Wealth Management in the Digital Age

Wealth Management in

the Digital AgeMay, 2016

2WM in the Digital Age | 2016 FIBA Presentation | Capgemini Financial Services

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Disclaimer



Over the past 20+ years I have been helping financial services institutions develop strategic vision and identify innovative solutions to

enhance revenues and improve operations in the fast-paced global financial industry. With industry experience in banking and capital

markets, I have first-hand knowledge of financial standards and market trends to help financial firms leverage capabilities to enhance

productivity and financial performance.

Introduction

Tej Vakta,

Senior Leader – Global Capital Markets

Capgemini Financial [email protected]

About Capgemini

With more than 180,000 people in over 40 countries, Capgemini is one of the world's foremost providers of consulting, technology and outsourcing

services. The Group reported 2015 global revenues of EUR 11.9 billion. Together with its clients, Capgemini creates and delivers business, technology

and digital solutions that fit their needs, enabling them to achieve innovation and competitiveness. A deeply multicultural organization, Capgemini has

developed its own way of working, the Collaborative Business Experience™, and draws on Rightshore®, its worldwide delivery model.

Learn more about us at www.capgemini.com.

http://www.capgemini.com/



For over 19 years, the Capgemini’s World Wealth Report has been the benchmark for leading global wealth management insights

Impact of New

Market Realities

on HNWIs

Changing HNWI

Behaviors

Mid-Tier

Millionaire

Challenge

Offshore vs.

Onshore Capital

Flows

Globalization

and Wealth

Transfer

Change and

Innovation in

Private Banking

Needs-

Based Client

Service Models

Ultra-HNWIs

Meeting Needs

of Growth

Markets

Institution-

Like HNWI

Behaviors

Specialized

Products and

Strategies

Adapting to

New Market

Realities

Europe vs. North

America HNWIs

Change in

Investor Psyche

post Crisis

Leveraging

Enterprise

Value

Developing

Scalable

Business Models

Regulatory

Impacts on WM

Firms and their

Clients

Digital:

The New WM MandateAddressing Evolving Role

of Financial Advisor



Global HNWI population grew 6.7% and wealth 7.2%

Global HNWI population

and wealth expanded at

moderate rates of 6.7%

and 7.2% respectively in

2014

Ultra-HNWIs as well as

Asia-Pacific and North

America regions drove the

growth of HNWI population

and wealth

Global HNWI wealth is

forecast to cross US$70

trillion by 2017, growing at

an annualized rate of 7.7%

from the end of 2014

through 2017Source: Capgemini and RBC Wealth Management Global HNW Insights Survey, 2015



U.S. HNWI population grew 8.6% to reach 4.4 million

Source: Capgemini Financial Services Analysis, 2015

Note: The totals for all years are expressed in millions and the 000s in the chart title do not apply to those numbers; Chart numbers and quoted percentages may not add up due to rounding

U.S. and Top 12 MSA HNWI Population (000s), 2009–2014

Growth aided by markets of West Coast and Texas



HNWI population and Wealth Growth, Gross Metropolitan Product Growth, Real Estate Growth and Unemployment Rate for Top 12 US MSAs

Source: Capgemini and RBC Wealth Management Global HNW Insights Survey, 2015



NA HNWIs’ major concern relates to rising costs and top needs are investment performance and understanding of needs

Wealth Needs

Top Five Concerns and Wealth Needs of North America HNWIs (% Respondents)

Concerns

1 Rising costs of

healthcare74.1%

North

America

2Ensuring my assets will last throughout my lifetime

73.6%

Source: Capgemini and RBC Wealth Management Global HNW Insights Survey, 2015

Global

68.7%

58.7%

Global

Rank

3

2

4Being able to afford the lifestyle I want in retirement

66.1%

5

The impact of the

economy on my ability to

meet my financial goals64.3%

62.8%

58.7%

3 My and my family’s health 70.7% 66.2% 1

4

6

North

America

Global Global

Rank

Strong investment

performance86.3% 72.5% 3

Ability to understand my

concerns and needs85.6% 72.0% 4

Wealth managed with a

clear understanding of

risk tolerance

84.8%

Timely and detailed statement and overall reporting quality

82.1%

Quick and effective

resolution of service

related issues80.9%

73.2%

69.4%

69.6%

1

6

11

Overall level of concerns and importance of wealth needs higher in North America.



