Why digitalization is the way forward for private banking and wealth management

By Steve D'Souza, global head of private banking and wealth management, Fenergo

18 February 2019

High net worth individuals (HNWI) that utilize the services of a private bank have traditionally been given high-end experiences associated with luxury brands, namely their own dedicated investment advisor, personalized products and services and a reliance on appointment-based face-to-face meetings during conventional office hours.

This high calibre of service starts with the onboarding process. The relationship manager has done his or her job and that’s when the work of opening up accounts begins. This generally includes multiple requests for documentation, anti-money laundering (AML) and know-your-customer (KYC) due diligence and identity verification, all of which currently tends to be manually validated by an expensive back-office labor force.

Current estimates however indicate that by the end of 2020, 50% of the entire global workforce will fall within the millennial threshold, and as such, a new breed of private banking clients is beginning to form. There is also a baby boomer inheritance mountain which means that the next few years will mean there will be a large amount of assets moving to the next generation. This shift in client demographics will have a significant effect. Private banks and wealth management firms must now acknowledge that digital is a channel that will ensure the needs of new and existing clients are met. It should be noted that this overhaul in the way private banking clients are served must span the entire client lifecycle.

The need to embrace digital capabilities

By embracing the technical capabilities of what digital innovation can offer, those from within the private banking arena have a rare opportunity to win on both fronts. In other words, by transitioning regulatory and compliance workflows from manual to digital, not only will institutions have the opportunity to reduce costs, improve efficiency levels and drastically minimize time-to-revenue, but private banking clients will be accustomed to a significantly more positive end-to-end customer experience. According to a 2018 Accenture report, more than half of HNW clients over the age of 40 declare they could leave their private bank if an integrated and seamless channel is not provided. Clients are seeking hybrid advice and multiple solutions to communicate with their bank. Ultimately, by introducing increased process automation and client self-service channels, private banking and wealth management firms can instead inject resources into more profitable tasks and expedite client onboarding.

The digital transformation must begin at the very beginning

I believe that the digital experience must begin at the very beginning. Whilst retail and commercial banks are at the forefront of ever-increasing regulatory burdens, private banking and wealth management firms that onboard HNWIs are required to comply with even higher levels of stringent regulatory demands. As a result, private banking clients are required to go through a long, repetitive and hugely inefficient onboarding process resulting in a poor customer experience. You only get one chance to make a first impression, and as such client onboarding is that essential shop window for the private bank or wealth manager.

Whilst there is no one size fits all, onboarding structure, this generally includes the request of countless documents that must be submitted in-person. In fact, according to Fenergo research, we estimate that new clients are contacted up to 10 times and could be asked for up to 100 individual documents. Once the back-end team have received the required documentation, they then manually scan, analyze and cross-reference the information against other sources.

Should institutions attempt to outsource these manual workflows externally, this comes with its own risks. In effect, whilst firms can outsource document validation and identity verification tasks to others, accountability remains at the forefront of the institution in question. The recent introduction of the European Union’s General Data Protection Regulation (GDPR) has made outsourcing even more of challenge.

On top of this, private banking and wealth management clients also bear the brunt of tightened regulatory demands with respect to sanctions, politically exposed persons (PEPs) and beneficial ownership transparency, resulting in more documents, further delays and ultimately, an even more unfavorable customer experience.

The solution is digital- but what sort of digital?

On the face of it, the solution is simple – a significant transition to a digital onboarding process that extends to the entire life cycle of the private banking client – both new and old. The provision of multiple documents uploaded remotely via a secure online portal, subsequently removing the need for face-to-face appointments. The interaction with the client happens at the appropriate time in the process with only the required data.

As a result, the middle and back office are not required to engage in the monotonous process of manually inputting scanned documents on to internal document systems, not least because of the highly advanced capabilities of machine learning, Optical Character Recognition (OCR) and Natural Language Processing (NLP) technologies.

These technologies, while nascent, can enable private banks and wealth management firms to accurately extract text from scanned image-centric documents. Not only this but extracted text can then be cross-referenced against other data sources, both internally and externally.

Through the use of innovative technologies, such as robotics process automation (RPA), and the Fenergo Rules Engine, which incorporate the jurisdictional rules for the country, the client data can be categorized automatically. This is hugely beneficial for assigning compliance validation tasks linked to AML, KYC, Mifid and FATCA regulations, among many others. Further down the onboarding workflow process, the technology is also able to perform key risk ratings without the need to manually check each and every specificity. In the review process, RPA can flag up high-risk findings where potential PEP or sanction related threats develop subsequently, passing the alert on to a highly trained compliance officer.

A digital onboarding transition can benefit both the client and the institution

Whilst the outlined potential of digital transformation constitutes just a very small selection of the overall range of technical possibilities, they illustrate a singular pertinent point. By allowing modern, innovative and highly automated technologies to reduce the regulatory and compliance burdens of the onboarding process, private banks and wealth management firms can significantly fast-track time-to-revenue, reduce costs, improve efficiency levels and allow institutions to instead focus on more profit-driven tasks.

However, an even greater benefit lies for the clients. By reaping the rewards of the above end-to-end workflow improvements, private banking clients will also experience a complete sea-change in their customer experience.

Download Digitalizing the client lifecycle for global wealth management whitepaper here.

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