Digital technologies such as cloud-based operating models, artificial intelligence, data analytics and automation will significantly enhance front, middle and back office processes at banks and wealth managers, resulting in a more personalized, smarter and more efficient client experience. However, according to a new study published by Avaloq, The Front-to-Back Office Report – How are functions in the financial industry changing?, these technologies will not remove the need for dedicated client advisors and front-line staff as well as specialists in areas such as regulation and risk management. In contrast, they will equip and empower them to deliver a far greater, more competitive service proposition.
Based on a series of interviews with financial institutions as well as research among investors and end-clients, the study from Avaloq found a strong consensus among respondents towards new technologies and the transformation of front-to-back office infrastructures. Back office professionals, for instance, report that technology will help to remove human error and free up resources for more specialist tasks; they also forecast further implementation of cloud-based processes given the inherently better levels of efficiency, flexibility, and a quicker time-to-market for new products.
Looking at the middle office, one of the key areas expected to benefit from new technologies is regulation and the more effective management of time-intensive rules such as Anti-Money Laundering and Know-Your-Customer. Driven in part by COVID-19, the middle office has “less time to do more things to a higher standard”, found the Avaloq study, which, with a growing body of regulation to manage, is demanding a higher skill set and smarter processes from middle office staff.
Michael Pahlke, Group Chief Service Delivery Officer at Avaloq, said: “We firmly believe that new technologies based on smart automation, such as robotics and machine learning, will deliver material advantages to financial institutions in the coming years. In this new era, market leaders will be defined by their ability to deliver real-time and straight-through processing based on clean and consistent data. RegTech, for instance, remains a major area of innovation and growth and a sector we expect to escalate in importance.
“What has been most interesting from our study, however, is not that technology will replace back, middle or front office staff, but that it will empower them to do more and deliver a superior service. While there will be a need for new specialisms, and some functions will likely need to adapt and change, the fundamental need for the ‘human touch’ right across an institution remains loud and clear.”
According to the report, front office staff such as client advisors and relationship managers will continue to be in high demand, particularly those that blend digital know-how with strong client understanding. Technologies like artificial intelligence will help advisors provide a personalized service and help them meet business demands around speed and productivity. An added ability to predict what end-clients will want or do next, and react accordingly, will also become a major competitive advantage.
The research among end-investors found most accept that technology will continue to drive the development of the wealth management sector. Nearly three-quarters (73%) said that artificial intelligence, robotics, and automation will be defining sector trends of the future. In addition, while low costs (69%) and an established reputation (64%) remain key factors in a client’s view of a service provider, the majority still greatly value the human touch – almost two-thirds (62%) would not be willing to use a fully ‘robotic’ service.
Reflecting a need to deliver a more tech-led service, the research also found that a majority of end-clients (53%) would be happy to bank and invest through a non-traditional firm such as Apple or Google. The need to cater for emerging and specific groups, such as female and young entrepreneurs, was also positioned highly by respondents (cited by 43%). And one of the key findings overall was that almost half (44%) ranked ESG as the most important factor when considering whether to switch financial provider.
Martin Greweldinger, Group Chief Product Officer at Avaloq said: “Our research with investors showed a strong correlation with the views from institutions, particularly with regards to the use – and acceptance – of technology and a need to cater for new segments and fast-developing market requirements such as ESG. We believe that sophisticated technologies and greater analytics will be central to how firms meet these challenges, with the back and middle office functions supporting front office staff in the delivery of a better, more personal and flexible client service in which human advisory will continue to shine.”