Banks, Wealth Managers Must Harvest Client Data To Prosper In Digital Era

Private banks and advisors must use data to fully-understand clients' needs in order to effectively tailor financial advice and justify their fees, technology experts have said.

Wealth managers typically group clients based on risk appetite and requirements, but they are currently too generalised to maximise investment returns, said Charles Savage, chief executive of South Africa-based investment platform EasyEquities.

“In wealth management, people fall into broad persona groups – but these groups are much broader than you would imagine,” said Savage.

He suggested that private banks, wealth managers and advisors should use more data points to thoroughly scour clients' behavioural characteristics in order to create narrower client groups.

“Although it has got a lot to do with risk profiling and portfolio construction, [data illustrates] the specific requirements of investors rather than just pooling them into conservative, moderate and aggressive appetites etcetera,” said Savage. “By utilising data, advisors can create deeper, truly tailored investment portfolios that meet individual characteristics rather than those of a group.”

Savage was speaking on a panel at the 2017 Temenos Community Forum in Lisbon, Portugal, which focused on Building Network Effects In Private Banking. Put simply, a network effect describes the process of a product or service becoming more efficient the more it is used. The panel was chaired by Ben Robinson, Temenos' chief strategy officer.

A prime example of a network effect occurs within Google's search function; the more times a word or phrase is searched, the algorithms underpinning them improve, and therefore the search function becomes more efficient.

Savage suggested that if private banks and wealth managers made proper use of data and the technology used to harvest it, a network effect similar to Google's search would occur, because individual clients' requirements and goals will match others. This would improve the algorithms used while keeping client pools confined, he said.

Another panelist, Bernard Del Rey, co-founder and CEO of Capital Preferences, an investment advice solutions firm that extracts client preferences from their decisions, echoed Savage's notions.

Del Rey said that in order to properly advise a client, advisors must fully-understand how they make day-to-day decisions, as this influences investment behaviour and risk appetite.

“In order to properly advise someone, you have to understand how customers make all trade-offs in their lives,” Del Rey said. “How they spend money compared to how they will spend it tomorrow, how they make general decisions... these are things that drive their financial needs.”

He continued: “It also drives how they approach retirement, how they approach spending... and how they think about charity and philanthropy.”

Del Rey warned that if advisors in the digital era fail to capture these data points, they will lose the ability to claim they have truly customised a portfolio.

“If you are charging, let's say, 75 basis points, you have to have a significant level of customisation,” he said. “You have to know how asset allocation will change in line with clients' changes in preferences.

“Until [advisors] do this, there will be a low adoption rate of advice. Technology enables a deeper level of understanding... and this justifies the fees.”

Hybrid: Marrying Data With Hands-On Advice

Both Savage and Del Rey agreed that there is too much emphasis on robo-advice, and that the average wealth management client is not yet ready to take financial advice from an automated system.

Savage described the ideal advice process as a marriage of technology and human, a process where data aggregation systems act as “co-pilots” to advisors.

“Technology has the ability to, believe it or not, create more engagement and more trust between clients and advisors,” said Savage. “The vast majority of clients still want human involvement, but they want the cost of advice to be lower and the overall experience to be more efficient. Advisors have a chance to create this using technology.”

Del Rey claimed we are now in an age where client advisors and relationship managers are “just that”, and, as a result, must be willing to facilitate technological advances.

“Charging the current fees is not sustainable,” Del Rey said. “This is why we must integrate data into human advice to create something that is truly bespoke.”

He continued: “I think that we are moving out of an era where the benchmark of success is total return on investments and moving into an age where the client is the benchmark.”

Driving Change

When asked by your correspondent what will potentially be the driving force behind a shift towards data harvesting, Del Rey and Savage held conflicting views.

Del Rey said: “Shareholders don't trust firms to make any massive investments. No one is giving Deutsche Bank or any firm for that matter a free pass to pour hundreds of millions of dollars into innovation and technology.

“For that reason, it will be very difficult for anyone but chief financial officers to drive change. It is not directly in the advisors' interests, as it is too long and expensive of a process.”

Savage on the other hand said that although data technology systems can do a lot of heavy lifting behind the scenes, in his experience, clients “still want to understand exactly what is going on”, and they will ultimately be the ones rallying for change.


Nick Kalikajaros 2017