Elevating the wealth management experience

Trends in wealth management: Great(er) expectations  

Even with the global economy at a challenging juncture, the rise in wealth continues largely unabated. A financial market downturn was offset by higher valuations of real assets to push total global wealth to US$516 trillion in 2022, according to Boston Consulting Group, a 1% increase on the previous year.

The trajectory is especially promising in the ‘mass affluent’ segment – generally defined as people with investable assets of US$100,000-1 million – as the middle class in emerging markets like China and India sees unprecedented expansion. Emerging economies are expected to account for almost a third of global wealth by 2027, up from a quarter today  – a potential addressable market that is too big to ignore.

Emerging markets power global wealth expansion

“The mass affluent is a segment which was traditionally overlooked,” explains Lenara Aliyeva, Principal, Digital Transformation and Operations at Thoughtworks. “Private banks tended to only focus on the high net worth segment; most weren’t considering anyone with assets under US$2 million. But looking at recent trends, numerous firms have completely reorganized their businesses to address this demographic. Many have split into two subsidiaries, one continuing to concentrate on the very high end, advisor-led business, and a separate offering with a dedicated focus on the mass affluent segment.” 

What’s more, the greatest wealth transfer in history is underway as the baby boomer generation hands assets over to its heirs – a redistribution that research firm Cerulli Associates expects to top US$80 trillion by 2045.

All this spells a massive opportunity for wealth managers – but not all are necessarily ready to rise to the occasion. 

For one thing, expectations are changing in a way that doesn’t always favor traditional providers. Raised on digital services, “most of the new generation of high net worth individuals (HNWI) are going to change their ancestors’ advisors for firms that provide automation and self-service capabilities, where advisors are more efficient, and they have a more trustworthy experience,” says Omar Bashir, Technical Director for Financial Services at Thoughtworks. 

This new generation also has an abundance of options. “Online wealth managers such as Wealthfront and Betterment have made amazing products available, and have made it very easy for investors to onboard quickly and trade or invest in a variety of asset classes,” Bhavin Shah, Principal Consultant, Wealth Management and Capital Markets at Thoughtworks, notes. “Even traditional wealth management firms are now expected to have hassle-free onboarding, digital experiences, and intuitive user interfaces. Investors used to apps like Spotify and Netflix, where everything seems to be personalized, have come to expect something similar in financial services.” 

Younger investors are also increasingly conscious about where their money is invested, with one study by Barclays showing 40% of HNWIs under 40 have not just considered responsible investment principles but have already put them into practice.

Responsible investing in focus for young HNWIs

“People now want to know the environmental impact of their investments, so wealth managers have to source that data and link it to their investment products, if they want to attract the younger generation,” Bashir says.  

Just as demands for diverse yet tailored, and tech-enabled services are growing, wealth management firms are grappling with shrinking margins owing to competition and investor-driven pressure on fees. Costs also continue to rise due to necessary investments in operations, compliance and hiring advisors.  

Thoughtworks experts believe there is a way for wealth managers to square this circle and cost-efficiently deliver the personalized experiences clients now expect, at scale. But it is dependent on developing a digital-first approach that for many firms, will involve deep technological and organizational change.

Wealth managers under pressure to deliver customized, and frictionless, client experiences 

At some wealth managers, Bashir notes, a huge amount of revenue is wasted on activities that could essentially be automated – one area where firms should take a page from the fintech playbook. 

“Fintechs have made huge strides in ensuring their processes are automated and frictionless,” he says. “They're working from the perspective of self-service, so the customer can see the products, is able to simulate what an investment is going to look like in two, five, 10 years’ time, even create baskets of products to construct a portfolio. Meanwhile, at traditional firms, the advisor is still doing all that for the investor.” 

The limited flexibility of legacy technology can make it difficult for advisors to efficiently deliver the personalized offerings, insights and services clients want.

“Many wealth managers provide some semblance of digital touchpoints, but processes and systems are still not entirely frictionless,” Bashir explains. “Client servicing activities are often supported by manual processes and a large number of personnel.” 

Providing services manually is also expensive. The growing pool of mass affluent investors may be a significant potential market, but their generally small portfolios and inability to afford the fees for specialized advice mean firms can’t afford to service this segment in the traditional advisor-led way. 

