Avaloq is a technology vendor to wealth managers, specializing in core systems for private banks. Its argument is that private banking and wealth management are less vulnerable to business-model disruption than retail banking – but that digitalization is key to wealth managers’ assured relevance.
It may be a view convenient to selling tech solutions to private banks – but it’s one that is grounded in a realistic take on the world.
Juerg Hunziker, CEO at Switzerland-based Avaloq, says the biggest opportunity in financial services is wealth management. The number of very rich people continues to grow. In 2017, there were about 39.8 million millionaires. In 2018, just one year later, there were 42.2 million. Such growth continues.
Fintech companies are having a big impact on retail banking: the likes of Germany’s N26, Grab in Singapore/Malaysia, and virtual banks setting up in Hong Kong are disrupting traditional consumer banking business.
When it comes to wealth management, though, banks remain vital. Although some robo-advisors are trying to elbow banks out of the way in the B2C (direct to consumer) space, for the most part they are partnering with banks – because banks still dominate distribution.
What wealth managers require, therefore, is better ways of providing advice and service to rich clients, be it low-touch (digital) or high-touch (personalized).
Both require a digital strategy, Hunziker says.
“Finance is about generational wealth transfer and bespoke advice that can be scaled,” he said. Increasingly, millennials (aged 25 to 35) are inheriting wealth, and demanding their parents’ private banks deliver digital communications.
For wealth managers, the trick is to both make advice easy to digest – as easy as shopping on Amazon – and to reduce the cost of acquiring new customers.
“That requires starting earlier in the journey,” Hunziker said, “with a business platform that stretches across customer segments,” so banks don’t have to re-onboard people as they graduate the higher levels of assets and service.
It comes down to digitalization, which he defines in terms of customer experience: from signing up to a bank’s service, to receiving reports, to getting advice and executing trades.
What drives change
Avaloq is advocating banks make some important changes to how they operate if they want to win business from the younger generation inheriting or creating record amounts of wealth.
First, do more in the cloud (that is, piggybacking off a distributed set of hardware servers to get flexible, cheaper computing power). This is not just for the sake of cost and efficiency, Hunzicker said: “Cloud is the catalyst for standardization.” It’s by resorting to vendor-hosted cloud that banks can set universal parameters around data privacy and security, which will make these services more commoditized and cheaper.
Second, outsourcing – to cloud, to fintechs, or to more established vendors like Avaloq – should not be just a means of cutting costs. “Outsourcing must drive your innovation and be a part of your business model,” Hunziker said. “If it’s just about cost, it’s just buying you an extra two or three years” before more digitally savvy competitors eat your lunch.
He says technology now lets banks offer sophisticated wealth-management services to lower-income people. This is not just a new business segment for banks, but an optimal way to discover clients of the future. “The entry today to receive wealth-management advice is defined by AUM,” but he thinks this is foolish: “The true potential of the financial industry is democratizing wealth.”
But banks can only realize this potential if they unlock the data on their clients.
