2022 Outlook Report

Good Technology Speeds Growth for Wealth Management Firms

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Call it a collective aha moment. Technology has raced to the top of the list of importance for the wealth management industry. In 2021, the overwhelming majority of firms spent more on technology than most other areas of their businesses and they don’t intend to pull back. Why? One reason. Almost simultaneously, wealth management firms finally recognized technology as the most effective growth accelerator in the industry.

First, technology drives scale. Without it, growth comes with decreased margins and operational viscosity. With it, growth increases margins as investments allow for fewer hands for each new relationship.

Second, technology drives a new level of commercialization. It improves operational efficiency, improves the advisor onboarding process, improves the client journey, improves fee structures and so much more.

Third, technology enhances corporate value. Investors (private equity firms and aggregators) are pouring into the industry like never before, and they’re willing to pay higher multiples for good technology. The industry is seeing higher valuations for firms that offer strong technology capabilities than those investing in more traditional assets such as financial planners.

Last, clients just expect a good digital experience.

Technology (a.k.a. the ‘client experience’) is increasingly a differentiator for wealthy clients with the technology devices and expectations that their service providers are meeting them ‘where and when they need it’. Without a strong digital experience many firms don’t have a business at all, no matter how good their investment management might be.

There isn’t an area of wealth management that technology doesn’t touch. Across the board, firms are using it to deliver services in new ways, streamline operations in order to provide more and better services and experiences, differentiate themselves in the marketplace and meet client expectations of a 24/7 anytime-anywhere relationship.

Strong CTO leadership is needed to drive this growth and transformation in a sustainable way. In 2020, CTOs found their way to the head of the table in the C-Suite and are, in fact, leading their organizations through this decade of data commercialization. The signs of their power are everywhere. Twitter’s news last fall that its CTO, Paraq Agrawal has taken over as CEO, has only strengthened our 2020 year end prediction that by 2025, a CTO will ascend to the role of CEO within at least one of the largest wealth management firms in the U.S.

Technology is now so pervasive and so critical to survival that firms can’t afford to pull back.

F2 Strategy predicts that the firms that strategically protect their technology spending through any future market volatility will come out on top. 

Throughout 2021, F2 Research engaged with more than 70 RIAs, Wealth Managers and Asset Managers representing more than $1.4 trillion in assets under management (AUM) in order to assess the industry perspective and identify areas of strength and weakness in technology adoption. Our research explores ten trends occurring within four areas of wealth management that technology is playing a significant role: cryptocurrency, operational automation, data aggregation and direct indexing. By understanding the strategies and investments the industry made in 2021, we can forecast where we will see payoff in 2022 and beyond.

Trend 1
Most Advisors Believe Cryptocurrency is Here to Stay

Future Outlook: Most advisors believe cryptocurrency investments will become viable over the long term, but they have concern and confusion about the government regulation and the legality of cryptocurrency trading. Advisors will learn how to deal with the emotion of something so volatile over which they have no control.

Trend 2
Interest in Cryptocurrency is

Future Outlook: Right now, clients drive their advisors toward cryptocurrency. After all, it's new, exciting, has a high return potential and they have FOMO (fear of missing out). Many advisors see cryptocurrency as speculative and volatile and until this changes they’ll be careful about changing clients’ fundamental asset allocations.

Client reasons for interest in cryptocurrency: diversification, FOMO, new & exciting, etc.
Trend 3
Advisors are Early in Process of Incorporating Cryptocurrency Into their Offerings

Future Outlook: In 2021, only 11% of firms report they are already investing in cryptocurrency on behalf of their clients. As cryptocurrency and blockchain take hold and transform the industry, firms will find they are required to engage in continuous learning on the potential benefits and pitfalls of this volatile asset class.

Trend 4
100% of Firms are Investing the Same or More in Automation Technology Tools for Operations and Workflow Optimization in 2021 and 2022

Future Outlook: In 2021 and looking to 2022, firms are spending on technology, automating everything they can operationally including trading, meeting preparation and money movements. Firms will continue to seek solutions that work for their needs even if that means using tools that are not necessarily built for the wealth management industry.

Trend 5
100% of Firms Standardizing Client Onboarding Function

Future Outlook: Client onboarding can be hard to automate because it involves multiple internal and external systems. Its level of success usually hinges on the level of staff adoption. Because automation is so beneficial to the firm’s efficiency and its client experience, firms will push their teams toward automation by digitizing as many client onboarding tasks as possible.

Tech tools firms use most for client onboarding standardization and automation
Trend 6
92% of Firms Have Standardized Marketing Function

Future Outlook: Another popular function for standardization is marketing; however, only 33% with standardized marketing functions consider them “highly standardized”, while 66% say they have “some standardization”. Technology tools will help firms use their data to drive creative, customized and streamlined experiences for their clients and prospects.

Trend 7
89% of Wealth Management Firms Use Some Type of Data Aggregation

Future Outlook: Data aggregation is increasingly common with more than two thirds of firms currently using it for both externally managed and non-managed accounts. However, for many firms, the process is filled with pain and frustration. To alleviate some of the headaches, firms will move to outsource the data aggregation function.

89% of wealth management firms use some type of data aggregation
Trend 8
64% of Firms Do Not Charge Clients for Data Aggregation Services

Future Outlook: Many firms don’t charge for data aggregation because they hope to retain future assets;  incorporate it into a multi-generation strategy to develop client relationships; or use the information to win new business. This trend will continue, but firms should be prepared for the possibility that the data shows they aren’t outperforming their competitors.

Trend 9
85% of Firms See Data Aggregation as an Area for Growth

Future Outlook: Firms will grow their data aggregation function over the coming year for any of three main reasons: holistic data is required to provide holistic advice; data is key for growth into new areas of revenue including cash management, private banking, lending and private equity; and clients expect data aggregation.

75% of firms see data aggregation as an area for growth
Trend 10
Firms are Eager to Offer Increased Customization at Scale and Realize Cost Savings with Direct Indexing

Future Outlook: Now that higher levels of customization at scale are finally available through direct indexing, firms can offer hyper-customization at much lower minimums. They must ensure sufficient oversight and reporting to show that the customization is not at the expense of risk control, goals-achievement and client suitability.