In 2017, the Bank of Canada concluded that finance was among the group of industries least susceptible for automation because of the need for social skill, creativity, persuasion and more. Meanwhile, that same year, Global Finance Magazine was honouring more than 20 financial institutions for creating exceptional digital solutions that provide their clients with exceptional digital experiences.
The financial sector has never been known as movers and shakers, but the last 20 years have challenged traditional business models. Yet adoption at an international scale has been uneven. Fast forward to the last year of remote-first operations and the pandemic has put a defibrillator on the heart of digital transformation in finance. Relying on manual, in-person, paper-driven processes is no longer an option. As the head of a UK-based private banking institution said “The clients of tomorrow will simply not accept working with a wealth management provider that does not have top digital capabilities to let them access what they need at any time they want.” While most Canadians in financial services wouldn’t argue with this sentiment, they’re not rising to the transformation challenge at the same pace as the rest of the world. Canada is falling behind in the digitalization of wealth management.
Globally, digital wealth management trends are taking off. Investment in financial technology has risen above $100B in the last decade. The most common fintech trends in digitalization have been robo advisors and wealth management apps. Adding to this list, the Boston Consulting Group (BCG) has documented everything from the rise in machine learning analytics to digitized product component libraries, and even smart metrics that are client-facing, like what the impact of their investment has been. Many of these advancements help leaders of financial institutions and firms to protect their bottom line. While these trends are uplifting for what’s to come, on a global level, CEOs worldwide are still in the early stages of adopting technology platforms that could allow them to scale their operations:
Discrepancies in technology adoption are visible in the global market with Asia moving past North America. Yet, North America is home to the largest number of millionaires in the world and has the greatest concentration of high-net-worth individuals. However, they are not being served with high-end digital technology solutions for the most part. BCG says the wealth management industry “will have to keep an eye on big tech, especially in Asia, where clients are already more familiar with digital technologies than in the west.”
In the US, technology adoption hasn’t been overwhelmingly successful according to a recent JD Power study surveying over 3,262 employee and independent financial advisors. It reported that less than half of respondents found the technology in their firms “very valuable,” and less than one-fifth were using a system that was integrated.
North America appears to be slower than Asia at adopting wealth management technology, and the US is certainly part of that picture; however, Canada is well known for dragging its feet around technology adoption.
For years now Canada has been lagging behind the rest of the world’s wealth management technology advancements, but this trend isn’t isolated to finance. In fact technology adoption is a horizontal problem across Canada’s major economic sectors. In 2018, nearly 80% of retail companies in Canada had no strategy for technological innovation.
The BDC says Canada is falling behind because companies “are not investing enough in digital technologies.” The Institute for Research on Public Policy concluded the same thing, explaining that Canada’s business sectors are struggling to respond to technological disruptions.
According to Innovation, Science and Economic Development Canada, Canadian technology adoption and investment are behind compared to other countries because of Canada’s unique geographic considerations, but also out of concern for security and privacy. They put forth that it is within the values of Canadians to act cautiously when it comes to technology. Since the department published these conclusions in 2016, it has released a “Digital Charter,” to help guide policymakers and regulators towards a digital economy.
These digital economy principles are supported by new Canadian privacy laws under the Personal Information Protection and Electronic Documents Act (PIPEDA). Experts in finance are doubting the government’s ability to enforce these principles they’re putting forth like de-identification. The Managing Director of Refinitiv, a global provider of financial market data and infrastructure, says that “Canada has fallen behind the EU, the UK and the U.S. in terms of regulating digitized products and services,” and that “Canada’s financial services industry epitomizes a national dilemma.”
Capco, a global technology and management consultancy dedicated to the financial services industry, breaks down the current state of wealth management processes in Canada:
The finance sector in Canada hasn’t been able to embrace technology at the speed global markets have, and the implications of this lag are becoming increasingly obvious.
The Coronavirus is propelling new waves of automation in every industry, not just finance. The pandemic has not only highlighted the need for digital transformation, but it has also accelerated alternative investment avenues putting pressure on financial institutions. The CEO and Founder of deVere Group, a global financial advisory firm, says “Coronavirus is going to further disrupt the wider banking sector. It will act as another catalyst for people to seek fintech alternatives to access, manage, use, save and invest their money across the world”.
IIROC is bringing this message to Canadian wealth managers. In an interview with Bloomberg IIROC’s president explained that more than 60% of millennial investors wanted financial advice through digital tools, and “Providers shouldn’t underestimate their clients’ comfort and desire for digital engagement regardless of wealth level.” Ernst and Young warns Canada’s wealth managers are not immune to consumer behavioural changes. In fact, they estimate that up to 44% of Canadians are planning to change their wealth management provider, and firms should take advantage of the technology available to them to help facilitate trust with their clients.
While change has been slow, a growing number of fintech firms in Canada are rising to the challenge to rescue Canada’s financial sector from the dark ages. Wealth managers are taking action now too. RBC’s 2020 survey revealed that automating manual processes is the number one technology priority for Canada’s wealth and asset managers. Similarly, Deloitte revealed that client onboarding is the top technology priority for Canadian wealth managers and that remote teams will continue to be a reality post-pandemic. The government’s vision is starting to take shape as well with Canada’s new open banking initiative, aimed at levelling the technology playing field, now well underway. It appears that Canada’s wealth management sector is starting to come around to the burgeoning fintech opportunities beneath them, but there’s still a long way to go to catch up with the rest of the world.
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Raphael is the founder of Mako Financial Technologies, providing strategic product vision, business development, and team leadership.
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