Today’s investors clearly expect the same digital experience from wealth managers as they get from any other digital e-commerce services (e.g., Amazon, Uber, Alibaba, etc.). And over recent years there has been a dramatic change as wealth managers have started to embrace “being digital”. A change that is continuing in full swing and is having a major impact on the industry. Forrester, the research agency, investigated wealth managers and found some interesting outcomes from the shift to digital¹.
For example, initial onboarding times were reduced to a few minutes, a more than 90% improvement; clients were more likely to complete processes, leading to increases in client conversation rates of 5% or more; and efficiency improvements ultimately saw margin gains in the range of 10%.
Complexity in the back end is today’s digital battleground
The improvements being made with initial client onboarding are encouraging. But the picture is not the same case across the industry value-chain and many counterparties and systems at the back end are disconnected and slow. It can leave investors feeling like they have joined a super-fast autobahn where they can accelerate to top speed, only to find themselves suddenly hitting the breaks as they encounter heavy traffic, contraflows, and badly designed junctions.
The stumbling blocks tend to be around compliance, investment order execution and transfers between counterparties in particular:
Anything more complex than a simple account setup can lead to extensive compliance and due diligence complexity. Clearly much of this is for the investor’s own protection, but many wealth managers have failed to connect-up the disparate set of technologies and services required to make this process seamless and fast for clients. From secure-ID verification, through to contract management and due diligence checks, the interjection of staff and manual processes cannot keep up with fluctuating client volumes and leads to bottlenecks which impact the client experience.
Order execution jams
While execution of a simple equity buy order is swift, the tantalizing dream of T+1 settlements are still some way off and transaction risks remain. The US at least has this on its regulatory agenda², and India is pioneering the way³, but surely an investor who is used to same-day payments in other transactions will find it hard to understand why this does not happen immediately for securities. Afterall, it’s just a data transfer, right?
Moreover, investment fund order execution is notoriously inconsistent. End of month clauses are not uncommon, and it frequently take days or even weeks before money is invested. For those who are trying to take advantage of timing and market corrections, a point of frustration. Investors are likely to understand that a valuation is a necessary pre-requisite for a purchase, but what exactly is happening the rest of the time?
While it is difficult for many to understand why digital processes have not permeated the whole wealth management value chain already, there are clearly some hurdles that are more challenging and fundamental than others. These hurdles include the difficulty in transferring funds or switching between different wealth managers, where account booking and reconciliation processes are key, and the need to fulfill regulatory requirements dictate manual expert reviews and checks.
Perhaps most acute is the transfer of pension and retirement assets between one scheme manager and another. The transfers between highly regulated workplace schemes and privately managed or self-directed schemes, if allowed at all in a jurisdiction, represents a prime example of one of the most laborious and time-consuming processes. It is not uncommon for the whole process to last many months – by which time the market situation has most likely changed. Such private retirement schemes can prove complex in terms of counterparties, as well as underlying regulations. For example, some schemes are heavily nested and can include a discretionary managed portfolio of funds, held within an insurance-linked portfolio bond, then wrapped in a tax-efficient retirement account. With a nominated trustee, an investment advisor, and custodian to boot, there can easily be five to six counterparties in the chain. Each will have their own systems and processes, and it is not uncommon to find inked paper or even a fax being required along the way. Dealing with such complexity in the back end has become an industry wide challenge.
Rising to the digital challenge
Regulatory checks and balances are necessary to protect client interest – these reviews do take time to organize and to undertake. Nevertheless, much of the complexity is due to the lack of connectivity between counterparties, a lack of investment in modern technology, and a lack of scalable, standardized processes which can drive real efficiencies and timeliness.
FNZ are bringing modern digital technology to every part of the wealth management value chain, to overcome this friction for wealth managers and their end-clients. For example, digital business process workflow tools, industry standard APIs, advanced data analytics and Robotic Process Automation (RPA) are driving speed and efficiency for all. The use of Distributed Ledger Technology (DLT) will soon provide a resolution to some of the account booking and reconciliation issues faced by the multiple counterparties involved in funds transfer process⁴. The Transfer Agency role can become slicker and more efficient on blockchain.
In short, FNZ are opening up wealth to everyone, using a combination of advanced digital technology, scalable IT infrastructure and business operations services to deliver on end investor ever-rising expectations.
Solutions Marketing Director, FNZ
1. Forrester, 2020, “The Total Economic Impact™ (TEI) of FNZ Onboarding”, https://www.fnz.com/engage/how-digital-boosts-the-bottom-line
2. SEC, 2022, USA, “SEC Issues Proposal to Reduce Risks in Clearance and Settlement”, https://www.sec.gov/news/press-release/2022-21
3. Global Investor Group, 2023, “India set to become first major market to move to T+1 settlement”, https://www.globalinvestorgroup.com/articles/3699726/india-set-to-become-first-major-market-to-move-to-t-1-settlement
4. FNZ, 2021, “FNZ goes live with blockchain solution for the South African funds industry”, https://fnz.com/news/fnz-goes-live-with-blockchain-solution-for-the-south-african-funds-industry---
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