Artificial intelligence to disrupt wealth management business: PwC

HNWIs are increasingly using digital technologies such as robo advisors, instead of financial planners, to manage their wealth

Wealth management firms, among the least tech-literate sectors of the financial services industry, might become obsolete with high net-worth individuals (HNIs) increasingly adopting digital technologies that provide algorithm-based portfolio management advice.

A new report by PricewaterhouseCoopers that surveyed 1,000 HNIs in Europe, North America and Asia, found only 25 per cent of wealth management firms globally offering digital channels beyond emails.

This is in stark contrast to the fact that two-thirds (69 per cent) of HNIs use online and mobile banking and more than 40 per cent use online means to review their portfolio or investment markets. This was in addition to the fact that over one-third of HNIs were already using online services for portfolio management, the report noted.

Moreover, 85 per cent of HNIs use more than three digital devices and 98 per cent access the Internet and smartphone apps daily.

Taking the opportunity, a number of new-age financial technology companies have introduced robo-adviser services. These include Betterment in the US and Nutmeg in the UK.

The report found that 14 per cent of HNIs used robo-advisers for managing their wealth, while 47 per cent of those who did not use these services would consider using them. Of those who use these services, 13 per cent of HNIs belong to the Asia-Pacific, 23 per cent to Europe and 6 per cent to the US.

India has become the latest target of financial technology companies that provide robo-adviser services.

“In the last 18 months, a number of disruptors have introduced robo-adviser services in India, a move that has been welcomed by investors,” the report said. “In an economy like India, which has a huge mid- to low-income group, wealth managers simply cannot think of expansion without including them in their growth story,” the report added.

TECH SUBSTITUTES

• 14% of  High Net Worth Individuals (HNWIs) use robo-advisory services for portfolio management
• 69% of HNWIs are using online banking and mobile banking
• A little more than 40% of HNWI use digital means to review their portfolio
• About 40% HNWIs use digital means to review market
• Almost 60% communicate with their advisors virtually
• A little less than 40% of HNWIs use digital technologies to manage their portfolio
• 85% of HNWIs use more than three digital devices
• 98% of HNWIs surf internet and use apps daily
• Only 25% of wealth management firms provide digital services beyond e-mails

"A strong GDP growth rate, a huge young population, and an underserved market make wealth management an attractive segment in India,” said Vivek Belgavi, partner, financial services and technology consulting, PwC India. “Digital offerings will enable firms to offer unbiased, client-centric advice at a lower cost," he added.

The report also found players in the wealth management business were oblivious to their technology inadequacies, some even overestimating their firm’s digital capability when the only service offered to clients was a website.

Two-thirds of wealth relationship managers did not consider robo-advisers a threat to their business, the report noted. Moreover, they insist clients do not want digital functionality, directly contradicting the importance their clients place on it.

“This conflict within wealth management firms, combined with a client-base that feels only weak affiliation to its chosen providers, is creating a sector that is now acutely vulnerable to digital innovation, including robo-advice services,” said Barry Benjamin, global asset and wealth management leader at PwC. “Ignoring this state of affairs is not an option. If firms do not respond now, they simply will not survive,” he added.

“In an increasingly complex world where the investment office may, for example, have to evaluate more than 200 different investment products for a client, and where clients are also aware of what automated technology can do in the investment advisory space, technology will be vital to keep the job both do-able and scalable for a growing audience,” Benjamin said.