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Wealth managers’ reveal 12-month investment game plans

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The stress test of the COVID-19 pandemic has tried nearly every industry in one way or another, and wealth management has been no exception.

Despite high levels of trading and profits, financial advisors have felt the crunch as businesses and operational models have had to pivot, leading to wealth management executives extensively analyzing their existing technologies and operations.

Brian DuVal

The need to modernize technical infrastructure has come to the fore in an industry that faces competition from big banks, which are investing heavily in their wealth offerings, as well as fintech competitors who continue to scale and increase market share.

As a result, executives are identifying and adjusting their priorities over the next 12 months to ensure stability and enable further growth.

Maintenance and growth
As investors — both casual traders and experienced stock-pickers — increase their use of slick, high-tech investing offerings from fintechs and non-traditional financial institutions, wealth managers are becoming hyper-focused on client retention and attraction.

The most significant strategy that will be used to drive growth in the next 12 months, as indicated by 45% of U.S. wealth managers polled in the latest FIS Readiness Survey, is to maintain and grow activity among existing clients.

The survey polled 151 U.S. wealth managers and advisors in early summer 2021, examining the broader business outlooks for these firms — including opportunities and challenges — and identifying the tools, technologies and strategies being prioritized to help ensure growth in the months ahead.

In addition to growing business with existing customers, firms will be targeting new client segments nearly as prominently, with 38% of managers indicating it will be a focus in the next year.

Although wealth managers have different approaches to securing growth, technology is a common thread. In the United States, 44% of wealth management firms plan to modernize their legacy technology. Portfolio management and other post-trade activity — where significant gains in efficiency can streamline operations and free up frontline wealth managers to spend more time on client service — is being especially targeted, with 62% of firms reporting moderate to significant increases in investment, primarily to improve performance and reduce operational costs.

Yet as much as operational efficiency is vital to growth, just 36% of global wealth managers anticipated consolidating IT infrastructure to fewer but more strategic vendors. However, we expect to see this figure shift in the coming months as organic growth starts to outweigh client retention in importance and as firms look to modernize their infrastructure to help improve their offerings and services, especially with regard to new asset classes.

Challenges and insecurities
Wealth managers faced historic uncertainty during the pandemic. Besides unsteady growth, the persistence of new threats and operational vulnerabilities gave managers more to tackle, especially in the areas of fraud, data breaches and overall technical infrastructure.

Even though survey respondents expressed overall confidence in technology systems, they will be investing heavily in cybersecurity, with over three-quarters planning on improving their firms’ technical systems over the next 12 months.

After cybersecurity, wealth managers see risk management as another important area of focus with the economic outlook remaining uncertain as the Delta variant proliferates, which increases the likelihood of short-term volatility and relative portfolio weakness.

Nearly as important as cybersecurity and risk management, according to wealth managers, is customer and employee data privacy and protection. As governments outside the States have been enacting regulation and compliance rules, especially with regard to data sharing, American businesses are now preparing for similarly stringent rulemaking. This will create new challenges and burdens for compliance teams, especially if they don’t take preemptive steps.

All in the partnerships
Wealth managers will largely be looking to their technology providers to keep up with fintechs and tech startups. Nearly 40% of those surveyed expected vendors to deliver greater value in 2021-2022 through the delivery of advanced technology solutions. Wealth technology is being transformed rapidly, and it is simply too much for any single firm to manage on its own. As such, wealth managers will continue to seek more value and support from their tech partners in the future.

From simplification to resilience, the need for technology providers to step up to the plate is wide reaching. But where technology partners can really stand out is by helping firms create better connections with their existing clients. Wealth clients respond well to personalized journeys — whether that’s custom portfolios, tailored recommendations or engaging user interfaces — that better empower them to achieve their financial goals. The right technology partnerships enable this, magnifying the impact of the intelligence, detail and care that wealth managers bring.

The wealth management industry has had to adapt how they acquire and service clients, and many of these changes are here to stay. What has become evident during the pandemic is that those firms who wisely invest in infrastructure will position themselves to be more nimble and able to capture growth in the years ahead. With the onslaught of new wealth management offerings in the market, managers, now more than ever, must be willing to invest in technology to solve problems and stay competitive.