To date, very few Canadian wealth managers have gone fully digital. Many still employ a hybrid business model which involves using digital solutions for some tasks and manual processes for others. Those failing to embrace digitalization risk losing clients to more tech-savvy competitors. According to The Race For Digital Differentiation, 20% of advisory clients would consider switching providers because the service doesn’t meet the expectations that come with the fees they pay. 63% claimed to be neutral or unsatisfied with the digital experience they currently receive.
Wealth managers face several challenges when it comes to digitalization. Let’s explore some of the factors delaying tech adoption.
Data plays an essential role in the financial industry. As the volume of information gathered has soared, privacy has turned into a major concern. Regulators have taken note, and Canada has proposed some of the world’s strictest rules through the Consumer Privacy Protection Act, part of the Digital Charter Implementation Act (DCIA). Meanwhile, the government recently announced an open banking regime should be in place by 2023. Wealth managers are also keeping an eye on changes to the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada who announced a merge earlier this year to create a single self-regulatory organization.
Evolving regulatory conditions complicate digital transformation. For instance, legislation typically takes time to work its way through parliament. The Canadian government introduced the DCIA in November 2020, but when it eventually comes into force, and how closely it resembles the original version, remains to be seen. As tech-specific regulations struggle to keep up with the speed of innovation, they can quickly become obsolete.
Data security is another challenge, as cybercrime is a serious threat. According to Statistics Canada, the number of reported cybercrime incidents jumped by over 30% between 2019 and 2020. The threat is even higher for financial institutions (FIs) considering the sensitivity of the information they hold about clients. Authorities fined BMO and Canadian Imperial Bank of Commerce $23 million for a breach in 2018, which saw the data of 120,000 customers stolen over the course of a weekend. As criminals leverage technological advances to launch more sophisticated attacks, the threat of cybercrime becomes more pervasive.
Wealth managers face internal challenges too. They have unique workflows, use their own sets of forms and stick to well-established processes. For the few tasks already automated, they typically rely on standalone applications to record a client’s personal details, to manage their portfolio and to gather market data. Taking such a fragmented approach to servicing clients isn’t just inefficient. Research by the Harvard Business Review shows that 52% of executives consider legacy systems one of the biggest barriers to digital transformation, while 51% blame siloed data.
Digital transformation was already complicated before the COVID-19 pandemic forced wealth managers to rapidly adopt tech solutions allowing them to work remotely. However, many weren’t set up adequately. In some cases, they couldn’t access the necessary data from their home office, which prevented them from servicing their clients effectively during the market turbulence in 2020. Others had to learn how to protect clients while working from home as the government released new guidelines.
In-person meetings may have resumed following the easing of restrictions, but not everyone is heading back to the office. In a study by PWC, finance industry executives explained what remote working looked like and their plans for the future:
It’s unlikely the need to operate remotely, or even efficiently for that matter, will change any time soon. If so, advisors and clients will continue to lean on support from tech solutions. As in other sectors forced to rapidly adapt to the pandemic, reverting to manual processes or the old way of operating doesn’t make sense once the benefits of remote working have been realized.
While the pandemic has rapidly accelerated the adoption of technology solutions that allow wealth managers to work remotely, the challenges around digital transformation persist. Despite these challenges, wealth managers are recognizing that unnecessary friction can turn off clients, and adopting technology solutions can help ease these interactions.
The industry has made some headway around onboarding new clients, recognizing this is a crucial stage in the customer journey. Advisors are starting to leverage several innovative solutions to help them automate the process, including workflow automation, AML screening with AI, remote ID verification and e-signature solutions. These technologies leverage algorithms, facial biometrics and more to deliver sophisticated solutions that help wealth managers keep up with client behaviour and remote working conditions. Although these types of digital solutions are emerging, they don’t always tackle the entire onboarding experience. For example, even when using e-signature tools, a lot of manual effort goes into sending forms back and forth through the complex workflows relied on by wealth managers.
Digital transformation can become more complicated when trying to combine many different technology providers for each task. Consider that each system must be maintained and protected. Similarly, fragmented solutions don’t scale well and leave employees having to constantly fill in the gaps.
Wealth managers need a unified and flexible solution that integrates with their existing systems and processes, maintains security and compliance, adapts to distinct workflows, facilitates remote operations, onboards clients more efficiently, and removes friction from the customer journey. Given the complexities around digitally transforming the Canadian wealth management industry, Mako is proud to offer a way forward that checks all the boxes.
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Chandal is Mako's VP of Marketing & Communications. She is a dedicated leader who has spent a decade creating recognized B2B SaaS content marketing and SEO campaigns.
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