The Rise of Digital Platforms, Tools for Investment and Wealth Management

In the past several years, we have seen an explosion in digital transformation in the global wealth management industry, and nowhere more so than with the rise of digital execution technologies and platforms. Remote working practices that have emerged since 2020 have supercharged the thrust towards ‘smart’ access to financial services of all types and fast-forwarded the wealth management industry’s business models well beyond where they were expected to be today. At the core of these developments is the drive to provide seamless investment execution aligned with a far more personalised and relevant wealth management offering. The third panel discussion of the Hubbis Digital Wealth Forum in Dubai on November 15 was conducted in partnership with Saxo Bank, with Nicholas Wright, Regional Head of Institutional Business at Saxo Bank, acting as chair for the dialogue. Hubbis has summarised some selected insights from the conversation in this short review.

Chair: Nicholas Wright, Regional Head of Institutional Business, Saxo Bank

Panel Members:

• Rupert Searle, CEO, Globaleye
• Hamdan Khan, Director, Wealth and Asset Management Consulting Leader, EY

Key Insights & Observations

The evolving digital transformation taking place across the region centres on the diversification and democratisation of the wealth management market

Responding to opening comments from a panellist that digital is supporting personalisation, automation, efficiencies and scalability in wealth management, an expert explained that from a global perspective, there is an influx of technology companies operating within the region that predominantly focus on the digitally enabled proposition. Within the MENA region, the predominant focus is advisory, also covering discretionary. The other segment of the market is self-execution, and the self-directed proposition.

Providers need to move more towards understanding the needs and behaviours of the individual customers, and to focus on the expansion of the wealth market with the rise of the mass affluent segment. There is therefore a drive towards a guided investment proposition with a set of tailor-based model portfolio, with digital as an enabler, necessitated by the ever-rising cost of advice.

“You can't be allocating 100 advisors to about 3000 customers,” said one expert. “You need to really look at a scalable investment proposition that is digitally enabled.”

He explained there are banks operating in Kuwait, Jordan, or Saudi Arabia focusing on a purely digitally enabled proposition – but not the hybrid model – and these players do not typically offer a traditional private banking service.

The hybrid model is becoming more prevalent amongst traditional wealth management providers as they seek to scale their own offerings

There are also the more traditional players, private banks that either have a discretionary proposition or an advisory and execution-only proposition that want to offer a digitally enabled hybrid proposition but are often hampered by legacy systems and cultures. And this is where the hybrid model is developing, offering digital advice and the optionality of access to advisors. This same expert said it was important to be able to then build an investment journey that caters to the needs of the customers, rather than one driven by the institution’s needs.

Build? Buy? Some of both? These are key decisions to make for any banks upgrading their offerings

The global banks clearly want to manage their digital experience and customer engagement in-house, manage the IP and really leverage that experience internally, this same speaker explained. But that comes with a cost, there are many pitfalls, including overcoming legacy technology, and it also requires a lot of experience and time to get that done properly, an expert reported.

Others, especially those with less history but plentiful ambitions in wealth management, will look at both buying and possibly outsourcing. Banks that have a long history and large customer base can fast forward their proposition through outsourcing, rapidly being able to achieve operational capability, product capability, plus the technology capability, so that the business case works effectively. But they also need to consider the regulatory environment, with the outsourcing providers really needing to have a proper presence in the local markets.

The buy option requires the bank or other wealth firm to address all the key issues – seamless onboarding, KYC and AML, multi-asset class access, local and global custody, support for the RMs and portfolio managers, support for the holistic needs of the clients, and so forth.

“When you are buying,” an expert concluded, “you need to look at a multi-platform approach.” And he said each platform comes with a somewhat different heritage and special area of expertise. “Very simply, if you are looking at the buy option, you need to consider multiple different platforms and what their core capability and heritage might be,” he explained.

Different solutions need to increasingly be embedded in single offerings in order to cater to the holistic needs and expectations of clients

Another expert observed that leveraging technology from external providers was vital to achieving key goals around automation, client experience and scalability, but that the next thing is embedded wealth, bringing together all these different solutions in wealth management into a single interface to help deliver a more holistic and sophisticated experience and offering.

“There is huge wealth transfer taking place globally and, in this region, and the younger generations are looking at the private bankers or wealth advisors and wondering what value they actually bring,” he said. “We are pushing the hybrid model because digital alone does not work, you need the human element as well for our type of higher wealth clients.”

The rise of the mass affluent segment, the drive for scale, the thirst for loyalty, and the concomitant rise of the super apps

“Tech platforms are need to become more agile, and building client journeys beyond the investment journey, and that is where super apps come in,” a speaker told delegates. He cited an app now live in Jordan, through which users can book taxis, make restaurant reservations, book flights, or even make investments and self-directed trades. He explained these types of apps appeal to millennials and younger clients and being built around lifestyle as well bring significant loyalty.

He also explained that globally, a lot of banks and wealth managers are now talking about a customer persona specific experience. He said it is no longer just about providing a single app that covers the advisory, discretionary and execution only.

It is about focusing the experience on millennials, helping educate them and the younger generations of clients, building trust and loyalty, offering additional experiences through the app, and then also having an RM and an advisor available to further the conversation. Rewards are also a growing element as well, for example giving customers ipads or other rewards for major sums invested through the apps, and so forth.

Robo advisory – does it have a future? Yes, but further evolution of the models is needed, and in the MENA region there is a drive more towards ‘guided advice’, and more broadly there is growing demand for more product, better advice, and an enhanced digital connectivity and user experience

A speaker said that robo advisors have been able to bring in AUM at well below the cost of traditional wealth managers, but that they have very limited propositions, very limited portfolios, and clients are becoming more and more demanding as to products and markets. Moreover, it remains more of a retail or mass affluent segment solution and is not winning many wealthier customers.

Another expert said there is a difference between robo and guided advice. Robo was about providing a model-based investment proposition, purely digital, run by the client based on a set of risk appetite and their investment objectives, and completely automated. And they are increasingly being acquired by large institutions that have customer bases the robos can serve, such as evidenced by the actions in 2022 of Morgan Stanley in the US.

In the MENA region, he explained many clients are focusing more on guided advice, where they want to offer a set of model-based portfolios available for the customer but there is still an element of discussion, of engagement with the client, to a more personalised proposition, driven also by risk assessment of the end clients. With guided advice, he explained, there is a menu but then you have an advisor available to handhold and provide the service.

The discussion closed with the experts agreeing that in the post-covid world, there is far greater diversity in terms of product expectations from customers, as well as far greater acceptance of, indeed expectations around, digital connectivity