MyPrivateBanking Blog
Daily Comments on the World of Wealth Management

As the robo-advisor market matures, there is an increasing number of platforms that offer little minimum investment amounts and low fees to attract novice investors across all wealth segments. To provide adequate investment services to unexperienced investors, however, robo platforms must make sure to inform properly about the risk of investing. Even more important, however, is it to provide a thorough client assessment process that covers clients’ financial literacy, their risk tolerance, and their capacity to take risk.

If at all, the average robo-advisor simply asks if a prospect already has some investment experience. Most of these platforms, however, do not take the chance of providing basic educational material for those without any investment knowledge. Only 26% of the robo-advisors do take responsibility and require prospects to first build at least some basic financial knowledge before starting to invest. Interestingly, only 18% of the hybrid platforms (those who provide personal consultation) do so while 36% of the pure robos cater for their clients’ financial literacy during the assessment process. It is likely that the availability of a certain level of human interaction in the case of hybrid platforms make the providers believe that the digital knowledge check is not necessary. However, we are convinced that each robo-advisor must be very clear about the suitability of their investment products and investors’ understanding is an integral part of this.

Most players check their prospects’ risk tolerance and the approaches differ substantially. Some questionnaires use a very scientific assessment of risk tolerance, including psychological and behavioral questions while others rely too much on prospects’ self-perception. One tool even compared the prospect’s self-evaluation of their risk type with the outcome of the risk assessment, which is a very interesting approach to show investors how their perception differs from their actual limits of tolerance. In any case, it is crucial to thoroughly explain the result of the evaluation and make sure that prospects understand the impact of their risk tolerance on their investments.

The third major element is the check for risk capacity. Displaying a highly risk-affine attitude has no meaning without the context of the capacity to take investment risk. It must be clarified whether the investor has any debts and sufficient investable assets before making suitable investment proposals. While this seems very straightforward, it is surprising to see that there are players who simply ignore that. Robo-advisors achieved the point for an adequate risk assessment only if both, the risk tolerance and the risk capacity are checked for. It is alarming that only 78% achieve that point and again, the pure robos give a substantially better performance. While only 65% of the hybrid platforms fulfill this requirement, 93% of the pure tools do so. This result supports the impression that hybrid robo platforms rely too much on the availability of a human advisor clients can turn to instead of implementing these things into their digital onboarding.

Therefore, before caring about financial planning features, portfolio analytics and reporting or the provision of valuable content, robo-advisors are strongly advised to accurately identify prospects’ risk profiles to ensure suitability. Only seven out of the 31 robo platforms included into our benchmarking fulfilled all three criteria, which is disturbing result.

Get more information about the world’s leading robo-advisors and their performances, strengths, weaknesses and best practices in our new Global Robo-Advisor Benchmarking Report 2017.

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It has been 10 years since the Apple released its first smartphone, a technology that has become a part of everyday life and facilitated the growth of apps. Since then, consumers have been exposed to innovative and well-designed  apps - as well as online security breaches and fraud. Their experience with apps in their daily life has made them savvier when it comes to what they expect from their private banking and wealth management apps.

While other digital industries have taken agility - the ability to evolve and adapt their digital products to customers’ need quickly - to heart and in practice,  private banks and wealth management firms are still struggling with this important concept. This is especially clear from their digital offerings, particularly in their mobile apps for U/HNW clients.

Based on our new benchmarking report, Mobile Apps for Wealth Management,  75% of the 34 companies we profiled that provide apps for wealthy clients lack innovative features that are helpful to their clients’ financial lives. Many wealth managers consistently underperform in the provision of advanced portfolio features, interactive portfolio tools, top-notch security, and contact features to their wealth clients.

This is alarming because in an age where technology is moving fast - dragging  clients’ expectations with it -  not having an app strategy is the biggest competitive disadvantage facing wealth managers and private banks. Private banks and wealth management firms with weak apps risks irrelevance and losing their clients to other banks or FinTech startups that offer more user-friendly and innovative features as well as value-added services.

One area where private banks and wealth managers have to step up is security.  This is a concern because wealthy clients will not tolerate data breaches and unauthorized use of their data. Banks must employ top-notch security and anti-fraud measures in their apps and constantly evaluate it in order to keep up with malwares and other attacks.  One private bank client who spoke with MPB expressed incredulity at the lack of two-factor authentication in his/her app, which is already standard for credit card companies and retail banks. “I work with are far better and more trustworthy than the ones from my wealth manager, who is handling my entire net worth. They have to change this if they want to keep me as a client,” the client said.

