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Banks’ advisory platforms turn to tech to increase marketshare and improve operational efficiency
August 2020, Boston—As banks struggle to keep up with competition in an evolving fiduciary environment, providing an integrated advisory offering will be a key element to enhancing their value proposition and increasing client walletshare, according to The Cerulli Report—U.S. Private Banks and Trust Companies 2020.
Heightened competition from independent channels, regulatory demands, and shifting wealth demographics have increased pressure on banks’ wealth management departments in recent years. Banks have struggled to keep up with growing competition from other independent registered investment advisors (RIAs), direct providers (e.g., Vanguard, Fidelity), and fintech companies, and now face a shifting regulatory environment amidst Regulation Best Interest (Reg BI). Furthermore, with the wealthiest generation on the verge of transferring more than $70 trillion in assets to their heirs—primarily to Millennials and Generation X—banks are at risk of losing a valuable client demographic. In order to be successful in this environment, banks will need to evolve their technology and advisory platforms to meet a new generation of clients’ needs and provide a unified wealth management offering.
According to Cerulli’s annual Private Bank and Trust Survey, executives are placing a strong emphasis on technology and regulatory initiatives in 2020; nearly three-quarters (70%) of private bank and trust executives cite the importance of gaining efficiencies through technology, while 52% cite implementing digital capabilities to improve the client experience. “In light of the COVID-19 pandemic, technology has evolved from add-on to a necessity as firms moved to a fully remote model,” says Asher Cheses, senior analyst at Cerulli. As banks navigate the global pandemic, a lack of technological integration and digital capabilities could significantly impede the growth of their wealth management business. “Moving forward, banks that strategically and proactively adopt new technologies will continue to be successful in the remote environment, while those that lack the proper technology infrastructure will likely fall further behind,” adds Cheses.
Furthermore, compliance and regulatory requirements are expected to stay heightened amidst Reg BI. More than half (52%) of surveyed bank executives cite managing compliance and regulatory requirements as a top strategic initiative. The ongoing regulatory environment is forcing banks to provide greater transparency and reduce operational risks within their wealth management units. Many banks have also added the compliance measures necessary to ensure suitability requirements and that allow firms to actively monitor conflicts of interest that may occur during trading and portfolio construction activities. While many of these initiatives were already in place, increased regulatory demands amidst Reg BI are driving more banks to embrace and implement significant changes to their business models.
Moving forward, banks will need to leverage technology and capitalize on their advantages to effectively drive growth and compete with other advisory channels. As banks consider their strategic priorities in the coming year, they need to consider these opportunities and challenges as part of larger strategic initiatives in order to create a unified advisory experience. By approaching these challenges in a more collaborative fashion, and accepting change throughout the organization, banks can drive more assets into their wealth management business.
NOTES TO EDITORS:
These findings and more are from The Cerulli Report—U.S. Private Banks and Trust Companies 2020: Unifying the Wealth Management Experience.
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