09 Sep 2020Karl im Brahm
The future of wealth management

After five years of hype about digitalization, it’s time to take stock. Which trends have fulfilled expectations? Five years ago, all the talk was of robo-advisory, robotic process automation and distributed ledgers. But which technologies are private banks and wealth managers now using to secure their future?


While in 2015, client assets managed via robo-advisory totalled around EUR 100 million, some analysts believed that the technology would see its assets under management rise to EUR 20 billion by 2019. The actual AUM figure for 2019[1] is EUR 7 billion. Although this is not the predicted 200-fold increase compared with 2015, it is still 70 times higher.

Robo-advisory is already playing a key role in Germany, driven by the democratization of wealth management and new client segments with lower assets. Wealth managers like Quirin Privatbank have created new digital pillars for themselves - its online offshoot quirion offers professional wealth management from as little as EUR 1,000.

We believe the era of the robo-adviser is just beginning. What seems certain is that robo-advisory needs good branding and a suitable distribution channel in order to be a real success.

Robotic process automation – helpful for years to come

PwC predicted in 2015 that robotic process automation (RPA) would enable 45% of all activities across all sectors to be automated, saving USD 2 trillion in labour costs worldwide. Gartner confirmed the trend in June 2019: RPA is the fastest-growing segment in the enterprise software market. RPA is playing a key role as a bridging technology and enabling firms to digitalize interfaces that have not yet been digitalized.

In the medium to long term, however, and despite its success, we see RPA becoming obsolete in the face of genuine front-to-end digitalization.

Distributed ledger – technological maturity and tokenization

Five years ago, many analysts forecast that blockchain technology was set to have a profound disruptive impact. However, since then, many have questioned whether distributed ledger technology (DLT) will solve any problems. Today, the answer to this question has to be yes. DLT is now a mature technology, with legislators and regulators preparing to treat tokens as a unique digital asset class and create the corresponding legal framework to accommodate this.

Cryptocurrencies such as bitcoin pioneered the technology and triggered the blockchain hype, but tokenization is now the key application for DLT.

Future-proofing: the five essential action areas

Looking forward, there are five crucial action areas that banks and wealth managers must focus on if they are to guarantee their future viability: digitalization, the cloud, outsourcing, the democratization of wealth management and the use and evaluation of data.

1. Digitalization: keep on moving

Successful digitalization is not just about a cool-looking front-end application offering the kind of user experience that Millennials, say, now expect. Digitalizing a financial institution’s back-end operations ultimately opens up much greater potential for efficiency gains. While the focus in the back end is on ensuring that the system of record is operated with integrated data quality and a high level of stability and security, the key task in the front end is to adapt to continuously evolving user behaviour and user expectations in different client segments.

2. The cloud: a catalyst for standardization

Traditional application development in financial institutions, driven in part by constantly shifting regulatory requirements, has resulted in a large number of individual and correspondingly complex solutions that are maintenance-intensive, expensive and inflexible to the point of stifling innovation. By moving to software as a service (SaaS) and business process as a service (BPaaS) models in the cloud, however, institutions are countering this complexity with the primacy of standardization – and thus achieve a new-found simplicity and flexibility.

3. Outsourcing: much more than just a cost issue

When a financial institution uses banking software in the SaaS and above all the BPaaS model – for banking as a service – it achieves a completely different level of automation and industrialization with much higher straight-through processing (STP) rates.

4. Democratization of wealth management: more business with new segments

For many private banks and wealth managers, the topic of segmentation is still in its infancy. But digitalization in particular is opening up opportunities to target hitherto largely neglected client segments – from mass affluent to retail – in an individualized yet still effective and profitable manner.

5. Data is king: really understand your clients

For the world’s technology giants such as Google and Facebook, data has already moved from being the proverbial oil of the future to their crucial commodity of the present. AI technologies such as predictive analytics and machine learning now permit automated data analyses, allowing wealth managers to act in a much more targeted and successful manner than they were previously able to.

Conclusion: keeping pace with technology trends via the ecosystem

The road to successful digitalization has both a strategic and a technological dimension. Banking and wealth management platforms with an open architecture have a fundamental advantage here: for while each separate new technology may still be manageable for the individual financial institution, the sum of the transformative technologies and events no longer is.

That is why private banks and wealth managers boost their capacity for innovation considerably by drawing on the expert know-how of an ecosystem or community. The open banking principle points the way to the future. Financial institutions can significantly reduce their time-to-market by integrating attractive solutions from fintech partners simply via the API interfaces of their SaaS or BPaaS systems. This rapid pace of innovation is especially vital in an increasingly fast-moving market that features new client segments.

Written by Karl im Brahm
Karl im Brahm was a member of the extended executive board of the Deutsche Postbank AG as well as a member of the executive board for S Broker AG & Co. KG and with the Deutsche Wertpapier Service Bank AG. Before Karl joined Avaloq in 2018, he acted as the CEO of a consultant company and handled significant mandates on digitization and sales projects for major German banks.
Democratization of wealth management

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Learn more about:

  • The four megatrends and what they mean for the financial industry
  • How innovation, industrialization and individualization are key to mitigating structural margin pressure
  • How the shift of wealth to a new generation will shape client needs
  • Why the affluent segment poses a significant business opportunity for wealth managers