The future wealth management

Dr. Stefan Jaeger, how will the wealth manager of the future work?

• The client advisor’s field of activity will change to that of a relationship manager. In addition to managing standardised, regulatory processes, which will increasingly be taken over by a “machine” in the future, the client advisor must differentiate himself in personal contact with his clients. He must be interested in the purpose of the client’s investment and accompany him on the uncertain path into the future. In portfolio management, the room for manoeuvre is rather limited due to market dependencies and the bank’s specifications. It will therefore be much more important to bring transparency into the asset development and to develop the ability to morally support the client in the event of price losses and substantial corrections or to protect him from hasty actions.

What are the future prospects for the industry in general? On what can the industry be guided?

• The success or failure of the industry is obviously strongly linked to developments on the financial markets. Digitalisation will continue to advance in the coming years. In contrast to retail banking, where the “machine” will almost replace the “human”, there is a real chance in wealth management that in the future it will be “human plus machine”. In this context, the provider of wealth management services must find a way to adequately understand the client’s needs and financial plan. With regard to choosing the right investment strategy or selecting the appropriate instruments, many processes in portfolio management have been standardised and digitalised in recent years. More difficult to standardise and digitalise is the question of how to explain the uncertainties on the financial markets and the associated corrections to the client. Client advisors can differentiate themselves from the “machine” on this point with empathy and guidance. Then it will also be “man plus machine” in the future. Equally decisive is how the mandate is contractually structured. On this point, the client is often undecided and vacillates between his needs. The investment advisor is often faced with the insoluble task of having to offer a customised client solution away from the bank’s specifications. A high degree of flexibility is at the expense of the bank, but pleases the client. The providers of wealth management services will still have to create a lot of transparency and education for their clients in these areas.

Where do you see the challenges for wealth management…
…in general?

• Indeed, I see major challenges for wealth management in the area of regulation and supervision, in leadership behaviour and in digital transformation. I believe that the industry is aware of this and that these topics are not new. Perhaps the need for action has intensified because margins have become tighter and competition has become stronger in recent years.

…at the regulatory level?

• The dynamics of regulation in the investment business are constantly increasing. Many client advisors see this as an obstacle because it increases the costs in the investment business. The question arises as to what the client can be expected to do, i.e. which regulatory clarifications are still bearable for him. Aren’t clients overburdened with the constant (new) clarifications and contractual adjustments?

…at the management level?

• The social value system is currently undergoing strong changes. This affects management behaviour on the one hand and interpersonal relationships on the other. Leadership has become more complex. The Corona pandemic has intensified this development. Which leadership principles in times of home office need to be promoted and applied more consciously? Compensation and remuneration in wealth management also raises questions. Which KPIs are still adequate and motivating in this “changed world”?

…in the digital sphere?

• In the new and changing value chains, the “human being” no longer plays the same dominant role as before. Many process steps are being digitalised, replaced by intelligent algorithms and “machines”. This reduces the interaction between customers and customer advisors. With decreasing interaction, the possibility of developing or maintaining a basis of trust also decreases. Accordingly, processes are becoming leaner and more productive, which is also desirable in many places due to decreasing margins in an environment of stronger competition.

Technological progress in the industry is incredibly dynamic – what are the most important ones?

• The technological progress in wealth management is enormous. Apart from purely digital solutions, the so-called robo-advisors, significant parts of the value chains of classic wealth management have been digitalised in recent years. From the keeping of client dossiers, portfolio management, the processing of transactions to the tracking of the individual work steps of the client advisor. This has certainly increased transparency, improved process accuracy and reduced the susceptibility to errors. However, creative freedom has been curtailed in both positive and negative respects. In today’s environment, the scope for transactions in the marginal zone (price cuts, front trading, etc.) and for client-specific wishes is probably close to zero. The former speaks for a sustainable reputation of the industry.

How will private banks be affected by the Corona crisis?

• The Corona crisis has accelerated digitalisation in many areas, but especially in the banking industry. Many clients have inevitably withdrawn from social life with their personal contacts. This allowed the industry to drive certain decisions towards automation and digitalisation. After the pandemic, customer contacts will increase again. Whether the pre-crisis level will be reached again, I have to doubt. Another point that worries me more is the “full coverage” mentality in the financial markets. Central banks around the world have played out their “whatever it takes” put option with new money. This has made setbacks in the markets only brief and painless. At the latest when these corrections become more severe and last longer, personal contacts and discussions at the round table will no longer be solved by mouse clicks on the internet.

What are the most important key points of a transformation? Which aspects in particular do companies have to pay attention to?

• One must not neglect the human aspect in the whole development. Investing is and remains a matter of trust. To put it bluntly, the new processes must ensure that “people” and “their money” are in harmony. Clients must be able to understand and comprehend the processes and, very importantly, they must be morally supported with a lot of empathy in uncertain times, otherwise they will lose trust. Ultimately, it is the clients who decide whether the investment was successful or not.

Where does the CAS in Wealth Management provide support in overcoming the challenges mentioned?

• The planned course addresses precisely the three problem areas of regulation and supervision, leadership behaviour and digital transformation. The CAS explores the following questions;
  What are the current regulatory requirements?
  What requirements will client advisors face in the future?
  What is still acceptable for clients from a regulatory perspective?
  What leadership behaviour must be applied in the age of the home office and in the environment of a new social value system?
  Where will future digitalisation take us?
  What positive and negative changes can be expected from digitalisation in wealth management?
  Which tasks in wealth management cannot replace the “human” with the “machine”?

Thank you very much for your time and the exciting answers!

More information and registration for the CAS in Wealth Management can be found at the following link: https://es.unisg.ch/programme/cas-wealth-management