Innovations in Wealth Management Technology Awards 2014

Wealth managers must innovate or else stand to lose high net-worth clients. New players with technology at their core are shaking up the private banking industry.


Innovating the wealth management industry

Harmen Overdijk has been a private banker for the best part of 14 years, working for Meespierson, Fortis and latterly EFG as head of investments in Asia. In August, he and his former colleagues decided to set up their own wealth management business in Hong Kong, calling it Caidao Wealth. It is a partnership with private equity firm Caidao Capital.

"We just recognized that more and more clients are looking for entrepreneurial solutions rather than standard private-banking solutions. Going to your banker for stock ideas and execution is the same now as it was in the 1920s. Other industries have changed and yet banks seem unwilling to open their eyes to that," says Overdijk.

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His firm offers access to asset classes that many traditional firms do not, as well as having partners in technology that allow for portfolio overviews and tailored news feeds, using an application from DragonWealth.

Clients tend to be loyal to their private banks, usually because they have more of a one-to-one relationship than lower down the wealth spectrum in retail banking, but innovation, or the lack thereof, is leading many to consider moving.

Overdijk says: "We were overwhelmed when we started our own company. We expected some clients would join us, but it has turned out that all our clients are keen to join us. We underestimated the fact that a lot of our clients are entrepreneurs and so our company is appealing to them."

Indeed much of the move to new players like Caidao is being driven simply by changes in demographics. There are 31 billionaires under 40 in the world, according to Forbes, and wealth is ending up in younger and younger hands due to the expansion in young entrepreneurs and the handover of wealth from the baby-boomer generation.

The Future Wealth report by Scorpio Partnership, SEI and NPG Wealth Management released earlier this year showed 92% of high net-worth individuals use digital solutions to inform their wealth-management decisions. Younger generations see these digital solutions as replacements to the traditional private banker. Those under 40 regard their private banker’s experience as far less important than those respondents over 60. And the 40-and-below set also find it considerably more important to be able to customize their portfolios online than do the over-60s.

Starting your own financial company is so much easier now thanks to cloud-based solutions. You can buy top-quality software in our field and use it and pay for it as a small company. Integrated reporting is also something that is very cost-effective to provide now thanks to technology

Harmen Overdijk, Caidao Wealth
In January the World Economic Forum launched a project to look at innovation in financial services. It has highlighted two key forces at play in wealth management: automation and client empowerment, says Jesse McWaters, project manager in financial services at the WEF.

Technology-supported automation has been one of the doors that has let in firms such as Nutmeg in the UK, FutureAdvisor or Betterment in the US. All three automate areas such as consolidating accounts and assets and either advising on allocation or products or managing the clients’ portfolio on a discretionary basis. By automating parts of the wealth-management process, such firms have enabled clients who are often overlooked by financial advisers to move into the wealth management market. They are growing fast.

"Automation allows for these businesses to be scaled up very easily, unlike with financial advisers who can take on only so many clients," says McWaters.

After asset allocation to passive funds, what can be automated next? Surely much more. And also where will these firms choose to go in terms of developing deeper relationships with their end users? Will they be a threat to the private banks? Automation in these guises is putting tremendous pressure on financial advisers and the 1% plus that they charge.

"For the incumbents, it is a challenging moment as they have to decide whether to go the automation route now, which may end up cannibalizing their existing market share," says McWaters.

Automation is also occurring on the institutional side, which is more palatable to financial institutions. FundApps in London, for example, automates the management of regulatory disclosure and disclosure for investment funds. The due diligence process is also being automated by the likes of DueDil.

"These firms can help existing companies do more with less," says McWaters.

Empowerment is the buzzword of this change. It can induce cringing from the cynical, but it means that clients want to be in the know. They want transparency. They want to have research to make their own decisions. They want access to asset classes that their banks do not give them. They want to know what their portfolio is doing at all times and how much they are paying for the services they are getting. That these are considered novel demands seems absurd given the vast availability of information and price comparisons that the internet now provides in nearly all consumer sectors – bar finance.