With COVID-19 accelerating digital transformation, wealth
managers are expected to increase tech spending to reach approximately US$24
billion annually by 2023, according to a new research by Celent, the tech
advisory arm of Oliver Wyman.
By the end of 2020, the wealth management industry is
projected to spend US$21.4 billion on tech, and the figure is set to grow at a
compound annual growth rate (CAGR) of 5% year-over-year (YoY) until 2023.
But before wealth management firms ramp up tech spending,
they will need to recover from decreased revenues induced by COVID-19, meaning
that accelerated tech spending won’t kick in before mid-2021, the report says.
Among the top priorities areas of investment, the report
names hybrid advice experiences, digital onboarding, cybersecurity, robotic
process automation (RPA) and workflow management, biometric authentication,
chatbots, and cloud migration.
Wirehouses, full-service broker-dealers ranging from small
regional brokerages to large institutions, will continue to be the biggest
spenders when it comes to tech spending, accounting for 37% of overall IT
spending by 2023. After wirehouses, independents will account for 17%, a 5.5%
increase compared with 2020, the report says. Out of the total IT budgets by
2023, 58% will go towards external software and services.
Impact on COVID-19 on wealth management
COVID-19 and social distancing measures are substantially
transforming how investors and financial advisors collaborate.
According to a recent survey by fintech firm Broadridge
Financial Solutions, over half (57%) of investors said communications with
their advisor had changed in some way in light of new stay-at-home mandates.
62% of those who reported a change in mode of communication said they would
entirely or partially maintain their new methods after the pandemic ends,
implying that the consumer behavior changes instigated by COVID-19 are here to
A key finding from the study was that social media has
become key to connecting with younger generations. 86% of Gen Z and 87% and
Millennials said they were comfortable having advisor follow them on social
media to offer a more customized experience.
Facebook was found to be the most popular social media
platform for Millennials (66%), Gen X (46%) and Baby Boomers (15%) to interact
with their financial advisors through social media. Meanwhile, Gen Z said they
preferred Instagram (53%).
Many experts and industry observers believe that COVID-19
will bring hybrid robo-advisory services to the mainstream. Though wealthtech
startups like Betterment and Wealthfront have gained notable traction over the
past years, the market volatility and uncertainty brought in by COVID-19 have
shown that investors still want relationships with human advisors.
A new survey by fintech management company Diaman Partners
found that since the beginning of COVID-19, investors have lost trust in using
robo-advisors. The study, which surveyed more than 1,000 investors in the UK,
found that the preferred solution was actually a hybrid advice model (40%).
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