo-advisory channel enables to minimise them. Thanks to the algorithms, it is possible to offer prompt assistance to the customers when making investment decisions without significant expenditures — such advisory services are much cheaper than the assistance provided by a human, experienced advisor and work even in adverse market conditions.

Wealth management digital strategies

The banks and advisory companies alike are aware that they can only gain using the digital technology potential. Entities with a long market presence invest in the cutting-edge solutions more and more frequently. There are many examples:

Perpetual is a company offering the wealth management service with a more than 140 years’ presence on the Australian market. It decided to make instant insight into investment portfolios and reports delivered by means of the preferred social media available to its customers,
Swiss UBS bank opened a robo-advisory channel for customers with the wealth below 2 million pounds required to open a private banking account,
a Singapore branch of Citi offered their customers the opportunity to use a bank chatbot via Facebook. It provides information e.g. about balances and transactions on the bank accounts.

Implementing new solutions means benefits not only for customers (who may gain a rapid insight into their investment portfolio), but also for financial institutions. The strategic wealth management may be largely automated. Some activities may be carried out without the advisor’s involvement. What is more, the specialised software enables to collect data which can be analysed then to adjust the adopted wealth management strategies.

Advisors having access to the tools facilitating some everyday tasks connected with wealth management gain also more time for learning customers’ needs. Advisors can provide personalized investment advice using these digital tools, ensuring that clients receive tailored guidance based on their individual financial goals and risk tolerance. According to the study carried out by the advisory company Ernst & Young, one of wealth management components of particular importance for wealthy customers is understanding their financial objectives and providing a broad access to investment products and tools to them.

Strategic wealth management — how to get ahead of competitors?

Many financial institutions and banks consider the wealth management digital strategy to be the key to obtain competitive advantage and customers who do not want to base solely on their intuition and knowledge when it comes to wealth management. To ensure the highest quality of service, banks and companies should consider employing registered investment advisors who can provide expert guidance and align with clients' financial planning needs. However, to ensure the offered solutions correspond to the needs of their recipients, the banks and companies offering the wealth management service must:

1. Look at the implemented software from the customers’ perspective

It is of particular importance the customer’s frontend operation is intuitive, enables to set investment objectives, is equipped with a financial planning application and enables to communicate with advisors and experts. The financial planning application should also provide access to a variety of investment products, including mutual funds, to help customers diversify their portfolios. Multi-modular Comarch Wealth Management software offers a multi-channel customer’s frontend. People using this solution have access to information on different devices, including smartphones, PCs and tablets.

Customers may use both the assistance of advisors and place orders themselves via the robo-advisory channels.

2. Specify the target group of customers

Strategic wealth management is different for the affluent ones and for HNWI customers. The software should be adapted to the needs of the target customer group. For affluent customers, the software should also offer comprehensive debt management services to help them overcome and prevent debt, ensuring a holistic approach to their financial well-being. The selected solution should support building the relationship between the advisor and the customer. The above-mentioned Comarch Wealth Management system enables to provide both full and simplified advisory services. What is more, the customers may transfer the orders to the advisors quickly or perform them themselves.

Comarch Wealth Management offers also financial and investment advisory services. Customers can be profiled and the advisor may implement customised strategic wealth management for each of them.

3. Improve (expand) their investment advice offering

The wealth management digital strategy is perceived from the perspective of benefits as it e.g. enables to focus on the customer and their needs more than before. Automating some activities facilitates the entire advisory process. This, in turn, enables to expand the offer with new investment products which may be of interest for a broader group of customers. New investment products should also focus on tax efficient investing, helping customers maximize their returns by minimizing their tax liabilities.

Using Comarch Wealth Management, banks and advisory companies may carry out various analyses, including the efficiency and risk ones, for their customers. Thanks to the control and systematic reporting, the customer may count on comprehensive support and also implement the most profitable wealth management strategies.

Managing risk and protecting your wealth

Managing risk is a critical component of wealth management. It involves identifying potential risks to one’s financial well-being, such as market volatility, inflation, and unexpected life events, and implementing strategies to mitigate those risks. Diversifying investments across different asset classes is one common approach to reduce exposure to any single market downturn. Additionally, hedging strategies can be employed to protect against potential losses in specific investments.

Insurance products, such as life insurance and long-term care insurance, also play a vital role in risk management. These products provide financial protection against unforeseen events that could otherwise jeopardize one’s financial stability. A wealth manager can help clients develop a comprehensive risk management plan tailored to their individual circumstances and goals. This plan ensures that potential risks are identified and addressed proactively, safeguarding the client’s wealth and financial future.

Creating a personalized Wealth Management plan

Creating a personalized wealth management plan involves several key steps. First, it is essential to define one’s financial goals, whether they include retirement savings, education planning, or wealth transfer to future generations. Clear goals provide a roadmap for the wealth management strategy and help prioritize financial decisions.

Next, a comprehensive financial analysis is conducted to assess the current financial situation, including income, expenses, assets, and liabilities. This analysis provides a detailed picture of where one stands financially and identifies areas that need attention.

With this information, a wealth manager can develop a customized plan that aligns with the individual’s or family’s unique financial situation, goals, and values. The plan may include a variety of components, such as investment strategies to grow wealth, tax planning to minimize liabilities, estate planning to ensure smooth wealth transfer, and risk management to protect against potential threats.

Ongoing monitoring and adjustments are crucial to ensure that the wealth management plan remains on track. As financial markets and personal circumstances change, the plan must be reviewed and updated regularly to stay aligned with the client’s financial goals. This dynamic approach ensures that the wealth management strategy continues to meet the client’s needs over time, providing peace of mind and financial security.

What are the distinguishing features of Comarch Wealth Management?

Comarch Wealth Management solution was designed to cater for the needs of the wealth management customers and their advisors. This is a multi-modular wealth management system designed for the private banking customers. It supports the work of all employees having contacts with the capital deposited by the customers and developing wealth management strategies, i.e.:

advisors — they may generate a risk profile for every customer and make further advisory decisions based on it, including offering strategic wealth management,
managers — they participate in the investment process, managing the customers’ investment portfolios,
analysts — they are responsible for preparing analyses based on the collected data and obtained financial results.

The system also supports the aftersales services of immense importance for further cooperation of the bank (or the advisory company) and the customer. The customer may count on e.g. constant insight into their investment portfolio and receive reports. They enable the investor to learn the results on various levels, including the classes of assets or currencies.

The software developed by Comarch is adapted also to the regulatory requirements, including e.g. MiFID II (Markets in Financial Instruments Directive) which imposes information obligations on banks and companies offering investment products. Thanks to that, the customers receive information about the risk connected with investing in selected financial instruments and costs they will incur in relation to using the advisor’s assistance.