To enable financial advisors, firms need to understand HNWI needs and adapt accordingly

Path Forward for Firms


UNDERSTAND

HNWI AND

INDUSTRY

DYNAMICS

EVOLVE ADVICE

MODEL TO

RESPOND

INVEST IN

SPECIFIC HIGH-

PRIORITY

CAPABILITIES

ENGAGE, EQUIP,

AND EMPOWER

FINANCIAL

ADVISORS

Foundation Specific Actions

Most Important Firm Capabilities which Financial Advisors believe are

important to fulfill HNWI needs:

Strong wealth planning Tools – 81% of financial advisors

Access to firm or 3rd party experts – 72% of financial advisors



Digital Landscape in Wealth Management



Today’s customer is at the center of digital disruption across all industries

Customers Dealing with Digital in their Everyday Lives




Five fundamental forces are driving this even stronger

“Amazon-

ification”

“Google-

ification”

Google has driven the information age through an individual’s ability to find a wide variety of information quickly, easily, and for free

“Apple-

ification”

Apple has established the customer

experience at the center of a firm’s

strategy

Amazon was one of the first firms to

articulate and deliver predictive and

contextual shopping experience

Facebook drove widespread

adoption of social interactions and

digital presence

Customers Dealing with Digital in their Everyday Lives


1. Information

2. Answers

1. Experience

2. Intuitive

1. Predictive

2. Contextual

1. Social

2. Collaboration

“Facebook-

ification”

Uber has transformed the meaning

of convenience and customer

experience

1. On-demand

2. Convenience

“Uber-

ification”

Top Two

Words to

Describe



As expected, wealth management customers also have a high demand for digital, led by younger HNWIs

HNWIs Considering Entire or Most of Current WM Relationship to be Digital Currently

and Five Years in Future, by Age

Source: Capgemini Financial Services Analysis, 2016; Capgemini and RBC Wealth Management World Wealth Report 2015

57%

77%

59%

48%

40%

64%

83%

70%

54%48%

0%

25%

50%

75%

100%

Global Under 40 Age 40-49 Age 50-59 Age 60+

FutureCurrent

Questions asked:

“To what extent would you say that your wealth management relationship is CURRENTLY conducted through digital channels?”

“In FIVE YEARS, to what extent would you like your wealth management relationship to be conducted through digital channels?”,

and “Thinking about your wider retail experience, to what extent do you CURRENTLY buy personal items, such as clothes or books,

through digital channels?”

u

v

u v



Younger U.S. HNWIs also exhibit higher demand for digital interactions

Questions asked (Digital):

“Please indicate whether digital contact (internet, mobile, email) is more important to you than

direct and personal contact?”

“To what extent would you say that your wealth management relationship is CURRENTLY

conducted through digital channels?”

“If your main wealth management provider could not offer this type of integrated wealth

management experience, would it prompt you to consider moving to another firm?”

u u

v v

w w

u

v

w

Key Digital Demand Differences by Age, Q1 2014 and Q1 2015




However, wealth management firms and industry seems to be lagging behind on the digital evolution

1960s 1970s 1980s 1990s 2000-2015

Mu

sic

Ind

us

try

Co

mp

ute

r

Ind

us

try

Ban

kin

g

Ind

us

try

We

alt

h

Ma

na

ge

me

nt

SELF-SERVICE WEBSITE /

LITE MOBILITY APPs




The demand for digital by next generation will help push disruptive financial services into mainstream adoption

Automated advice represents a huge potential

market for wealth management firms, with

HNWIs alone willing to allocate $7.3mn to

these models by 2017

ROBO-ADVISORS

The global crowdfunding industry raised

$34.4bn In 2015, increasing by 112.3% from

$16.2bn in 2014

CROWDFUNDING

Source: Capgemini Financial Services Analysis, 2016; http://dazeinfo.com/2016/01/12/crowdfunding-industry-34-4-billion-surpass-vc-2016/;

http://www.marketsandmarkets.com/PressReleases/wearable-electronics.asp; http://www.businessinsider.in/THE-PEER-TO-PEER-PAYMENTS-REPORT-The-exploding-

market-for-smartphone-apps-that-transfer-money/articleshow/47114852.cms

The overall market for wearable technology

is expected to reach $31.3bn by 2020,

growing at a CAGR of 17.8% between 2015

and 2020

WEARABLES

The mobile P2P transactions volume is

expected to reach $86bn in the U.S. by 2018

P2P PAYMENTS

The global market for mobile wallet is

expected to reach $2.7tn by 2020, driven by

proliferation of smartphones, internet, and

increasing merchant acceptance of mPOS

terminal

MOBILE WALLET



In fact, more and more fintechs are already targeting wealth management industry…

