The Wealth Data Puzzle

Wojtek Buczynski, CFA, FRM, AI Specialist and Phil Tattersall, Partner at EY, describe 2022 as another year of technological transformation on a mass scale for the UK wealth management industry. This came despite the challenging economic, market and geopolitical backdrop. We expect 2023 to follow a similar transformative trajectory.

Wojtek Buczynski, AI Specialist, EY

Phil Tattersall, Partner, EY

Unsurprisingly, in a field as dynamic and disruptive as financial technology we see a lot of innovative ideas (for example tokenization), emerging trends (like AI), and the well-established megatrends (such as the cloud, ESG or alternative data). Betting on a new trend is one thing, but implementing it is another, and it rarely comes without challenge.

The adoption of some emerging technologies is discretionary and will depend on firm budgets and appetite. But other areas, like the cloud and ESG, are increasingly essential. ESG is particularly notable as we strive to reach net zero.

Virtually all the challenges and opportunities the wealth management industry - and arguably the broader investments space - must contend with are underpinned by data. Data is the ultimate, broadest megatrend, and should be regarded as an asset. Having the right data strategy is likely to be one of the key determinants of future success for wealth firms.

EY’s extensive research and client work have given us valuable insight into the industry.

This article looks at four key themes that will benefit from a robust and progressive data strategy.

1. Going Digital

The wealth industry is currently focused on the mass affluent customer segment as its next big target demographic. This segment’s wealth will in part be powered by what is dubbed as “The Great Wealth Transfer”, whereby trillions will be passed between generations, most notably from baby boomers to millennials (although many individuals in this bracket are first-generation wealth-builders).

The mass affluent segment may have been previously deemed ineligible for wealth management services due to the size of their assets, which are relatively limited by traditional Wealth Management standards (USD 100,000 – USD 1,000,000 excluding property).

While some of the older millennials still remember life pre-internet, they are the first generation to be considered “digital natives” and access and consume services – including financial - differently to their parents.

While some of the older millennials still remember life preinternet, they are the first generation to be considered “digital natives” and access and consume services – including financial - differently to their parents. While the old paradigm of wealth and private banking is exceptional personal service, younger clients expect bespoke, personalized services online. They want exceptional mobile experience with personalized analytics, data-driven insights and recommendations. This will strongly apply to those in the mass affluent category, not just because of their preferences, but because higher-touch wealth management services might be too costly for them.

2. Hybrid Advice

We see wealth management services as a broadening spectrum, with traditional high-touch service still in place for the wealthiest, more traditional clients at one end, and a primarily digital experience of younger people at the other. This transformation is driven by democratisation of advice across the wealth spectrum by firms aiming to serve clients in different segments while managing the costs.

At the same time, our industry research has revealed that all the wealth client categories reported their customer experience has become less personalized in the past three years (29% to 67% clients depending on the segment). Paradoxically, in the same survey both millennial and Gen X customers declared greater willingness to share their data with a wealth manager than with their doctor (80% vs 67% for millennials and 74% vs 68% for Gen X). Underutilisation of data and data-driven insights in the digital channels is a plausible explanation for this depersonalization of client experience.

We see the hybrid model –encompassing both personal and data-driven digital experience – as the best way forward.

We see the hybrid model – encompassing both personal and data-driven digital experience – as the best way forward. There is no universal “one size fits all” solution and each wealth firm will need to embark on its own, unique transformation journey tailored to their strategic ambitions. The one unacceptable course of action is to do nothing.

3. ESG

ESG is one of the key investment considerations for wealth clients, especially Millennial and Gen Z investors. Data implications are huge, with growing regulatory pressures adding to those. Wealth managers need to be able to evidence – with data – that their investments that are labelled and marketed as ESG are in fact so.

ESG comes with a unique set of challenges around data. It is often unstructured, which makes it difficult to quantify, aggregate and compare across entities. An entity ranked highly on one aspect (for example environmental) may rank low on another (for example governance), which makes it challenging (if not impossible) to capture an investment with a single ‘ESG score’ (an issue that gets exponentially more complex when aggregating multiple investments). Greenwashing is also an increasing challenge as investment firms’ ESG claims are being increasingly scrutinised and challenged. Consequently, investment managers conduct complex analytics to base their decisions on and to be able to explain them to their clients and regulators.

AI is being seen as a potentially very useful (and scalable) solution in translating unstructured data (particularly free-form text and speech) into quantifiable data.

Separately, AI is being seen as a potentially very useful (and scalable) solution in translating unstructured data (particularly free-form text and speech) into quantifiable data.

Large asset managers either go for third-party ESG data and analytics or employ a hybrid model whereby the combine their in-house research with third-party data – in the Wealth space we see the former approach as more likely due to lack of economies of scale.

Regardless of the approach, data will be the key to addressing the ESG challenge.

4. Culture And Talent

One of the most unexpected (yet consistent) findings of EY’s latest wealth research was the importance of company culture to the success of data strategies and broader digital transformations.

Our central discovery – which was further corroborated by joint research1 between EY and Oxford University’s Saïd Business School – was that a purely techno- and meritocratic approach to transformation results in a 70-90% failure rate2. Accounting for human factors within a transformation programme, for example the feeling of job security or the sense of belonging, increases the chances of a success by a factor of 2.6.

Another widely recognised and reported cultural challenge was the “silo-ization” and disconnect between various teams. This is an issue whereby multiple teams each hold their own, local data and a single “golden source” does not exist.

Whether data is centralised (e.g. in a data lake) or merged across multiple repositories (e.g. via data mesh or data fabric) is a technological and operational decision – in any case data needs to be “de-siloed” and shared more widely.

Data education for employees is also important. EY research found that internal training programmes (particularly around data governance) were met with active interest by the staff. However, cultural changes take time and patience and wealth firms need to be mindful of that.

About EY

EY exists to build a better working world, helping to create long-term value for clients, people and society and build trust in the capital markets.

Enabled by data and technology, diverse EY teams in over 150 countries provide trust through assurance and help clients grow, transform and operate.

Working across assurance, consulting, law, strategy, tax and transactions, EY teams ask better questions to find new answers for the complex issues facing our world today.

Our research has shown that improved culture enhances trust within the organization, trust from the clients, and trust from business partners. Given the fundamental importance of trust to Wealth industry a positive cultural shift may benefit not just the organization’s morale or efficiency, but also, tangibly, its bottom line.

Concluding Thoughts

In conclusion, while the themes above are all data-focused, their range is very diverse, spanning culture, analytics, client experience and environmentalism. It goes to show that data is much more than just a technological consideration. Data is all-encompassing and fundamental to wealth firms’ success.

1 Transformation Leadership: Humans@Centre | Saïd Business School (ox.ac.uk)

2 Failure defined as transformations not delivering on their objectives, not necessarily a complete failure.

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This news release has been issued by Ernst & Young LLP. For more information about our organization, please visit www.ey.com and email: wojtek.buczynski@uk.ey.com