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Going digital

Middle East wealth management prepares for the future

by Daniel Diemers

Digital technology is reshaping wealth management around the globe, according to a Strategy& survey that appeared in our Global Wealth Management Outlook 2014–2015. Interestingly, however, wealth managers in the Middle East, while generally confirming the importance of digital technologies, did so with less conviction and sense of urgency than their Asian, European, and North American counterparts. This is despite the fact that a digital approach is critical to fulfilling wealth managers’ stated priorities for 2014–2015: to better understand customer needs, generate customer centric holistic advice and deliver a superior customer experience.

According to our survey, 50 percent of private bankers in North America put digital technology at the top of the agenda, as did 35 percent of Asian private bankers. In the US, the large national brokerages offer a full spectrum of services, while wirehouses use digital technologies to profile and segment customers for targeted product and service offerings. Discount brokers see digital technology as a way to provide client centric yet low cost services. Wealth managers use digital tools, for instance, to track client interactions for compliance and risk purposes. Overall, managers in the US tend to be more on the lookout for novel digital offerings they can mimic, acquire, or obtain through a partner or platform provider. 

By comparison, no respondent in the Middle East put digitization — in the sense of using digital technology in a strategic manner to create value — as a top priority. Half of the respondents consider it an area of medium importance, while the other half consider it an area of low importance. This is due, in part, to the fact that most local banks have only recently begun to focus on dedicated wealth management and private banking offerings. In addition, other strategic priorities — such as allocating capital to pursue aggressive growth strategies within and outside home markets — may have influenced this deprioritization of digitization.

However, Middle East demographics may soon challenge these priorities since new technologies appeal strongly to the new generation of High Net Worth Individual (HNWI) clients in their 30s and 40s. We believe that Middle East wealth managers, like their global counterparts, must commit to a ‘digital agenda,’ to enhance their customers’ experience, market their products and services in a more targeted “product pull” approach, lower costs in the mid and back office, and improve risk and compliance efforts.

The digital advantage

Digital wealth management models have clear advantages over traditional models in three critical areas.The first is customer experience. As more HNWIs use technology and multiple channels to manage their financial and non financial lives, the wealth management industry will, like many others, converge toward 24/7 multi-channel, digital offerings. Unsurprisingly, younger, tech savvy HNWIs embrace the new technologies with gusto. However, they are not the only ones. The industry must keep clients of all profiles happy — including those who see their expectations for digital wealth management influenced by their daily experience on social and retail portals via devices such as smartphones and tablets. Increasingly, customers want an information rich, transparent experience at their fingertips, and the ability to move seamlessly across channels.

The second advantage is efficiency. Digital technology automates traditionally slow and inefficient processes, enhancing the efficiency across the enterprise. These digital benefits include rationalizing systems architecture, running data cleansing exercises to develop robust and insightful data warehouses, and overlaying integrated front-end client interfaces to create enhanced customer experiences. Digital technology also makes it easier to bundle products and services in tiered service offerings to target different customer segments and subsegments. All this helps wealth managers control the cost of servicing clients while tailoring the entire client experience.

The third advantage is in risk and compliance. The financial industry faces an unprecedented amount of regulation, covering a wide range of issues: capital, liquidity, proprietary trading, derivatives, corporate governance, and the transparency of offshore assets and income. These costly, complex rules and the burden they put on resources have become a major — if not the most important — factor affecting the strategy of wealth managers. Digital technology facilitates compliance with risk management standards and emerging global standards (such as Dodd-Frank in the US and the EU’s Markets in Financial Instruments Directive II) regarding enhanced client reporting, transparency on pricing and fee models, customer centricity and protection, centralized trading and execution, etc.

Innovate to compete

All that said, one of the very best reasons to embrace digital tools and innovate is to remain competitive. Besides the established players in the US and Europe focusing on digital technologies, three types of new digital innovators are targeting the wealth management market. These are: investment advisors that provide real time customized advice, including goal setting, allocation, monitoring and rebalancing; portfolio review and allocation providers that offer financial management portals to track portfolio and advisor performance, providing a finite number of investment plans with varying allocations; and investment communities that offer a platform to share and discuss investment ideas, and crowd source investment advice.

Thus far, these digital innovators have only managed to challenge incumbents by offering innovative digital services for free or at a much lower price point, but they have yet to take a significant market share. Nevertheless, these innovative disruptors along with more traditional global players will increasingly force Middle East wealth managers to make significant technology investments to keep up with the standards.

Formulating a digital agenda

Wealth managers who want to leverage these digital advantages and remain competitive need to develop a new business strategy with a clear digital agenda. Such an agenda will need to revolve around five pillars.

First, to build an internal comprehensive view of clients’ assets (both within the current share of the clients’ assets and increasingly beyond) and the corresponding behavioral profiles to provide high quality, timely and relevant personalized advice.

Second, to provide high speed, ‘always-on’ (and increasingly real time) access to portfolios, research and advice. This is done through mobile and tablet technologies and includes advisor–client chat, video conferencing and interactive applications. These tools will allow for better financial planning, portfolio simulations, push alert centers, peer communities for comparisons or crowdsourcing recommendations (e.g., Seeking Alpha). 

Third, to enhance the quality and personalization of advice and service related interactions using Big Data analytics. Wealth managers can identify the most relevant opportunities for each client based on historical behavioral data, latest cross channel interactions, or major life changes along the client lifecycle. 

Fourth, to streamline and automate mid and back office operations to eliminate time consuming, manual activities and shorten processing times. Private bankers must also create a ‘bulletproof’ risk and compliance environment, in which checks and balances are automated, validated and recorded with the least amount of human intervention possible for a highly reliable compliance environment that reduces the ‘hassle factor’ for clients. 

Fifth, to establish a social media presence to evaluate customer sentiment, enhance communication with existing clients through external social platforms such as LinkedIn groups or Twitter, and strengthen the financial advisors community such as through internal blogs or enterprise social networks.

For Middle East wealth managers, the bottom line is that keeping increasingly technology savvy clients, let alone winning more of them, will require building a robust digital agenda and pursuing it relentlessly with the same focus and visibility given to business strategy.

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Daniel Diemers

Daniel Diemers ia a partner at Strategy& (formerly Booz & Company)

Abdulkader Lamaa

Abdulkader Lamaa is a principal associate at Strategy& (formerly Booz & Company)

Jihad K. Khalil

Jihad K. Khalil is a senior associate at Strategy& (formerly Booz & Company)

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