The Future of Wealth Management: A Digitally-Driven & Socially Conscious Vision
Global wealth management has been undergoing rapid transformation for the past several years. It was not long ago when wealth management services were only available to the world’s richest investors, meetings were held in person, and information was distributed via post and fax machines. Digitalization has crept into the space at a gradual pace as wealth management services are increasingly available online and on mobile devices, but where does the industry go from here? Will the next generation of investors be able to make investment decisions on any device at any time of day? Will all investors — not just the wealthier ones — have their own AI-powered wealth management digital assistants in the coming years?
To answer these questions and more, several panelists gathered at a recently held NEC event to discuss the current challenges and opportunities facing the wealth management industry. These panelists included a participant from Avaloq, a Swiss financial software company which NEC acquired in 2020 and the head of Digital Finance Business at NEC.
COVID-19 as a Catalyst of Wealth Management Industry Disruption
Martin Greweldinger, the Co-CEO and Group Product Officer of Avaloq, believes that the COVID-19 pandemic is just an accelerator for existing disruption in the wealth management industry. He identifies four megatrends that affected the wealth management industry in the last years. At a macroeconomic level, historically low negative interest rates and eroding margins forced all global financial institutions to rethink their business models. Another trend he also sees is a shift in wealth to new demographics, including millennials, women, and entrepreneurs. Greweldinger views “purpose-driven investing” as another movement among today’s investors, as they have unprecedented access to financial information, which is expanding investment options and creating a more sophisticated group of investors.
Technology is also driving change in the wealth management industry, as the movement to the cloud, Blockchain and AI can “supercharge” relationship managers, which has led to the “democratization of wealth management”. According to Greweldinger, “all of these points together allow to really offer wealth management services to a much broader clientele” as lower costs now enable a more inclusive customer base.
Social & Environmental Investing as the New Normal
Tomoki Kubo, the Head of the Digital Finance Business at NEC, commented on how social change is driving massive disruption in the global wealth management industry. Compared to previous generations, today’s investors have a totally new set of values. This includes Environmental, Social, and Corporate Governance (ESG) investing, which has recently grown from nothing to a business valued at $30 trillion US dollars. Kubo has observed this trend manifesting in various forms. For example, Japanese youth have become interested in revitalizing Japanese culture by renovating historic buildings in Kyoto prefecture. These investments are not only driven by profit incentives, but also to benefit society at large.
The NEC Approach to Digital Finance & Wealth Management Solutions
NEC is very actively helping many financial institutions on their digital transformation journeys, propelled by the R&D capabilities and industry experience of both Avaloq and NEC Group. One key principle guiding both companies in the sector is the need for software platforms to be both robust and resilient in order to meet ever-changing and immediate regulatory requirements. Looking forward, however, future-proof platforms also need to be able to use next-generation technologies such as AI in order to control large amounts of data contained in various silos. For example, Greweldinger believes that “banks should have a large enterprise-wide object model in order to really have a single source of truth for data.”
NEC and Avaloq also believe in the importance of openness, especially given the recent movements towards open banking in regions such as Europe and Asia. Open architecture enables wealth management service innovation by easily being able to add new features, such as personalized advisory information and user interfaces which utilize APIs. When combined, openness and a single data source enable financial institutions to offer a unique selling proposition, while minimizing traditional system integration and development costs at the same time. Overall, financial institutions will need to become increasingly client-centric in order to stay competitive and thrive in this rapidly changing industry.
A Glimpse of the Future of Digital Finance
Powerful technologies, such as cloud computing and AI, are already making a big impact on the wealth management sector, but NEC and Avaloq are planning to integrate even more features into its solutions to further empower their clients’ business. Now that Avaloq is part of the NEC Group, it will be able to leverage a wide variety of advanced technologies, such as cybersecurity and biometrics. This allows Avaloq to focus on its own development efforts and tap into NEC’s expertise on areas, such as user experience and user interface, which will strengthen its service offerings going forward.
In fact, the investment in Avaloq was in part motivated by NEC’s longstanding and globally-recognized leadership in providing the digital government sector. NEC believes that digital finance is emerging as a natural extension of industry. Recent evidence of this is the recent moves of governments around the world to start initial research and trials regarding digital currencies, which can potentially offer a more efficient means to manage a nation’s wealth. Assets, contracts and official credentials will also become increasingly digitalized and stored on a Blockchain; in this new world, digital governance and digital finance will become more and more interlinked and will play an essential role in society. Therefore, the addition of Avaloq to NEC’s portfolio “will help us serve a wider global society and people,” according to Kubo.
To gain further insights into how industry leaders perceive how technological and socioeconomic trends are reshaping the wealth management industry, please register here to watch the full session video: