To hear some of the financial prognosticators speak, you might think Apple, Amazon, Alibaba, Netflix, Google and other Big Tech firms were going to take over wealth management. It is true that their deep technical proficiencies and bandwidth would make it easy for them to enter the financial services field and offer all sorts of automated, online investment-type services. But is that what investors really want? And, are traditional asset management and financial advisory firms at risk of a real competitive threat by Big Tech?
“The Human Factor”
If you heed the findings of a report issued by Cerulli Associates, a Boston, Masschusetts (USA) based research firm specializing in global asset management and distribution analytics, the answer is no. The Cerulli report found that investors want and need human advice and not advice from a robo advisor. Taking it one step further, while some potential digital platform investors may be fine with certain aspects of a robo approach, they prefer and will opt for the “empathy and trust that comes with personal interaction,” according to Cerulli’s findings.
Also cited in the report was the transparency factor that many investors weigh heavily when selecting an advisor. This won’t be easily measured using a robo advisor, nor would quality control considerations. Both of these criteria rely heavily on human support.
Consider also the high profile that the Big Tech companies enjoy. It’s great when things are going well, but when they are not, it can be a real detriment. Just think about the recent Cambridge Analytica and Facebook scandal in which the personal data of millions of Facebook users was secretly harvested by Cambridge. Think about how public trust was seriously breached. Now imagine having Facebook as your investment advisor when the news of the privacy breach broke.
“Big Tech as Disruptors in Wealth Management”
While the Cerulli report sheds doubt on how successful the Big Tech would be as viable wealth management firms, there are some that believe these companies can become major players and industry disruptors. In its “Top 10 Trends in Wealth Management 2018,” Capgemini discussed the “transforming industry advisory model sharing data such as the use of robotic process automation helping firms save up to 60% on “time-to-resolution of repetitive tasks.” The report noted the significance of innovation for future-ready firms and, in its discussion of this, stated, “The entry of non-traditional players, such as FinTechs with broad digital capabilities, is disrupting the industry and forcing incumbents to innovate to stay relevant competitive.”
Speaking to the human factor aspect of wealth management relationships, Capgemini’s report noted as a key trend, a focus on the enhanced customer experience and the willingness of high net worth individuals to switch their wealth managers in order to gain a better experience.
What may support Capgemini’s belief that Big Tech can be disruptors in wealth management is its research which found that many wealth management firms are now trying to leverage consumers’ interest in digital channels including social media and mobile apps. In addition to participating more actively on social channels and developing apps, they are also implementing automated advisor and investment management tools to deliver an enhanced customer experience – something that would be easily achieved by the Big Tech.
Another Capgemini finding, which wealth managers should note, is that 56.2% of wealth clients surveyed conveyed an interest in working with Google, Apple, Amazon or Facebook.
The way many industry observers currently see it, the Big Tech companies would most likely be involved on the distribution channel side, rather than assuming the broad role by which traditional wealth management firms serve their clients.
“The Best Defense Is a Strong Offense”
Clearly, the wealth management industry has an opportunity to enhance its services in order to remain competitive. Leveraging technology is one way in a way that improves the customer experience – faster, better and more accurate. Maintaining ongoing interactions based on trust, open communications and transparency, while also delivering sound investment advice and strong investment choices will, over the long term, remain the best strategy to defend against new competitors, Big Tech or otherwise.