Digital differentiation for asset and wealth managers must focus on “better”—not just “more”

In a “tale of two cities” market, the asset and wealth management industry must carefully balance macroeconomic headwinds with exciting innovation potential. This amalgam of circumstances sets the stage for AWM providers to reconsider what they need to achieve success. AWM providers indicated their top business objectives remain aligned with the classics with driving revenue and profit growth tied for the top position (28%). Driving growth in assets under management and generating new forms of value via partnerships rank as the second tranche of critical business objectives (24%), pointing us to some of the potential new growth areas for AWM firms tied to sustainable investing and the development of digital assets enabled by a hefty side of ecosystem partnerships to enable this new value.

Most AWM firms are currently at Horizon 1 regarding their innovation progress but have bold plans for the future. AWM firms indicated their current reality is firmly Horizon 1, with 55% of respondents indicating they focus on digital optimization, which in the AWM context tends to align with the launch or enhancement of capabilities like mobile apps or enhanced customer onboarding processes. The remainder is split between Horizon 2 and Horizon 3. The innovation outlook for two years from now shows aggressive progress plans. More than a third (37%) of respondents plan to shift their innovation focus to Horizon 2 initiatives, such as leveraging platforms and data and analytics to drive customer and advisor experience.

AWM firms are keen to expand their offerings and grow their client base but suffer from basic digital hygiene issues. While sustainable investing and financial wellness solutions top the list for offering expansion, AWM firms also indicate that some basics, like customer onboarding, have room for improvement. The client onboarding process still takes five days or more for 87% of AWM firms, and the current average time to onboard clients is 12 days, with data challenges as the top reason for delays. Respondents additionally indicate their website is the top customer interaction channel (57%), followed by mobile apps (49%) and in-person meetings (45%). Mobile apps are expected to become the de facto interaction standard in two years.

AWM firms are prioritizing investments that will help torpedo digital hygiene issues now and enable data and AI-driven differentiation in the future. Their current investment priorities show clear plans to prioritize customer and advisor experience. The top priority is continued mobile app refinement. Other top five priorities include personalization, platform investment, and AI-enabled investment decisioning, which begins painting a picture of Horizon 1 digital investment pushing toward Horizon 2 enterprise-wide experience initiatives. The growth priorities in two years align with differentiated operating models and the potential for new business models driven by data and self-serve insights, AI-driven advice and modeling, and real-time analytics to know precisely how client assets are going and growing.

AWM firms cite data security, talent, and C-suite commitment as their biggest barriers to realizing value from their innovation investments. An interesting thing happens when we discuss barriers to achieving value with most financial services leaders: We talk about enduring problems rather than new issues. The AWM leaders in this study cited data security, C-suite leadership commitment, and talent as the big three issues holding them back—all part of a greatest-hits roster of roadblocks.

Full-service firms and fintechs are on track to become the partners AWM firms use most. As AWM firms continue pursuing innovation agendas, their partnerships are shifting. Full-service firms show a marked increase (51% to 64%) over the next two years, becoming the dominant type of partner AWM firms prefer to work with. While the rise of full-service firms is notable, their growth is matched by the rise of fintechs (from 40% to 53%). Our definition of fintechs is inclusive of wealthtechs.

Strategic partnerships are on the rise with AWM firms—with lofty value expectations. AWM firms indicate they currently work with an average of 10 strategic partners, and 63% indicate this will increase over the next two years as they pursue their innovation agendas across the Horizons. The top three criteria for designating a partner as strategic are co-innovation, cost savings, and the ability to offer cutting-edge capabilities at scale. These are challenging bedfellows.

The Bottom Line. AWM firms’ trifecta approach of driving growth through new assets and offerings, enhancing the experiences of customers and advisors, and monetizing data with the help of analytics and applied AI must coalesce around digital differentiation. The C-suite-led mantra needs to be “better”—not “more.”