Wealth Management

Provision of Advisory Services

Client Profiling

Client Acquisition

SUPPORT FUNCTIONS (IT, COMPLIANCE, FINANCE, MARKETING, ETC.)

Select Examples of Fintech Players Disrupting the Wealth Management Industry




This is how far digital loyalty goes, first official digital wedding on blockchain

Blockchain wedding

First blockchain wedding took place at Disneyland, FL.

David Mondrus and Joyce Bayo registered their wedding

agreement on the blockchain, eliminating the role of both

religious and government officials.

took

Source: Capgemini Financial Services Analysis, 2016 and publicly available sources



… With a lot of demand in the automated advisory area

However, financial advisors seem to be underestimating the demand.

Note: Questions asked: “Would you ever consider having a portion of your wealth managed by an automated advisory service”? “In your view, would your HNW clients consider having

a portion of their wealth managed by automated advisors”?

Source: Capgemini Financial Services Analysis, 2016; Capgemini and RBC Wealth Management, World Wealth Report 2015

49%

76%

46%52%

70%

33%

20% 19%16%

32%

14%18%

0%

20%

40%

60%

80%

Glo

ba

l

Asia

-Pacific

(excl. J

ap

an)

Euro

pe

Ja

pa

n

Latin

Am

eri

ca

Nort

h A

me

rica

Pe

rcen

tage

of

Resp

on

de

nts

HNWI Wealth Manager

HNWI and Financial Advisor Assessment of HNWI Propensity to Use

Automated Advisory Services, Q1 2015



Bridging the Digital Demand Gap



Advisors and firms are transitioning towards a new landscape with digital at the core

Shifting Wealth Management Advisory Landscape

Focus on behavior-based

segmentation

Use of multiple channels to

provide a seamless experience

across all channels

Delivery of the full capability of

the firm

Growing prominence of fee-

based and discretionary

solutions and utilization of open

architecture

Shift toward holistic approach

to integrated wealth

management including goals-

based performance

management

Digital

Transformation




Firms need to build an effective digital strategy which engages clients and empowers financial advisors

Effective Digital Strategy

Client Experience Advisor Enablement



Through digital, firms can provide clients with a better experience across three areas of inform, engage, and transact


Real-Time

Simplified

Collaborative

Multi-Channel

Exp

eri

en

ce

Products

and

Services

Content

and

Education

Performance

and

Review

INFORM

Review

and

Collaborate

Propose

and

On-board

Plan

and

Advice

ENGAGE

Implement

and

Execute

Money Movement

and

Servicing

TRANSACT

HWNIs have high propensity to leave their Wealth Management Firm due to

lack of digital relationship and integrated Channel experience



Select examples and best practices of client experience





According to research from

Nuance, “the leading creator of

intelligent virtual assistants, 58%

of 18 to 25 year old smartphone

users are periodically interacting

with a speech-enabled virtual

assistant.”

USAA was the first financial institution

to deliver a speech-enabled virtual

assistant to its smartphone app users.

Since then USAA is adding more

capabilities for their members across

various types of accounts and services

(including performing transactions and

getting account information)





Source: http://www.kioskmarketplace.com/videos/pnc-branches-out-in-a-small-way-2/









Several leading firms are working on innovative

solution like interactive PDF to drive digital and

taking diversification from an intuitive concept

to a tangible portfolio attribute that can be

measured, visualized, and optimized by

launching a PDF on any device

Next-Gen eStatements




Exp

eri

en

ce

Through digital, firms can enable advisors across three areas of inform, engage, and transact


Real-Time

Unified

Contextual

Collaborative

Products

and

Services

Content

and

Education

Performance

and

Review

INFORM

Review

and

Collaborate

Propose

and

On-board

Plan

and

Advice

ENGAGE

Implement

and

Execute

Service

and

Practice Mgmt.

