With technology playing an increasingly vital role in wealth management, John Wilson, managing director UK and Ireland at Avaloq, looks at how financial institutions should prioritise their technology investments to ensure success over the long term. 

What technology investment should wealth managers prioritise in the current environment?

Any investment in technology needs to serve a specific outcome. 

Given the volatility and margin pressure that wealth managers are expecting this year, wealth managers will most likely prioritise highly integrated front-to-back core platforms with digital capabilities to maximise operational efficiency and help optimise costs across the firm’s value chain.

Such a platform forms the backbone of a wealth manager’s operations, supporting fundamental processes such as client onboarding, portfolio creation and maintenance as well as trading and settlement.

In addition to this, a core platform has the capability to achieve high straight through processing rates, allowing for large parts of the back and middle offices to be automated, increasing efficiency as there is reduced need for manual intervention. 

In turn, the wealth manager can further leverage the platform to develop propositional capabilities enabling digital engagement and client self-service tools to help deliver on investment objectives.

With 2023 set to be a challenging year for wealth managers, including new regulatory demands such as Consumer Duty, it is vital they have a stable operational backbone. 

As such, a core platform should be the first thing wealth managers look to invest in when it comes to technology.

What do you think will be the biggest trends in wealth management this year?

At Avaloq, we believe technology will continue to evolve to provide clients with increasingly digitalised, hyper-personalised offerings.

To enable these digitalised offerings, we expect to see more and more wealth managers striving for straight through processing and the resultant gains in service accuracy. In parallel, we believe wealth managers will increasingly opt to migrate their operations to the cloud to enhance data security, improve cost efficiency through flexible pricing models and rapidly scale and expand into new markets. 

The adoption of such technologies will be fundamental to the success of wealth managers, allowing them to serve their clients in a more targeted and cost-effective way.

We also expect the democratisation of access to wealth management to continue to be a major theme. For wealth managers, this means finding the right approach to meeting investor demand in the growing mass-affluent segment, competing with challenger banks for share of wallet, while serving high and ultra-high net worth clients.

There is a widening advice gap in this segment, with millions of potential investors in the UK currently without an adviser. 

For traditional players, the challenge is to fully understand the expectations of these investors, who tend to be younger and more digitally attuned, while providing cost-effective, high-quality advice and access to investment trends such as ESG.  

What expectations do you see among younger investors?

Younger investors are becoming increasingly important to wealth management firms as factors such as generational wealth transfer, defined contribution pension schemes, digital investment platforms and ready-made portfolios from robo-advisers bring more and more millennials into the world of savings and investments.

While these investors are seeking guidance as to where to invest their money, they have different expectations to their parents’ generation and look to digital tools to access investment advice. 

They want highly engaging online services with clear, intuitive interfaces, and are likely to expect digital interaction with their wealth managers on new channels such as social messaging services. 

At the same time, younger investors tend to want more control over their investments. This is a good opportunity for wealth managers to offer greater self-service investment functionality with fewer in-person touchpoints and lower costs per client.

Younger investors are also conscious of the world’s challenges and have a desire to invest for good in environmentally and socially responsible causes. They want clarity on ESG and to be confident that their investments are having a positive impact on the world.

What common mistakes do wealth managers make when investing in technology?

 There are three key mistakes wealth managers make. These are:

1. Choosing adaptation over adoption is one of the most common pitfalls in wealth management when implementing packaged systems. When rolling out new technology, firms are often tempted by endless customisation options when the best choice is usually a pre-configured, proven setup. During implementation, it is important that wealth managers consider their organisation’s tolerance for change, and make sure that the scope of the implementation project is proportionate to this tolerance.
2. Failing to retire or replace legacy products is another common mistake. Legacy technology can often present substantial hurdles for firms when migrating to new systems or merging their technology stack with an acquired firm. Alongside this, wealth managers often encounter issues during migration by relying on independent contractors instead of trusting their technology partner for implementation outcomes, which can lead to project delays and cost overrun.
3. Finally, firms often find themselves focusing too much on upgrading their front-office capabilities without considering the entire value chain. While having cutting-edge technology in the front office is important for client engagement, this is of limited value if the middle and back offices do not have the means to efficiently process the service requests made by clients and the front office.

What is Avaloq’s outlook for wealth managers in the UK?

In our opinion, UK wealth managers are at the cutting edge of wealth tech. Avaloq has been serving the UK market for around twelve years, and during this time we have seen strong appetite from private banks and wealth managers to industrialise their technology and better support clients across all wealth segments, from mass affluent to high and ultra-high net worth individuals.

At Avaloq, we continue to view the UK as an important growth market for financial technology due to the high volumes of investible wealth, investor demand for high-quality digital advice and pension liberalisation, which has given individuals more incentive to invest over the long term.

As we move through 2023, we look forward to continuing to support UK banks and wealth managers with their technology needs, and further growing our UK client base.

What do you do to relax outside of work?

I try to balance work and family as much as possible, so outside of work spending time with my family is really important to me. I also enjoy keeping fit and believe that physical activity is fundamental to managing stress levels and protecting my mental health. In particular, I find Brazilian Jiu-Jitsu, cycling and fitness training all helpful ways of switching off from work.

What’s the best piece of advice you’ve received? 

A mentor once challenged me to learn to get comfortable with change and client requirements quickly! This has been a guiding principle throughout my career. It feels all the more relevant now given the disruption we have experienced these past few years.

Find out more about how Avaloq is keeping UK wealth managers at the cutting-edge of technology.