How new technology is revolutionising wealth management

For decades, centuries even, the wealth management business has been discreet, conservative and near glacial in its evolution — until now. The crash of 2008, the explosive impact of technology and a new, increasingly demanding clientele with different needs and goals is sending a wave of change that is buffeting the UK’s £1tn industry.

With this change only set to accelerate, many wealth managers are struggling to keep up and are rethinking their entire approach. “The scars of 2008 are still real,” says Salman Haider, head of UK consumer bank and international personal bank EMEA at Citi. “There’s an increased demand for transparency, especially around products. Fees need to be justified. The way in which we communicate is also changing. Clients expect us to be available to them 24/7. They expect more digital capabilities.”

“As high-net-worth clients become more geographically mobile, a growing number want their wealth manager to provide cross jurisdictional services,” says a spokesman for St James’s Place wealth management. “Access to online technology, sophisticated reporting and less paperwork are also important factors.

“For example, clients want a holistic planning service — convenience is important to them so a provider that can cater for all their financial needs is a significant draw. What’s more, they want to feel engaged with their finances, but in a focused way. There’s a big appetite for educational seminars and communications tailored to specific needs, as well as access to a relationship manager who can be reached quickly when they need them,” he says.

If 2008 heralded a decade of regulatory transformation, the next 10 years are set to do the same with technology, according to Olivier Capt, head of innovation and digital client solutions of Pictet Wealth Management. “Technology will enable empowered bankers to make each piece of advice more relevant for their clients,” he says. Greater transparency will lead to ‘richer conversations’ between bankers and their clients. “Bank statements belong to the past. Clients can now access their portfolios, positions, transactions and documents in real time and can have timely portfolio-centred investment expertise delivered to their smartphones, tablets and desktops; a smart combination of push and pull technologies.”

Artificial Intelligence (AI) and Big Data are revolutionising the lower end of the money management market. Clients whose modest portfolios mean that hands-on advice by wealth managers is not economically viable are now being offered AI and Big Data-driven “roboadvice”. The economics are different at the upper end of the market but Citi’s Haider believes that this technology has a role to play here, too.

“It works in two ways,” he says. “First, it helps clients to find investment opportunities. Second, people increasingly see banks as large data companies. How can we leverage the data that we have on clients within GDPR to really reach out and provide solutions to meet clients’ life stages? I’m a firm believer in robo, but clients will always need human interaction.”

This belief is borne out by recent research from consulting firm Capgemini, which reveals that 68.7% of HNWIs globally said “hybrid” advice, which combines human wealth managers and online tools, would be a significant factor when consolidating assets with their primary wealth management firm.

“Hybrid models are gaining popularity because HNWIs can tap into financial planning services in a modular, pay-as-you-go manner and take control of their wealth management journey. Depending on their needs, they can choose from automated self-service delivery, a wealth manager-led approach, or a combination of the two,” says Anirban Bose, head of Capgemini’s Financial Services Strategic Business Unit.

Driven in part by technology and social media’s ability to facilitate introductions and discussions, HNWIs have also turned to forums to discuss investment opportunities and exchange ideas. “We’ve developed an online networking site for clients,” says a spokeswoman for Coutts. “Coutts Connect allows clients to engage with other successful and well-connected individuals in a secure environment.”

Coutts’ Investment Opportunity Service is also available to its clients, so long as they qualify as being what the bank regards as a “sophisticated” investor. “This gives clients access to private company investment opportunities sourced by Coutts from our network. These are proprietary deals that are highly filtered. The service is introductory only and non-advised — our members decide which businesses to invest in.

Rothschild follows a similar path, according to Helen Watson, CEO UK Wealth Management Rothschild. “We facilitate small events for individual families or small groups on subjects such as family constitutions and wealth structuring,” she says. “We also make introductions to other clients who have navigated similar issues, including members of the Rothschild family.”

Another company following a client-led approach is Infinity. Founded by Elisabeth Dana, — a dual British/French national working in Barclays Corporate around the time of the economic crash of 2008 — the firm describes itself as “a new kind of wealth advisory experience”, with flexibility and technology at its core. Dana observes that wealth managers are said either to be “farmers” who focus on their existing client portfolios or “hunters,” who are on the lookout for new opportunities, and she puts herself firmly in the latter camp.

Disillusioned with traditional ideas of wealth management, she launched Infinity in 2016. “I found I had a limited range of products that was supposed to fit the needs of my clients,” she says. Instead, Infinity offers HNWIs and UHNWIs the chance to invest in niche tech, educational, artistic and impact projects. “Are we disrupting traditional investment firms? Yes. I very much hope so. I wanted something that was client-led, not product-led. The aim is to enrich people’s lives rather than just grow the bottom line.”

Co-investing is another trend on the rise. As well as being more networked, the new generation of HNWI takes a more pragmatic approach to investing, instead of regarding each asset class as independent of each other. “This is very well developed in Asia and the US and it’s certainly a trend among UHNWIs and private equity investors,” says Citi’s Haider. Typically, an investor is invited by their investment manager to put money into in a private equity fund by directly buying a stake in one of the fund’s portfolio companies. A survey by Palico, an online marketplace for the private equity fund community, showed that returns from their co-investments have matched or outperformed their private equity fund investments.