TRANSACT

To enable advisors, firms need to invest in specific high-priority capabilities

and engage, equip, and empower their workforce



Select examples and best practices of advisor enablement

The Global Wealth business of the bank turns

to IBM Watson to help financial-planner

improve their advice




Example of what’s next for advisor enablement

Your Bot in Messenger

Client BOT Engine Your AppSource: Capgemini Financial Services Analysis, 2016 and publicly available sources




Your Bot in Devices





Your Bot in

Robo-Advisor / Virtual Assistant




Select examples and best practices of advisor enablement

Robo-Advisors

Advanced Analytics








Key Recommendations and Takeaways



Firms will need to consider an overall shift in the advisory model to align with the shifting landscape

Review/ Discovery of Goals

Plan and Prepare

Implement Plan and Strategy

Review of Value Added

Introduction

Current Advisory Model

Current and Evolving Advisory Model in Wealth Management

Evolving Advisory Model

Client

Goals

Implemen-

tation




Digital disruption in wealth management is expected to be driven by Fintechs, Blockchain, and AI led Robotics in coming years

Real Time

Payments

Digital

Disruption in

Wealth

Management

Blockchain technology has the

potential of automating some

intermediary trusted services

currently performed by banks.

Financial service firms need to

invest in R&D, new

ventures/fintech firms in order to

achieve results complementary to

their business goals

Blockchain

Robos and artificial intelligence is capable of

reducing costs, increasing skills, and

improving customer experience, which might

result in them taking over certain finest

activities currently performed manually in

financial services industry

AI and Robotic revolution

The digital revolution in financial

services industry is on the go, but

the brunt on current players is yet

to be seen. Numerous fintech

firms are challenging banks in

almost every product (including

lending, payments, forex etc.) in

their portfolio

Fintech




In addition to enhancing advisory model, firms/ financial advisors can re-align their

business model in order to adapt to new reality

Evolving Business Model

Model Spectrum

Financial Planning Model

Providing holistic/customized advice through frequent human

interactions and involves assistance in risk management, legacy, estate,

and tax planning, and charitable giving

Hybrid Advice Model

Traditional human touch and technology advisory services co-

exist within a WM firm, with primary goal being interdependence

Automated Advisory Model

Primarily relies on technology to manage investments, and caters to HNWIs not requiring the personal

touch.

Digital-Led Financial Advisor-Led

The industry sweet-spot for the majority of firms is likely to be in the hybrid advice model.




Core/Strategic Focus Transformation Focus

Firms will need undergo a digital transformation which can focus on developing a digital mindset complemented by tactical steps

High-Level Digital Prioritization Roadmap in Wealth Management

Note: Steps do not necessarily need to be taken sequentially

Shift the business mindsetDevelop ROI model/ cross-enterprise

support

Make build vs. buy decisions

Implement quick wins

to build momentum

Develop big data and artificial

intelligence opportunities

Partner / Collaborate with FinTechs

Engage and educate financial advisors

Strategic Recommendation Transformation Recommendation




KEY TAKEAWAYS

Key Takeaway 1

Assess your current state and benchmark against your peers across inform, engage, and transact (DMA)

Key Takeaway 2

Identify key client-facing and FA supporting needs to develop a comprehensive digital strategy that simplifies

advisor-client collaboration and drive loyalty

Key Takeaway 3

Embark on your iterative transformation journey

SCAN

FOCUS

ACT

The information contained in this presentation is proprietary.

© 2016 Capgemini. All rights reserved. Rightshore® is a trademark belonging to Capgemini

www.capgemini.com

About Capgemini

With more than 180,000 people in over 40 countries, Capgemini is one of the

world's foremost providers of consulting, technology and outsourcing services. The

Group reported 2015 global revenues of EUR 11.9 billion. Together with its clients,

Capgemini creates and delivers business, technology and digital solutions that fit

their needs, enabling them to achieve innovation and competitiveness. A deeply

multicultural organization, Capgemini has developed its own way of working, the

Collaborative Business Experience™, and draws on Rightshore®, its worldwide

delivery model.

Learn more about us at www.capgemini.com.

Tej Vakta,

Senior Leader – Global Capital Markets

Capgemini Financial [email protected]

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Economy & Finance

Wealth Management in the Digital Age