A term that has become both increasingly popular and prevalent within financial services and wealth management; and for good reasons. First, the world is becoming truly digital in all facets of our business and personal lives. Second, digital transformation affords advisory firms and wealth management professionals with digital capabilities and efficiencies that have clear competitive advantages.
But the path toward true digital transformation isn’t always a straight one. In fact, more often than not, it comes with a fair share of challenges and considerations. We’ll break down several barriers to digital transformation to equip firms and advisors with a better understanding of what lies ahead.
What Exactly is Digital Transformation?
In the simplest words, Digital Transformation is the adoption of digital technologies by organizations to improve efficiency, value, or innovation.
Taking that definition one step further, digital transformation is the integration of digital technologies into all areas of a business, fundamentally changing how businesses operate and deliver value to their clients.
In order to achieve “true digital transformation”, there are several technologies that wealth management firms and financial advisors firms must have in place. These include:
➜ Mobile. Mobile devices and technologies offer accessibility and convenience and can prime digital natives with a sense of trust and familiarity.
➜ Cloud Computing. Cloud-based services enable rapid scale, security, efficiency, and help firms optimize their costs.
➜ Digital Architecture. Flexible architectures enable real-time data and information governance.
➜ APIs. Application Protocol Interfaces (APIs) enable the standardized exchange and harmony of data to and from existing software and systems.
No longer are these technologies considered “nice-to-have” or optional, but rather are considered to be strategic imperatives. What is extremely important for all wealth management firms to consider here is that the above technologies provide a path to a paperless, frictionless, seamless, and a connected experience across back, middle, and front office teams, and importantly, for clients.
When evaluating a digital transformation strategy or mandate, it’s absolutely table stake to consider all key stakeholders across the organization.
Barriers to Digital Transformation
Unfortunately, the wealth management industry can also throw up multiple barriers to firms’ digitization efforts and digital transformation.
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 on to the next step: adopting digital technologies, including digital vault platforms, to help meet the ever-evolving demands of clients, while at the same time attracting new clients with a native appetite for better services and more value powered by next-generation technology.
Four (4) challenges that wealth management firms and financial advisors must overcome to achieve digital transformation.
1) Balancing Client Demands
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.
Moreover, the debate over digitization highlights the old axiom that “the customer is always right.” A 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.
2) Change Management & Alignment
Related to that concern over upsetting older clients 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 firms must train all their employees in digital business techniques. Once wealth managers and other wealth management firms’ staff become fully comfortable embracing digital technologies, including digital vaults, those natural fears should start to melt away.
This 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. Rather than seeing technology as a tool that supports the core business, it must instead be viewed as an integral part of modernized wealth management operations.
Digital transformation isn’t anchored to simply nodding “yes” to rolling out new technology. It represents a very significant cultural change that requires organizations to challenge not only the status quo but their own modus operandi.
3) Costs Associated With Legacy Systems
Another concern is the large cost of abandoning legacy systems for new forms of technology. Research by McKinsey 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 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.
4) Regulatory Concerns
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.
Taking Your Practice (and Digital Transformation) to the Future
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.
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.
Not only can FutureVault provide Financial Services and Wealth Management organizations with a world-leading digital vault platform to differentiate your business, but our team also brings partnerships with best-in-class Portfolio Management platforms, CRMs and Integrated Advisor Desktops. Before you embark on a digital transformation, ensure you have the best players in the industry to build a world-class, end-to-end solution that meets your business model and the ever-evolving landscape of financial services, over-regulation, and client expectations. You are not alone, we bring our expertise and relationships to the table.
If you’re feeling overwhelmed about your digital transformation strategy and initiative, pause, take a deep breath, and just know that it’s absolutely normal. It’s a large undertaking that can feel insurmountable, but it doesn’t have to be. We’re here to help you future-proof your business.