Whereas 2018 saw the growth rate of the global wealth management market falling to a record low in 50 years, the advent of AI is here just in time to arrest the downward momentum. Instead of fighting for diminishing return in a saturated, zero-sum game, wealth managers will do well to avail themselves of AI and other smart technologies to help render the business of serving the mass affluent a fresh and scalable source of growth. The report forecasts a 25-50% increase in assets under management (AUM), a 15-30% growth in revenue, and a 25-50% expansion in profit margin in the coming decade, thanks to the contribution of this rising customer subsegment. According to the report, while the mass affluent customer base currently accounts for 17% of the total AUM, it represents an outsized 27% of all revenue and shows extraordinary promise. The report argues that the democratising power of smart technologies, such as AI, will help make financial services more inclusive and affordable, allowing mass affluent, and in time, mass market customers to be treated with the services previously only enjoyed by High-Net-Worth (HNW) and Ultra High-Net-Worth (UHNW) individuals.

Sedate financial institutions and FinTech companies are increasingly recognising the relative strengths of one another, as well as the ample opportunities for cross-pollination. Traditional wealth managers possess the institutional competence of risk management and financial expertise, they often find themselves hampered by the way they are set up when it comes to innovation and digital transformation; FinTech companies face the reverse problem where their technological prowess does not translate automatically into financial strength and regulatory certifications. This yin-and-yang-esque symmetry makes collaboration a mutually beneficial proposition, wherein the hitherto incumbents and disrupters transform into one another’s facilitators and enablers. “The incumbents wield the wealth of institutional expertise, while the FinTech newcomers possess the asset of technological knowhow,” remarked Kit Wong, chief executive officer of LU Global, Lufax’s international arm. “The world of wealth management is replete with opportunities for collaboration, where both can leverage their relative strengths and come together as partners and each other’s facilitators.”

Regulators have traditionally been behind the curve when it comes to innovations in the finance sector. However, the report argues that smart technologies have so swiftly matured in a plethora of applications that it is no longer tenable not to embrace them. Regulatory technology (RegTech) solutions have emerged to allow for regulation tracking and risk monitoring, giving more transparency to compliance and KYC, and more safeguards for anti-money laundering and against operational issues; fully digitised processes keep better records and leave less room for errors. “Smart technologies can serve as useful tools in regulators’ tool box,” said Yan Tan, a Shanghai-based BCG partner and coauthor of the report. “Deliberate and timely embrace of RegTech will aid regulators in installing guardrails and guiding the development of digital wealth management toward a healthier and more sustainable direction.” Regulators are advised to stay current to the development of FinTech, and assume an active role in their application. One way of doing it, suggests the report, is to create a regulatory sandbox to foster, curate, and test out innovation. The report also calls for the promulgation of a robust set of regulations for the digital wealth management sector that both empowers wealth managers to seek innovation and steers such development toward healthy and sustainable growth.

The relatively short institutional memory of wealth managers in many parts of Asia, combined with the comparatively lacking sophistication of the customers, makes intelligent wealth management services a very attractive and valuable solution. The report suggests that smart technologies like AI can facilitate better service personalisation, improve investor education, and assist in risk management. Just as the low penetration of credit cards allowed mobile payment to take off in China, the report anticipates that digital wealth management in many parts of Asia will bypass the stage of widespread human advisory services and leapfrog to inclusive, AI-enabled advisory services that extend coverage to the mass affluent and even the mass market.

The report asserts that smart technologies can help accelerate product innovation and deliver more nuanced services that better address the needs and preferences of customers. The customer base of wealth management is becoming ever more tech-savvy. “Millennials and digitals natives carry out so many of their routines and tasks through mobile apps, and have come to expect the same level of convenience and personalised services in wealth management. Wealth managers who proactively prioritise customer needs and user experience will be rewarded with greater dividends going forward,” said Wong. The report urges wealth managers to rethink their customer engagement models, commit to incorporating data analytics, and design anew a holistic yet individualised customer journey. Wealth managers, with the help of smart technologies, have the opportunity to transform customer services from one that is reactive to one that is proactive, cultivate more seamless interactions, and deliver a more positive and gratifying experience.

Whereas customers in Asia are generally more savvy than those in the West when it comes to mobile phones, they are often not as financially sophisticated as their western counterparts. Investor education is therefore not only necessary for compliance, but also imperative in helping customers better understand risks and be informed of the health of their investments. The key to individualised investor education is through understanding them better and addressing their sources of stress. Many investors in Asia lack a proper understanding of the risk-return tradeoff due to the reliance on the implicit guarantee. Deterred by abstract wealth management, finance, and risk concepts, as well as the tediousness of related topics when they already face immense “middle class anxiety”, most non-professional investors lack a basic financial knowledge and understanding of investment products. Simply leaving to the salesforce to compete for investors’ interest and attention, disentangle the incomprehension of jargons, and address the difficulty in correctly understanding risks and benefits is far from enough. Smart technologies, the report explains, can help democratise wealth management through data-driven investor education, and alleviate some of the pressure by helping investors transition from a return-based investment strategy to one that is goal-based, while nudging them to extend investment horizons, so they are less perturbed by short-term volatilities.

As smart technologies become more ubiquitous, the report cautions wealth managers to honor consent and acquire authorisation when collecting or sharing customer data, build a better defense against data and credential theft using technologies such as cloud computing and blockchain, and improve their overall regulatory posture. The report also discusses problems such as how to regulate robo-advisors, how to minimise algorithmic bias and avoid AI black box, as well as how to combat tech-generated fraud in the age of deepfakes. A lot of the success FinTech achieved in Asia was thanks to the unique combination of first world technology and emerging market growth. Despite the challenges ahead, the report foresees that this proven combination will open up more opportunities and deliver more dividends.

A copy of the report can be downloaded here.

Lufax operates a world-leading comprehensive online wealth management platform, offers consumer finance services, and provides turnkey technological solutions for financial institutions. The company leverages its global financial footprint and technological innovations in building an underlying robust risk management apparatus, and providing institutions, enterprises, and investors with secure, professional, and efficient financial information and services.

Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, BCG helps clients with total transformation—inspiring complex change, enabling organisations to grow, building competitive advantage, and driving bottom-line impact.

LU Global is a multi-award winning investment app that aims to democratise wealth management by making highly sought-after products more accessible through smaller minimum investment amounts and shorter commitment tenor durations. Using facial recognition, two-factor authentication and OCR technology, investors are assured of secured protocols while using the app.

Incorporated in Singapore in January 2017 and with over 370,000 registered users (as of February 2020), LU Global is a brand of LU International (Singapore) Financial Asset Exchange Pte. Ltd. that holds a Capital Markets Services licensed by the Monetary Authority of Singapore, and all funds deposited are safely held in two custodian banks.

LU Global is a member of Ping An Group, and is the international arm of FinTech unicorn Lufax. Ping An ranked #7 in Forbes’ 2019 Global 2000, and has also maintained #1 rank as World’s Most valuable insurance brand by Brand Finance. Lufax’s latest round of valuation stands at $39.4 billion as of March 2019.