Wealth managers grappling with an unknown future
Corporate governance culture that smothers innovation frustrates investment leaders, who are keen to embrace digital age, survey shows
Amid seismic technological changes, leaders have to keep up with the times. And in the financial services sector, in which growing competition from traditional and new players has combined with tighter regulation and changing investor behaviours and expectations, there is added pressure on those at the helm.
Recent research from the UCT Graduate School of Business (GSB) with a leading SA wealth management firm, which is responsible for the management of assets valued at more than $7bn, found that leaders are feeling the pressure to adapt how they manage processes and people, to keep abreast with technological advances and new regulations, and remain competitive.
These have been volatile times for wealth management in SA. The 2008 global economic crisis, the country’s own debt crisis of 2014 and 2015’s Nenegate scandal have all put pressure on investors’ disposable income. Investors are looking for more value and have become more price sensitive about fees.
The fourth industrial revolution merely intensifies these challenges. A recent study showed that 31% of wealth management companies reported that they fear nontraditional and tech-savvy competitors such as Google, Apple, Facebook and Amazon taking a significant portion of their businesses. To stay ahead, win new clients and secure good returns, the industry will have to be dramatically reinvented over the next decade.
There is limited research into what this expanded skill set might look like, but the literature that does exist makes it clear this is no place for Luddites
New-generation wealth management companies are changing the rules of the game. For example, they are bringing together traditional and technological investment models — one-on-one human plus digital — “advisers” — in what is known as hybrid advice models, allowing companies to access a broader base of potential clients, including those with smaller portfolios not previously deemed economically viable for “high-touch” human engagement.
There is general consensus that wealth managers must be both high-touch and high-tech. Tech-crazy millennials who eschew human interaction are increasingly entering the investment scene, and nimble-minded companies are quickly learning to offer alternative financial opportunities such as “crowdfunding” (pooling money to invest into individual assets) and “conveniences” (apps investors can use to check their portfolios at any time) to cater to this tech-savvy market.
In addition, there is the potential for technology to reduce investment and operational costs through, for example, the processing of mass amounts of data, savings that can be passed on in the form of reduced fees or additional services to potential investors.
While there is still a place for traditional leadership practices in managing these variables, leaders in the digital age have to expand their wheelhouses. There is limited research into what this expanded skill set might look like, but the literature that does exist makes it clear this is no place for Luddites.
Leaders will need to demonstrate greater situational awareness and cognitive agility in resetting the strategic direction of the business. They will require a level of emotional attentiveness that allows them to best adapt to a changing landscape. They need to be empathetic and culturally intelligent, and harness inclusive practices and engage diverse networks rather than fear or resent them.
The digital leader must adaptively operate across the following key dimensions: situational, cognitive, behavioural and emotive. They must recognise that digital technologies will transform their entire organisations and must be able to articulate visions of what the transformation will look like specifically for their organisation’s distinctive competitive capabilities. They must create environments in which others are not afraid to experiment, innovate and, yes, fail. They must have long-term views of both their own businesses and the technological advances likely to disrupt and enhance their industry.
The UCT GSB study revealed that wealth managers in SA are indeed grappling with these four dimensions. While the leaders interviewed in the study spoke about their unfamiliarity with how best to leverage technology within their businesses, and their frustrations at being hampered by a corporate governance culture that smothered innovation and experimentation, they also demonstrated strong emotional awareness and cognitive abilities.
They exhibited the ability to think on their feet and adapt their plans as the landscape changes. They also showed a willingness to cultivate the right cultures — that do not stifle innovation — to ensure they create new products and services that keep their organisations relevant in increasingly competitive environments, locally and internationally.
Leaders in the study focused on being authentic and were comfortable with being maturely vulnerable with their teams — this mature vulnerability builds trust and camaraderie that motivates others to push the envelope.
They viewed diversity as a competitive advantage and not merely as a social responsibility or enforced by compliance demands. They embrace diversity as strategically critical as their firms seek to develop a suite of inclusive products and services. They develop teams with diverse opinions, willing to constructively dissent that break from traditional herd thinking.
All of this bodes well for the industry as it braces for the emerging digital revolution, which is a threat and an opportunity.
In a world dominated by technology, leaders need to inspire, engage and lead with optimism. And in so doing, they have the power to shape the future of their industries and, indeed, the continent.
• Dr April holds the Allan Gray chair in the Allan Gray Centre for Values-Based Leadership at UCT. Dalwai recently completed his MBA at the GSB.