At the same time, “given that every customer's financial situation is unique, with individual risk tolerance levels and goals, personalization remains essential,” Bashir points out.   

Shah notes that even if a client's needs start off as relatively basic, as assets increase, their financial situations often become multi-dimensional, whether due to issues like taxation, or life events like marriage or having children. “This makes it difficult to come up with a standard solution or fully outsource service to a digital platform,” she says. “The need for human perspective and tailored services rises.”  

The formidable task facing traditional wealth management firms is therefore to control costs and democratize access to investment opportunities, by scaling services and reducing dependence on advisor-led client acquisition and management – without losing the personalization and quality of experience investors understandably expect.

“Wealth management firms and traditional advisors have built trust over the years and therefore retain a significant competitive advantage,” says Bashir. “What they are struggling with is building a digital offering that can bridge some of those other gaps.”

The ideal customer experience is rooted in what Shah calls “hyper-personalization,” where each customer’s unique characteristics and real-time data are leveraged to create even more targeted outreach and services. This begins at the onboarding stage. Once a risk profile assessment is completed and the customer has shared context on the state of their finances, risk tolerance levels and their existing savings and investment goals, that information can be fed into a platform that’s equipped with analytics and artificial intelligence (AI) to enable portfolio recommendations appropriate for a customer’s profile. These can then be introduced by an advisor, or even adopted by the customer themselves in a do-it-yourself investing model. 

“One of the key reasons people want personalization is to reduce noise,” Bashir says. “For example, if an investor has a risk-averse profile, there’s no point pushing high volatility investments towards them, whereas the opposite is true for somebody with a stronger risk appetite. Yet there's a catch to personalization as well. Customers may change their minds, or their preferences may evolve, so they want to be introduced to something new or slightly different.” 

Shifting expectations is why it’s key to continue to draw on data throughout various stages of the customer lifecycle, to ensure the portfolio is optimized for life events like a new addition to the family or impending retirement. “Wealth managers can leverage data and their insights to understand the best way to balance the portfolio, whether there’s a need to exit some positions or make a new investment in a different asset class,” Shah explains.  

Deploying data to fuel, and smooth, the wealth management customer journey

Data resources can also point to opportunities to cross-sell products that may be relevant to the customer at a certain stage, such as insurance policies or mortgages – or in the case of HNWIs, potential specialized investments in private markets or structured credit.  

This regular interplay “makes for a lot of customer stickiness, because the investor is reassured that everything that’s being offered is highly contextualized and close to their needs,” says Shah.   

Closing the loop: Empowering wealth management advisors through data 

A comprehensive and consistently updated data engine does as much for the advisor experience as for customers, whether by highlighting more relevant prospects or generating insights that enhance the relationship with a client. A lack of these resources, on the other hand, can have consequences for attracting and retaining advisors. 

“There’s consistently high market demand for experienced advisors as they can often take their clients with them when they leave,” Aliyeva says. “And they’re likely to leave for firms where they are better enabled to serve their clients with modern tools, and don't have to spend time apologizing for poor service due to outdated technology and cumbersome processes.”  

A platform approach allows traditional wealth management firms to create modern advisor experiences, where the entire customer journey is integrated and pertinent information is provided in an automated way throughout. “The advisor gets a whole lot more time because they’re not chasing that information or doing operations work, and can focus on building better relationships and giving the best possible advice,” says Shah.   

“The foundation for providing this level of customer and advisor service is similar –  technology that is modular, decoupled and composable,” Bashir explains. “These blocks can be brought together in meaningful ways with a platform, to create new products and new services quickly, and make those accessible to whoever needs them.” 

One such ‘block’ is GenAI, which has created a lot of excitement in wealth management and financial services more broadly. The recent approval of the European Union AI Act, which sets out a number of requirements for transparency and human oversight of AI systems, was a reminder that regulation is likely to have a significant impact on the way these technologies are adopted and applied in the financial and other industries. Nonetheless, firms are already exploring the possibilities and, in some cases, reaping the benefits. 

