The South African wealth management sector is one of the least tech-literate sectors of the financial services industry, and is falling well behind non-financial services industries.
This was according to Jorge Camarate, strategy and partner at PwC, unpacking the findings of PwC's latest wealth management report titled: "Sink or Swim: why wealth management can't afford to miss the digital wave", in Johannesburg today.
The report revealed leaders of established wealth management firms in SA acknowledge the importance of digital channels as a means to improve efficiency and engage more broadly with clients, but use digital as an operational tool to facilitate their firms' existing activities rather than as a means to transform their business proposition.
This is largely driven by the misconception that wealth management is, and needs to remain a human-led business, and technology is only an adjunct to this.
What is currently on offer is sharply at odds with what their clients, high-net-worth individuals (HNWIs), expect, says the report.
"Technology adaptation in the South African wealth management sector is falling behind for two main reasons. Firstly there is still a misconception about what wealth management clients require. Wealth managers believe HNWI are still traditional, conservative and they value face-to-face interaction and phone call communication rather than using digital channels because they are making investments worth millions of rands.
"Secondly most wealth management organisations in SA are relatively small. With only 1% or 2% market share, they target a handful of clients. There is still a view in the industry that digital channels require a lot of money to establish and maintain, therefore small wealth management firms tend to postpone that investment. However, you don't have to invest a fortune to invest in digitally enabled financial services," explains Camarate.
The report, based on interviews with wealth managers, CEOs and Fin Tech innovators and insights from a survey of 1 000 HNWIs worldwide, notes just a quarter of wealth managers offer digital channel beyond e-mail.
According to PwC, Africa is producing more wealthy individuals and a growing emerging middle class, however, the wealth management sector is in the very early stages of the first ecommerce-focused wave.
Very few wealth management firms have automated and digitised their back office and administrative functions. Only a handful of wealth managers use social media to interact with their clients and some only now are investing in Web portals and basic mobile apps, says the company.
"In Africa there is a demand for technology among both younger and older HNWIs. The report shows that HNWIs possess a high degree of literacy. They make use of a wide array of digital devices for their financial and wealth management needs, such as online and mobile banking means to review their portfolio or investment markets.
"They believe it is important for their wealth manager or financial adviser to have a strong digital offering. Ignoring this state of affairs is no longer an option. If firms do not respond now they will not survive in the medium to long term," Camarate points out.
The report further found SA is a model for many other African markets, with an industry worth R7 trillion. Traditional asset management, in particular the mutual fund industry is growing significantly across the continent.
This is being driven by a number of factors: economic growth and the subsequent rise in wealth, which is boosting the demand for pensions and life insurance products. The widespread adoption of technology is also expected to make the delivery of new products cheaper, bringing more consumers into the formal financial services sector.
This large, growing industry has promoted a competitive environment with many different players, all with relatively low market shares, targeting a relatively low number of HNWIs (approximately 0.1% of the South African population) through a variety of very different strategies.
"Significant challenges lie ahead for the wealth management industry regarding the implementation of the new regulations and legislation. Customer expectations continue to evolve and intersect with new technologies. Wealth managers will need to understand the necessary changes across channel, product and operations to meet changing customer demands. Many will need to fundamentally change their business models to operate in this new world," asserts Camarate.
Digital demand
According to the report, as of January 2016, 26% of the South African population use mobile banking, indicating that users are becoming more comfortable with digital offerings. However, despite recent fintech innovation, digital innovation along the wealth management value chain - offering new customer insights, increasing digital products and services - is still lagging behind mainstream retail banking.
The report further shows the demand for digital technology relating to financial services is surprisingly similar across both younger and older HNWIs, the exception being portfolio management, where under 45s are more interested in managing their investments online. Moreover, 47% of those who do not currently use robo services would consider using them in the future.
"Globally, only a third of wealth management clients claim to be very satisfied with their chosen firm's service - and among clients with assets of more than US$10 million this drops to just 22%. This is indicative of a customer segment that is particularly demanding and hard to please," continues Camarate.
In PwC's view, in order to survive, wealth management firms must accelerate efforts to adopt a comprehensive digital infrastructure that integrates every aspect of their activities, from the back office to how they service clients and market to new prospects.
"Wealth management firms must also harness the potential of digital to realise greater efficiencies, manage costs and extend their core client proposition beyond pure money management by drawing on a much wider range of available data," advises PwC.
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