Another area for improvement is the core app features for wealth management. While there has been a slight rise in this category since 2016, the apps that we evaluate this year lack around 40% of the core features we expect to find in wealth management apps.  As technology improves, some advanced portfolio tools such as virtual portfolios and automated, risk re-assessment tools have become standard and average features. Wealth managers who are slow in applying emerging technologies to core features risk an ineffective and boring app and, consequently, losing their clients.

Despite these shortcomings, we do see some  signs that a select few private banks and wealth managers are innovating to anticipate clients’ needs-and running away from the competition in this regard. We find some banks that integrate gamification and virtual reality in their apps, for instance. Content for marketing and client retention by way of thought leadership, market news and insights, also improved from 2016 to 2017.

Overall, we urge wealth managers to develop agile mobile strategies and integrate new technology quickly in their mobile offerings to U/HNW clients.  As agile development is also based on  feedback, banks and wealth managers should also be proactive in getting their clients’ feedback early in the development process and collaborate with other stakeholders to improve their mobile services for the wealthy.

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Ultra-wealthy clients have exclusive demands and expect to be the first to obtain the best. Providers catering to this sophisticated client segment have to be prepared to meet these needs. While the retail segment might have real-time access to social media, tech tools and, increasingly, financial advice earlier reserved for the higher-end of the wealth bands, this does not make them superrich. Wealth managers are well-advised to address the UHNWIs’, particularly the ultra-wealthy millennials, demand for more accessible exclusive online services and an increased adoption of innovative technology.

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Our new report Digital Offerings for Ultra-High-Net-Worth Clients 2017 shows how wealth managers can win and engage the ultra-wealthy online. The study is based on a unique analysis of current digital capabilities offered by twelve of the leading global financial providers to the UHNW sector: UHNW wealth managers, independent private banking businesses, as well as global institutions with a distinctive private banking division serving UHNWIs.

One of the most striking findings in our analysis shows major gaps in the area of social media and exclusive features for the ultra-wealthy client base. Comparing the digital capbailities of banks to those of UHNW luxury brands, we have found that luxury firms are already accustomed to leveraging digital to raise awareness about the brand. By having taken the risk to innovate and test new digital touch points, including social media and co-creation campaigns to generate a highly personalized experience, these digital champions show a good understanding of how to engender loyalty and trust.

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Today, China is home to the second highest number of HNWIs in the APAC region and its economy is expected to overtake that of the U.S. in the coming years - some even expect this to happen as early as in 2018. The huge growth of China’s FinTech industry, a major source of new wealth it is, too, is the third pillar of China becoming one of the most attractive and promising wealth management markets in the world.

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This is why we focus on the Chinese wealth management market in our new report on Digital Wealth Management in Asia 2017. The second emerging market that we look at in detail in this report, is India with similar growth patterns and opportunities for private banks.

Besides presenting comprehensive research findings on the Chinese wealth market and FinTech space, our report provides an in-depth view on existing digital offerings of the ten largest wealth managers in China. Our key finding is that WeChat is essential for wealth managers’ digital strategy if they want to succeed in this unique digital ecosystem. WeChat is reported to occupy 35 percent of the time spent on mobile phones in China, which makes the social messenger an inevitable platform not only for retailers. Digital financial services are deeply rooted into Chinese people’s daily lives - thanks to tech giants Alibaba and Tencent who laid the foundation for a financial market that is unique and highly digitized.

While we could observe some international wealth managers making the mistake to link their corporate Facebook and YouTube channels on their Chinese websites, we also came across some best practices in how to engage with HNW clients on WeChat. For example, Noah Holdings Limited, a domestic private bank, sets itself apart through a broad range of WeChat features such as the possibility to check account balances, book an appointment with an advisor or read speeches from well-known investors. Additionally, Noah’s clients are provided with articles and information about recent events.

This is only one facet of the level of digital service Chinese HNWIs expect from their wealth manager. Hence, private banks wo aim at entering the Chinese market, or want to strengthening their market position, inevitably need to roll out a digital strategy that is tailored to these unique requirements.

Grab your copy of our latest research report to get a detailed picture of the wealth markets in China and India. Additionally, you will be offered an overview of current dynamics in the APAC region as a whole plus insightful glimpses into cultural differences between the Asian regions and FinTech developments in Thailand and Indonesia.