EU AI Act: Approach to control high-risk systems

“On the customer side, we’re noticing GenAI being leveraged to educate the customer by, for example, answering broad questions about how private equity or alternative investments work,” says Shah. “It can also help customers perform simple tasks like changing their address or email.” 

For advisors, GenAI promises to save time and boost productivity by taking on lower-level tasks like filling out forms, and could take on some higher-value functions. For example, Bashir notes that in some traditional wealth management firms, relationship managers still manually compile notes on a customer’s investment goals and take them to investment experts, who create baskets of products with these traits and simulate them in the client portfolio, before they are presented to the customer.  

Today, a GenAI agent could look at market or product data while the relationship manager is interacting with the client and automatically generate and simulate a list of suitable products, even rank them in terms of alignment with the needs that the customer has listed. “An investment expert can review these to provide the necessary layer of human oversight, and forward them to the relationship manager who can bring them to the customer, saving considerable time and effort in the process,” says Bashir.    

Especially in specialized segments like private wealth, the advisor’s role is often to present relevant investments that might not necessarily be publicly available or advertised, such as private placements or infrastructure deals. This requires deep knowledge of the market and an ear constantly to the ground – but advisors have limits on the number of sources they can take in and information they can process. 

“This is where AI and data can come in,” says Aliyeva. “The signals from macroeconomic events, all the new product launches from, for example, private equity funds, this whole ocean of information can be combined with the specific requirements of a client and what’s most relevant to them in their financial journey to arrive at the best options.”

Yet as Bashir notes, innovations like these are dependent on a foundational platform where data is of good quality, readily available, and secure, and systems designed in a way that machine learning, AI and personalization can all be put in place. 

Roadblocks on the digital and personalization journey 

As wealth managers scramble to tackle legacy modernization or digital transformation, they don’t always follow best practices, “which results in these programs failing to deliver the desired outcomes,” Bashir says. “One such practice is focusing on the basics – in this case, good quality data, which is correct, complete and timely.” 

Data is the critical ingredient for wealth managers seeking to develop the systems that enable personalization and an elevated customer and advisor experience. Unfortunately “many traditional firms have outdated data and data of questionable quality resting in silos,” Bashir explains. “Even if it’s feasible to access the desired data from all these silos, low confidence in data quality leads to poor insights at many firms. Another issue is developing a data model that works well for most customers, which requires rigorous testing in addition to a large pool of high-quality data.”

“We often see lack of holistic data strategy and data governance as major factors hindering value realization,” agrees Aliyeva.

Efforts should therefore be focused on integrating data and making it readily accessible, but as they undergo technological change many firms become preoccupied with what Bashir terms “boiling the ocean” rather than delivering the features that investors and their advisors need. 

“Essentially, wealth management firms need to focus on how they can make technology readily adaptable, and reduce unnecessary work for advisors and also investors,” says Bashir. “If investors get a pretty interface with all the relevant products and data that they need but still have to go through many steps to fulfill due diligence obligations for example, or are required to manually submit documents, that still creates unnecessary friction and reduces motivation to act.”  

Regulation is another complicating factor. “Given the number of restrictions that regulators put around how information is shared, it's very hard to automate the process of providing advice,” says Bashir. “Most advisors are required to get certified every few years. All these issues need to be considered and can pose challenges when it comes to building personalization solutions.” 

Aliyeva points out regulation and risk aversion can also prevent wealth managers from ‘leapfrogging’ through learning from or partnering with other firms. 

“There’s a difficulty connecting with third-party services to piggyback on the digital products and innovations offered by fintechs,” she explains. “Because of the barriers put up by internal controls, traditional wealth managers often have to go through multiple and lengthy internal approvals to be able to plug in external services, and can end up expending resources to build things from scratch, yet are also contending with monolithic architecture and processes that make it difficult to launch new products fast enough. A lot of firms would like to meet client demands for alternative or crypto assets for example, yet existing tech stacks often prevent them from integrating with innovative providers of those products.” 

According to Bashir, to successfully embark on the journey of modernization and superior experience, advisors first have to learn to identify and maintain a focus on customer value, whether that’s defined as reducing the time and the effort required for onboarding, or making new levels of personalization possible. System upgrades and modernization can then take place incrementally, with the highest value – and therefore the highest priority – tasks addressed first. 

