6 Challenges that wealth managers must overcome to pave the way to adopting digital vaults and embracing a powerful business digital transformation.
Digitization offers many competitive advantages for the wealth management industry. Few digital tools offer more of those advantages than digital vaults. Powered by artificial intelligence, machine learning, and cloud technology, digital vaults (the future of document management systems) in particular create a faster, easier, far more secure place for wealth managers to store and manage vital documents.
Unfortunately, the wealth management industry can also throw up multiple barriers to digitization. It’s important to fully understand each of those barriers, so that wealth managers can make intelligent, informed decisions. Once that understanding sets in, they can move onto the next step: adopting digital vault technology to help meet the evolving needs of existing customers, while at the same time attracting new customers hungry for better services powered by next-generation technology.
(1) First, while younger investors have shown a willingness to employ digital tools, wealth managers’ older clients haven’t been as quick to hop on the bandwagon. That means wealth managers must weigh the interests of many older high-net-worth-individual clients against the wishes of many younger clients, and the many benefits that digitization offers.
Time will solve this problem eventually, with older investors passing their wealth onto younger generations. However, wealth managers should consider moving faster. Research by McKinsey found much higher overall levels of customer satisfaction with wealth managers who aggressively embraced digital vaults and other digital tools.
(2) Moreover, the debate over digitization highlights the old axiom that “the customer is always right.” A recent PwC study found that 69% of high-net-worth individuals were using online and mobile banking, yet only one-quarter of wealth managers offered digital communication tools more advanced than email. So while not all customers are clamoring for digitization yet, there’s a big opportunity for those wealth managers who wish to make the switch earlier.
(3) Related to that concern over upsetting older customers is the risk aversion that defines how many wealth managers operate, which makes sense when your business involves managing hundreds of millions of dollars. To overcome that fear of change, wealth management companies must train all their employees in digital business techniques. Once wealth managers and other wealth management firms’ staff become fully comfortable using digital vaults and other kinds of digital technology, those natural fears should start to melt away.
4) Another concern is the large cost of abandoning legacy systems for new forms of technology. A 2018 CapGemini report noted that most legacy systems running operations inside wealth management firms were not designed to be compatible with next-generation technology. If those old systems can’t mesh with new ones, the old systems must be replaced entirely to progress to digital vaults and other digital tools.
The good news, according to WealthManagement.com, is that switching to cloud-based digital systems can also save money. A cloud-based digital vault can address both cybersecurity and data management needs, doing the job of two different systems deployed by two different vendors. Investing in data warehousing technology can help the transition process run more smoothly.
So while many wealth managers might be concerned about taking a major financial hit today for the sake of tomorrow, the immediate savings incurred by merging multiple needs, combined with the long-term benefits, make digitization the right call.
(5) Earlier, we mentioned the other the need for wealth management companies to train all their employees. That leads to another obstacle in adopting digital technologies, which is the lack of collaboration that can sometimes occur between IT staff and business people — both inside wealth management firms and in many other industries.
Bridging that gap requires a change of mindset among decision-makers at wealth management firms. Rather than seeing technology as a tool that supports the core business, it must instead be viewed as an integral part of wealth management firms’ daily operations. By viewing digital vaults as a business strategy instead of just a technological add-on, change can soon follow.
(6) Finally, there’s concern about over-regulation. The financial industry deals with more regulation than just about any other industry, and no wealth management company wants to risk their wrath.
But here’s the thing about regulators: They are often slow to catch up to the latest advances in technology, but they usually do get there eventually. The more wealth managers adopt digital vaults and other digital platforms as key parts of their business, the more regulators will have no choice but to acknowledge that these are the new rules of engagement for the industry.
So yes, challenges abound. But in the world of finance, every problem has a solution, and cutting-edge technology is usually the source of those solutions. Digital vaults are slowly taking over; the wealth managers that move the quickest stand to reap the greatest benefits.