Digital transformation in wealth exponentially accelerated during the pandemic. Firms that had already begun their digital journey leapt forward by up to a decade, and even reluctant digital adopters were forced to get started as advisors and clients moved to virtual interactions. While remote work was a significant driver of this acceleration, other coincidental forces were at play.
Investor expectations also shifted over the last two years. Demands for better and more digital experiences with advisors and firms increased. The pandemic and other global trends including environmental concerns, social justice awareness and equality are driving the social impact agenda. Investors increasingly expect their advisors to provide ESG advice, creating demand for new data, systems and reporting.
Regulators were also busy rolling out best interest guidelines focused on investor protection. Advisors are now required to consider investment alternatives when making recommendations and have heightened disclosure obligations to investors. Market-leading firms recognized that responding to new regulations such as the client-focused reforms necessitated a digital compliance strategy, adding more fuel to their digital transformation journey.
So, what happens post-pandemic?
A 2021 ThoughtLab survey of over 2,000 investors and 500 wealth firms worldwide identified several megatrends for our industry in the next few years. Our ability to adapt business models to these trends will define the winners and the losers.
The shift to digital will accelerate, and, despite the progress that the wealth industry has made over the last couple of years, investors feel that there is more to do. Only 18% of investor respondents to the survey were very satisfied with the digital experience offered by their wealth advisors, and pain points included availability of user-friendly, fully functional mobile and tablet apps and websites. Wealth firms should view digital transformation as an ongoing journey, and leaders will be rewarded with productivity gains projected at 13%, and assets under management growth at 8.1%, the survey said.
Investors expected higher standards from their advisors, with 49% expecting advisors to act in their best interests and become client-focused versus product-focused. These expectations are consistent with new regulations targeted at investor protection. Investors also expected advisors to be available to support them — particularly during market disruptions, which we now face.
Advisors and firms that leverage technology to better serve investors and that take a proactive stance on regulations such as the client-focused reforms will build stronger investor relationships and grow assets.
The ESG trend will continue and become central to most investing strategies. Industry data standards and ESG regulatory guidance have trailed investor demand to date. As standards develop, technology solutions will become available to support advisor recommendations, providing an opportunity for wealth firms to create differentiated offerings.
Our industry has a unique opportunity to leverage the momentum we’ve developed in the last couple of years. Continued investments in investor-centric digital offerings will ensure that leaders maintain their advantage. For firms at the early stages of their digital journey, the opportunities have never been greater. While transformation isn’t easy, the well-known quote based on Charles Darwin’s evolutionary research is a good reminder to us: “It is not the strongest of the species that survives, nor the most intelligent. It is the one most adaptable to change.”
David Reeve is CEO of InvestorCOM Inc., a compliance technology provider to the wealth management industry.