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(By Onawa Lacewell, Analyst)

Big Data projects in the financial sector (and other sectors) often produce underwhelming results. It may be tempting to conclude that Big Data is just a passing fad and that wealth managers need not concern themselves with Big Data solutions. However, MyPrivateBanking’s new report on Big Data in Wealth Management thinks this is the wrong conclusion to draw from the current lackluster performance of Big Data projects. Instead, we argue that poor implementation planning that fails to take a needs-based approach is to blame for the inferior performance of Big Data projects to date. We suggest that by reversing the standard implementation process wealth managers can help ensure that Big Data projects succeed.

Why is Big Data more than just hype?

Big Data may seem like just a passing fad or a buzzword. Nevertheless, Big Data is here to stay and, from everything we’ve seen in the past five years, it seems highly likely that we are just now at the dawn of Big Data. “Big Data” simply refers to the increase volume, variety, velocity and veracity of data flooding into today’s businesses every day.

“It took from the dawn of civilization to the year 2003 for the world to generate 1.8 zettabytes (10 to the 12th gigabytes) of data. In 2011, it took two days on average to generate the same amount of data.”

(icrunchdata)

In today’s highly digital world, almost everything we do generates data: location data, social media activity, search engine metrics, and banking transactions. Additionally, as the Internet of Things brings more and more of our activity online this volume of data is only set to grow-from smart houses that provide insights into how you live to smart cars that, for example, allow insurance companies to closely monitor your driving habits. Businesses can now get nuanced, granular, and highly accurate data about their customers-both existing and potential. This is, of course, the lure of Big Data. For financial actors, the potential of Big Data is quite high. Banks can see when, where, and how their clients spend money. Wealth Managers can understand more about the behavioral profiles of their U/HNWIs. All financial actors can accurately and easily automate manual data entry processes both freeing up time for personnel to work on other tasks and reducing the possibility of data entry errors.

Why Big Data projects fail

The purpose of Big Data is clear: to help drive innovation and profits for businesses, to apply a fact-based business strategy, and to uncover insights to help increase organizational efficiency and improve client relations. Why, then, do Big Data projects have such a reputation for underperforming? MyPrivateBanking argues that much of the failure of Big Data is not because the data is somehow less useful than imagined but rather that the way many firms approach implementation sets these projects up for ultimate failure. The standard implementation process often starts with shopping around for a Big Data vendor-perhaps one that promises an all-encompassing Big Data solution that will use the firm’s internal and external data along with unstructured data (like social media commentary or search engine metrics) to modernize the entire digital ecosystem. Then, once the vendor’s solution is in place, the firm realizes that they actually don’t need all the data that they are collecting. Or, that there isn’t inhouse data science talent that can really get the most out of this new wealth of data analytically. Or, possibly, the firm realizes that the organizational siloing is standing in the way of using the new data.

A Needs-Based approach to Big Data

We argue that in order to get the most out of Big Data, and to ensure that Big Data projects are really successful, wealth managers and other financial providers should reverse the standard implementation process. Instead of focusing on the end solution, or trying to modernize the entire digital ecosystem with a general and comprehensive Big Data project, firms should instead take a needs-based approach to Big Data. The steps of this approach are rather simple, but this simple change in approach to the implementation process can make all the difference when it comes to whether your project will be successful or not.

1.     Identify the exact need (objective) of the project

This is a key step and should not be undertaken quickly-determine explicit needs, or objectives, where your firm needs a Big Data solution.

2.     Determine the type of data that best address this need

Do you need structured data? Unstructured data? A mix between the two? Determining which type of data addresses your need will help determine what type of data solution you require.

3.     Evaluate whether this data already exists within the organization

A lot of organizations think that Big Data means external data-using Facebook data, for example. However, Big Data can also mean internal data. Taking a deep look at the types of data your organization or firm already has may reveal that you don’t need external data at all-and this will determine what type of third party solution you need to shop for.

4.     Determine success metrics and expected ROI

Determining the success of a Big Data project can sometimes be difficult. Therefore, it is crucial that measures of profitability be part of the pre-planning discussion and strategy meetings.

5.     Shop around for a vendor who offers a solution that fits closely to the need

There are many different vendors offering everything from comprehensive Big Data solutions to narrowly targeted ones. Seeking a vendor that fits to your specific organizational need will help ensure that the resulting implementation plan will be a success.

6.     Determine the correct infrastructure and implementation plan to fulfill this need

Only after every other step in the needs-based chain is fulfilled should a firm or organization determine the type of infrastructure necessary for a Big Data project. The need should always drive the infrastructure-not the other way around.

