However, traditional wealth management is product-based and sales-driven. Turnover is common in the private banking industry, which leads to bankers not being able to build long-term, lasting relationships with clients. Bankers also may hold hundreds of clients in one book and, thus, are not able to spend quality time building trust with each client.
At the same time, the service industry for affluent individuals is expected to continue to grow. According to a 2018 EY report, the net worth of the world’s wealthiest people is expected to reach almost $70 trillion by 2021.
A PwC report notes that firms are increasingly moving toward a new model of wealth management and private banking that requires a holistic approach. In this model, wealth managers need to provide holistic advice not only about how to build wealth, but also how to manage expenses, business needs, taxes, lifestyle, assets, income streams, succession and retirement. Given the wide spectrum of this approach and the unique situations of each client, I believe it would be difficult to fully automate the services provided by wealth managers.
Some in the industry might claim that financial services are heading toward automation, similar to what’s happening in other industries. I can partly agree as automation in compliance, transaction monitoring, processing and investing is already in place. But at the same time, relationships cannot be automated — they need to stay genuine and natural.
The private banking industry is built on a foundation of mutual trust, understanding and respect, and a long-term view between investor and advisor. However, I believe there’s a way the industry can use technology to foster the client relationship. For example, private bankers and wealth managers can use technology to analyze a client’s investment style, typical trades, risk perception and other factors. This can help them be more efficient in managing the relationship and more cost-effective, so they are not pressured to push-sell products.
Another valuable use of technology is for education. Wealth managers spend more and more time educating their clients about finances, and technology can help them do that more efficiently. For instance, since millennial investors generally prefer to make their own investment decisions, our bank developed a series of video lessons that educates clients about investments and wealth management, to help them do that. This also helps from a regulatory point of view. To invest in sophisticated investment instruments, investors need to have certain experience or suitable education, and before selling any investment product, a banker needs to make sure their client fully understands all possible risk scenarios and how the investment works.
In my opinion, private banks need to focus more on relationships, using technology to augment the client-banker relationship rather than trying to replace it. This might prove difficult in practice because private banks, like any other business, are driven by profit and unit economics, but technology can help reduce costs and allow bankers to focus their efforts on what’s most important: the long-lasting relationship of trust between client and banker.