Equally important is “ensuring these changes deliver the high-value outcome as intended,” Bashir adds. For that to happen, roles and processes need to transform along with technology.

Tackling organizational change: From legacy to lightspeed 

A persistent issue across wealth management, as in other industries, is the gap between technology and business. 

“That divide needs to be narrowed, and this is where techniques like domain-driven design can help all parties communicate using a common language for business concepts,” Bashir says. “There’s a need to ensure all perspectives are presented including the business strategy and growth levers, so the right technology can be built around them.”

Transformation has to be a “cross-functional, collaborative effort,” Bashir emphasizes, involving business sponsors, product managers, technology teams and a strongly supportive executive leadership – as opposed to the still-common process of “the business developing an idea, throwing it over the fence to technology to implement it, and waiting for the ‘great reveal’ to find out if their expectations have been met.” 

“Most firms have the financial resources to start transforming, but if other elements don’t change with it, they won’t get the results they’re striving for,” agrees Aliyeva. “It’s not just about technology, it's also about the culture – what is the firm’s appetite for experimentation, how are teams organized for rapid iteration and testing of MVPs in the market, and to what extent are training, communication and driving buy-in and new tool adoption made part of the change journey?” 

“Giving wealth managers the latest tools is not going to change anything if the way they operate doesn’t change, or you don't convince them that emerging technologies like AI are not a threat to their role, but will help them become more productive and to serve their clients better,” she adds.  

Change management is critical to the transformation of a traditional wealth management firm to a digitally savvy organization and ties deeply into the development of digital talent, Aliyeva says. This is often a struggle for wealth managers, involving “both attracting digital talent which is difficult, as well as training and incentivizing existing staff to up skills on data, AI and modern ways of working,” she adds.

“Operations teams need to be kept in the loop too, because if you’ve made process changes, their expertise is almost always required if you’re digitizing functions and aiming to deliver to customers with low friction and high confidence,” says Shah. 

Even external vendors that have been onboarded onto a wealth manager’s system can become important stakeholders in a transformation, Shah notes, since “you may have to extract data from their products and integrate with their systems effectively to build the optimal customer experience.” 

Another important element of cultural change is updating incentives to reflect new organizational priorities. 

“Traditionally, as a private banker, your job is remunerated and incentivized on being in front of clients all the time,” Aliyeva says. “There are very few reasons to take your valuable time away from the client, and make you work with technology teams to develop new digital products that meet client needs and improve their experience – which is essential, because technology teams aren’t close enough to clients to understand what they want. The ideal agile team brings on roles which are close to client needs, who can communicate closely and work with the technologists in an iterative way.” 

Establishing robust guardrails, while removing speed bumps

Given the constraints around the industry, transformation in wealth management will always to a certain extent be ringfenced. The participation of compliance, legal and risk teams has to be sought from the beginning not only for regulatory reasons, but also because they can have a decisive impact on the capacity to effectively deliver customer value. 

These departments “can slow things down at times as their primary objectives are to protect the firm from all possible downsides,” says Aliyeva. “They must be brought on the journey from the start and understand the objectives for transformation, so they can think creatively about the right mitigants without obstructing progress.” 

Working with technologists to automate compliance-intensive processes, for example, has the potential to serve both governance and customer experience goals.

“Security and compliance shouldn’t be an afterthought but incorporated into modernization from the very beginning,” Bashir says. “The architecture should be designed in a way that embedding security and compliance into the system isn’t complicated.” 

Given the particularly sensitive nature of client data in wealth management “it’s absolutely essential that there’s a very high degree of security in terms of how it’s stored, who gets access to this data and how it’s utilized,” says Shah. 

Regulations on data may differ by jurisdiction. Countries like Switzerland, for example, have strict rules about who can access customer data and restrictions on sending such data outside the country. Wealth managers also have to think deliberately about access rights – for example, ensuring the ability to access customer data if an advisor leaves the firm – and how protective measures are extended to outsourced providers they work with. 

“It’s important that you share only minimal data with those particular entities,” says Shah. “You also have to consider how you anonymize data, and ensure most transaction data is masked.”  