Increased competition among investment managers is also driving this trend — Palico discovered that, all other factors being equal, 55% of investors are more likely to go with a fund offering co-investment than one that doesn’t.

This trend is particularly noticeable among family offices, according to Amit Kotha, managing director and head of UHNW at Royal Bank of Canada. “The number of family offices has certainly increased in the past few years,” he says. “As family offices have globalised, they have become conduits for managing a family’s entire wealth. The search for yield has intensified and in an environment of low interest rates and volatile market conditions, we have seen that family offices have begun focusing on non-traditional asset classes, such as private equity and real estate. This will no doubt continue as the current economic climate shows little signs of shifting.”

One important area for co-investment is real estate. Here, managers of property funds grant investors, or limited partners the right to invest in assets alongside them. These are often large assets that might not be within the property fund itself. According to a recent report by data company Preqin, 63% of property fund managers now offer co-investment rights to their investors, with another 25% considering it.

“This started after the crash, but it’s been evolving over the past few years,” says Douglas Crawshaw, senior investment consultant and head of UK and European real estate at Willis Towers Watson. “It’s very much focused on physical assets and infrastructure.” Each project is aimed at a small number of UHNWIs. “It allows investors to be more specific about what they want to invest in,” says Crawshaw.

More broadly, co-investment is a central theme of Infinity Circle, a network of wealthy individuals and “the snapchat of the finance world”, which launches later this year. Here, a tech entrepreneur might, for instance, invest in another member’s property project. Similarly, a property guru might ask the community for advice on investing in modern art. But lifestyle is also a key element. “We’re working to arrange the purchase of a private jet so that interested members can share it on a fractional ownership basis,” says Dana.

One of Infinity’s first alternative investments is in BlockStars Capital, a new company that aims to be the asset management and investment house of choice for UHNWIs, family offices and other institutional investors looking for exposure to cryptocurrencies. According to a survey by financial consultancy deVere, 35% of wealthy investors will have some kind of exposure to cryptocurrencies by the end of this year.

Cryptocurrencies are making waves in wealth management, but HNWIs and their advisors take a different approach to casual investors who have put a few hundred pounds into Bitcoin and joined a roller coaster road over the past few years.

“A fad” is how Watson of Rothschild describes it. According to Coutts: “Bitcoin may turn out to be the pioneer, the ‘proof of concept’ that demonstrates that virtual currencies are reliable and secure. But as an investment asset, it has nothing but sentiment backing it up.”

However, Coutts views the development of blockchain technology as being “a far more interesting area to watch”, with “the potential to disrupt any field where there’s the need for secure, transferable records. For us, this is where the real story of bitcoin begins.”

“HNWIs want exposure to cryptocurrencies because the market is decorrelated from stock markets and it offers a more diverse portfolio,” says BlockStars Capital founder James Towning. “A lot of family offices are looking at a small allocation of one to three per cent.”

In a market that has been likened to the Wild West, the company aims to re-assure affluent investors and their advisors with a strong pro-regulation and compliant stance. BlockStars Capital also has partnerships with crypto-forensic and cybersecurity specialists to ensure digital assets are secure.

Technology aside, another key trend among the new generation of wealth management clients is their desire for investments to do good, in addition to doing well. According to the Global Sustainable Investment Alliance, $23tn was being responsibly managed in 2016, up by a quarter since 2014. Research by Oppenheimer Funds and Campden Wealth found 76% of UHNW millennials consider leveraging their family’s wealth as important for impact or environmental, social and governance (ESG) investments as very or moderately important, while 89% took the same view of social value creation.

“ESG is increasingly a focus for clients,” says Watson of Rothschild. “We have always incorporated an ESG-style philosophy into our decision-making process, with the formal publication of our ESG policy just over a year ago being the first stage of communicating more specifically to our clients our approach to responsible investment.

“Philanthropy is also a growing trend and we make philanthropic introductions and arrange networking opportunities, including occasional informal private sessions on philanthropic themes,” she says.

Recently, the bank organised a roundtable with Kate Roberts, co-founder of the Maverick Collective. This philanthropic and advocacy initiative, co-founded by HRH Crown Princess of Norway Mette-Marit and co-chaired by Melinda Gates, aims to reach out to the next wave of social investors to improve the health and rights of girls and women worldwide.

This style of investment is seen as being sustainable in more ways than one. A World Economic Forum paper on so-called impact investing revealed that an estimated 60% of the wealth of the first generation of a family is lost by the end of the second generation. By the third, that amounts to 90%.

“Many multi-generational family offices are now exploring whether impact investing is a way to unite families around values and positive legacies, thereby more closely involving family members in responsible long-term investing,” notes the paper.

However other changes are viewed in the suddenly turbulent world of the wealth manager, this is one trend — alongside technology, co-investment and HNWI networks — that is surely to be welcomed.