First, they came for the millennials. And then for the gazillionaires. A few years ago a study suggested millennials would rather trust their financial services to Apple and Google, and the bankers scoffed. (It also suggested they would rather visit a dentist than a banker.) Capgemini’s latest annual Wealth Report demonstrates that such youthful exuberance is not restricted to the young.
Increasingly, the world’s uber-wealthy say they would trust tech giants like Google and Alibaba to manage their millions.
That’s according to Capgemini’s 2017 World Wealth Report, which identifies what it calls “BigTech” firms as threats to the wealth management industry.
According to a survey of 2,500 high net worth individuals (HNWIs) around the globe, 56.2 per cent say they are open to using BigTechs for wealth management services.
While only a few BigTech firms such as Alibaba and Amazon have forayed (or signaled an intent to foray) into the business of wealth management, the report argues their entry is “inevitable”.
Respondents perceived BigTechs as offering increased efficiency, transparency, online excellence and innovation. This is especially true for younger (under 40) and those in Asia-Pacific (72.5 per cent), and those with $US20 million or more in assets (71.3 per cent).
The report also notes HNWIs voiced concerns about BigTechs with issues like data privacy and security (53.6 per cent). The lack of a human touch also presents a potential pitfall for BigTechs, with 45.8 per cent of respondents citing limited human involvement as a concern.
Wealth management firms are also aware of the BigTech threat, with a majority of firms (78.3 per cent) saying they view the entry of BigTech into financial services as either a certainty or strong possibility.
“One of the biggest unknowns in the wealth management industry is whether BigTech firms will seek to leverage their expertise in optimising technology and managing large customer bases to enter into the business and gain market share. BigTech interest in wealth management could result in fruitful partnerships or lead to highly disruptive competition,” writes Anirban Bose, Head, Banking & Capital Markets, Capgemini.
Opportunity or threat?
If the likes of Google, Amazon, Facebook, and Apple, Alibaba and Baidu do get into the wealth management game, firms will need to decide if they partner with or compete against them.
“Partnering with BigTechs will offer wealth management firms the opportunity to win over HNWIs with truly innovative offerings built on the latest technologies. With these opportunities, however, will come widespread disruption and the risk that initial partnership could give way to outright competition in the future,” the authors write.
The alternative scenario — outright competition — could see BigTechs building out their own wealth management capabilities, for example in the form of automated advisory services or payment apps. Outright acquisitions of wealth management firms are also a possibility.
The report argues that across the board wealth management firms need to “deepen their capabilities in technologies like artificial intelligence and application programming interfaces (APIs) to stand a chance of competing against BigTechs.”
“Just as important, they need to break out of their risk-averse cultures. Even firms seeking to partner with BigTechs rather than compete against them need to guarantee a certain level of operational and technological prowess in order to become a viable partner.”
The industry also needs to keep up with developments in voice technology, artificial intelligence (AI) and machine learning (ML), which are becoming integrated into numerous aspects of wealth management, including automated advice, chat bots, predictive analytics, next-best action advice, and pattern recognition.
“The technology is increasingly taking on human-like characteristics, becoming smart enough to offer advice based on emotions and use natural language processing to understand human speech as it is spoken,” the authors write.
“In our view, the increasing digitisation of wealth management makes it inevitable that BigTech will get involved over the next few years. We anticipate wealth management firms will seek out BigTech partnerships with the aim of building innovative new hybrid-advice models.”