By approaching Big Data from a needs-based plan, wealth managers and other financial providers stand a better chance that the resulting Big Data project will be successful. For practical information about how to take a needs-based approach to Big Data see our latest report. Here you will find practical tools that will help with determining success metrics, charting the implementation path, engaging in pre-planning and more.

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In My Private Banking’s latest report, on the digitalization of advisor functions, we interviewed just over 20 people from 13 different wealth management technology providers and various other industry experts.  Our interviewees gave us some fascinating insights into the direction and pace of innovation but had a number of surprises for the My Private Banking analysts.

Small surprises - but nevertheless significant findings - included a general air of confidence among technology providers about the value of their contribution and their assessment of the outlook for their wealth management clients. Initially, we thought that technology vendors might not be so sure that their digitalization message was finding willing listeners in the wealth management industry.

However there were bigger surprises in store for our researchers, firstly in our interviewees’ evaluation of the relative importance of regulatory compliance the remainder of the current decade and, secondly, perhaps most unexpectedly of all, in their estimation of the part that AI and machine learning will play in advisor digitalization in the near-term.  This provides a useful reality check to some of the technology hype that’s currently popular around the topic of AI.

Overall, our analysis of the future of advisor roles and the part likely to be played by robo advisory services was confirmed, giving us a clear picture of advisors and digital tools working in concert as a dominant model of service.

Last of all, we were a little surprised at the relatively minor attention given to the way in which advisors and relationship managers will experience the change to their roles and work styles through digital enabling.

Our report provides detailed coverage of the difference digitalization will make to compliance, advisor-client interactions (and hence client ratios and overall efficiency) and in which technologies and functions we can expect change soonest.  In addition, we have analyzed the impact of advisor digitilization on communication channels and client journeys.  Our researchers have endeavored to convey the feel of our conversations with technology providers through plentiful quotations and the report sums up My Private Banking’s findings with a number of clear recommendations for wealth management firms and private banks.

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Wealth managers and banks face big challenges in today’s fast-changing and technology-driven world. Growing client expectations and increasingly strict regulations lead to more and more complexity. Therefore, financial institutions must be equipped with state-of-the-art banking software from back to front. It is especially critical to maintain a high level of service quality.

This competitive environment brings new challenges to banking software vendors: Their platforms must be able to deal with exploding complexity especially with regard to compliance. Clients expect a seamless digital customer journey and service quality must be 100% for 24/7. Additionally, FinTech companies offer now sleek and agile solutions that enable banks to provide easy-to-use client tools on top of their existing IT infrastructure and pose a threat to integrated software vendors. All this forces vendors to re-think their business and digital strategy and to consider huge investments to ensure long-term growth.

Yesterday, banking software vendor Avaloq announced Warburg Pincus as a new partner with about 35% shareholding in Avaloq. Warburg Pincus is an international private equity firm with headquarters in New York and strong expertise in the banking and financial services sector, amongst others. Warburg Pincus hold more than $10 billion of investments in more than 90 companies of these sectors around the world.

This global presence combined with their focus on growth investing makes them a good choice for Avaloq who aim at accelerating growth. Avaloq responds to the dynamics fueling continuous digitalization and growing competition in the financial sector, laying the foundation for defending and strengthening their role as one of the biggest players in the field. Thanks to the new partnership and Avaloq’s well-known aspire to innovate, it will be well worth keeping a close eye on them in the next years.

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Our new report on the millennial generation “Reaching Millennials - the Next Big Opportunity in Digital Wealth Management” reveals why wealth managers who rely on a “one-fits-it-all” strategy will inevitably fail to attract younger prospects. Millennials or members of Generation Y are born roughly between 1981 and 1997 and face a range of prejudices that are fueled by an increasing number of generalizing articles, studies and speeches that gain a lot of attention on social media.

The aim of our report is to show that it is no option to perceive millennials as a homogenous group that can be targeted with a uniform strategy solution. Hence, we conducted sixteen in-depth interviews with very different representatives of this generation to find out if there are common values and opinions. Analyzing the information shared in the interviews, we could group them together into five archetypes that show huge differences in their psychological traits, behavior, attitudes towards wealth and their communication preferences. Based on this, our report works out a comprehensive set of strategies that empowers wealth managers to survive the generational shift.

Why should “millennial strategies” differ from traditional ones?