One method to effectively approach all these issues is to adopt zero trust security, which means access is not allowed by default, unless explicitly granted. 

“From a technology perspective, if the engineers follow the principles of zero trust, you have your foundational data security and privacy in place,” explains Bashir. “That also creates barriers against a full-blown ransomware attack, as in such an event they only get access to one part of the system. If firms have not adopted zero trust from the get-go, it becomes a lot more difficult to implement after the system is up and running.” 

“A lot of people have the instinct to first make a system or product work, then make it secure, and then make it compliant,” he adds. “But if you're not thinking of security and compliance up front, your architecture and technology will only be defined by your functional requirements, and whatever change needs to happen in your architecture afterwards becomes much riskier and much more time-consuming.” 

GenAI brings additional security and compliance concerns along with the potential to vastly accelerate some processes. “Managers are treading cautiously due to the sensitivity of customer data and potential legal repercussions,” says Aliyeva. “AI adoption, for most financial institutions, is geared towards the predictable and explainable type rather than more ‘black box’ generative models. Firms will only be confident about adopting GenAI if challenges around hallucination, data privacy and IP protection can be resolved. There is a big question mark around how regulators across the globe will respond to GenAI, and this will likely have the biggest effect on adoption in the sector, as demonstrated by the recent example of the SEC stepping in to limit the extent AI is used to give advice to investors.”

Developments like the EU AI Act already demonstrate that once firms take the AI plunge, “they’ll need to show regulators guardrails are in place to make sure those products are fully compliant, not damaging in any way to clients, and don’t raise unacceptable risks,” Aliyeva adds. “We would recommend front office teams and business users are closely involved in not just product design, but also in testing and evaluating the recommendations of any AI-enabled tool.” 

How the industry is gearing up for innovation 

Wealth management firms that navigate the transformation journey and put experience foremost are proving ready to evolve in line with customer expectations, while remaining compliant and resilient to risks. 

“There are already firms leveraging data right from onboarding, through to risk profile assessment and portfolio suggestions,” says Shah. “That’s where the power of data and AI really comes in – when you're leveraging data not just at one particular point of recommending something to the customer, but at every stage of the customer lifecycle.”   

Becoming more data-driven will help ensure wealth managers can meet demands around sustainability, which remains a fundamental trend even as it faces a backlash in some industry quarters. With mandatory public disclosures of ESG data by companies rising steadily over the last few years, it’s become easier for investors to access and evaluate an organization’s compliance levels, and for wealth management firms to identify the right funds for customers to invest in. Yet while the flow of data has improved recently for many firms, it still falls short. 

Environmental disclosures climb

“If a client wants a sustainable investment, you need a lot of data that might not be publicly available,” says Aliyeva. “You might also want to complement publicly available data with more specialist insights from firms that specialize in producing data on factors like climate. We know the volume of information has been increasing dramatically, and there’s a cognitive limit to how much information a human advisor can absorb. That’s the enormous potential of AI-driven tools – to take this burden and make it easier to absorb that information and turn it into something coherent, as a highly relevant offering advisors can take to their clients.” 

“Every country seems to be writing their own regulations in terms of ESG data,” says Shah. “In the next few years, there will likely be a convergence of global data disclosure standards which should make it easier for most wealth management firms to make decisions on where to invest, create portfolios that are aligned with those goals, and then build them for customers.”   

Aliyeva sees digital transformation providing a basis for managers to extend opportunities in alternative asset classes like private credit and crypto to the mass affluent customer base, and also reshaping pricing in a way that will have positive implications for a broad range of customers.

“Clients are increasingly seeking transparency in fee structures,” Aliyeva says. “There’s a growing preference for fee-based rather than commission-based models to align the interests of clients and wealth managers. High quality, timely and deeply granular data becomes even more crucial to serve this need.” 

It’s examples like these that show there’s a lot more room to run in terms of leveraging technology to empower both advisors and clients to manage risks and achieve goals – not only around building and preserving wealth, but also in investing sustainably, maximizing transparency and customer choice, and building an industry ecosystem characterized by better experience and improved performance for everyone.