Many wealth managers probably ask themselves why it should matter at all to think about targeted strategies for younger client segments. There are many reasons which are discussed in our report but the main aspects include:

- They are becoming the major target group. Millennials already outnumbered the huge generation of baby boomers and it is estimated that they will inherit trillions of dollars in the next decades as older generations pass on their wealth to them. This shows that today’s millennial generation is actually the client segment wealth managers need to focus on to ensure future success.

- Expectations are changing in many ways. Digitization, technological development, alternatives on the financial markets, transparency and sustainability, the diversification of communication – there are so many factors disruptively changing consumer needs and expectations across all industries and, thus, the perception of how good a financial service is.

- Financial interest and the importance of transparency raise the bar for wealth management services. Re-building the trust that got lost during the past decade is a challenging task and combined with an increasing demand for transparency and sustainability, the need for an open communication and information provision is rising. Additionally, our interviewees turned out to be interested in financial topics and seek to grow their knowledge – their wealth manager should respond to this interest, as well.

What is the current situation in wealth management?

Many wealth managers and private banks host regular events to which they invite their clients’ children and younger prospects. Some events aim at growing attendees’ financial knowledge. Others focus on family business succession. Whatever the case, most wealth managers lack a digital component that enables participants to access related material such as webinars or further information. However, we are convinced that wealth managers who put strong efforts in supporting young people’s first steps into building their wealth must think much broader than just meeting them and inviting them to interesting events. This is a great start but nothing more. We found six very different examples of wealth managers who excel at attracting millennial clients through a digital component. Our report presents them in detail and works out valuable learning points for their competitors.

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It’s no science fiction story, nor fake news: VR trading is possible!

Showing an excellent understanding of how to take their digital and client engagement strategy further and create unique experiences, the Swiss financial company Swissquote has recently released a new app that enables trading with virtual reality glasses. By using a VR headset, users are enabled to view the status of their accounts, check stock prices, currency pairs and key figures in a 360 -degree perspective, as well as to execute trades by focusing their eyes on the symbol. This creative approach facilitates a different client experience by enabling users to access information and trade in a highly dynamic way.

As already emphasized by our analysts, gamification will continue to play an important role especially in young consumers’ approach towards banking and trading. The demand for creative and convenient tools and features for mobile use will definitely continue to grow. Millennials, in particular, love it when viewing their portfolio on-the-way is made enjoyable using gamification techniques or when they can quickly track their spending or savings by means of visually engaging icons. Alternatively, customer engagements can also be maximized by introducing gamification elements like customization options in promoting products or displaying client information: it creates a personal experience and gives clients the feeling of being in control while also emphasizing you as an adopter of the latest tech trends.

With Swissquote setting the tone for innovative use of VR-based technology, it won’t be long until we’ll find ourselves in a VR-based setting discussing our retirement plans or investment scheme with an enjoyable chatbot (available round the clock).

The interesting storyline will be to see as many banks and financial companies embrace innovation and leverage the potential of both VR and AR-based technology, which can facilitate customers access to a new dimension giving the feeling of a virtual infinite space. A fresh perspective for (re-)building a distinct client relationship.

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(by Francis Groves, Senior Analyst)

A number of presenters at Finovate Europe 2017 gave ample demonstrations of the way in which chat and voice are fast becoming as impacting to wealth clients as the wealth manager or robo-advisory website. The first to attract our attention was the presentation of Munnypot, a new UK robo-advisory service using the Five Degrees ‘Matrix’ platform. Munnypot’s major innovation is to achieve the entire client acquisition, portfolio assignment and onboarding process via chat powered by AI. We were also very impressed with the co-browsing functionality from SaleMove with an excellent demonstration of how this can work in a wealth management context. With SaleMove, advisors can track clients’ use of their interface in real-time and AI is used to offer (naturally and sensitively) immediate assistance via live chat or video chat/call. We understand that major players in the U.S. are already making use of this and it’s easy to understand how the technology will be a great improvement on advice offered via the telephone and will improve advisor efficiency at the same time.

There were also two interesting presentations demonstrating the potential for AI at the stage of portfolio reporting and market updates, both of which were voice-based. Poland’s Comarch presented an interesting ‘conversation with your broker’ taking place while on the road. Myra, the virtual broker, not only gave you a portfolio update but suggested changes and took your instructions to execute them. In the case of AIXIGO, partner in Luxembourg robo, Investify, we were shown portfolio reporting being provided through Amazon’s Alexa.

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