It’s been nearly a decade since the 2008 market crash, but the wealth management industry is still dealing with elevated consumer caution and the regulatory reforms that followed. Meanwhile, technologically savvy investors are demanding new digital tools. It adds up to major disruption, but there’s big opportunity in digital to help new entrants break in and established companies catch up and lead. It all takes Interconnection – the direct, private data exchange between businesses, and firms appear to know it.
The Global Interconnection Index, a market study sponsored by Equinix, predicts that the banking and insurance industry’s total installed Interconnection Bandwidth capacity will expand at a 61% compound annual growth rate (CAGR) between 2016 and 2020, from 144 terabits per second (Tbps) to 958 Tbps. During the same period, the installed Interconnection Bandwidth capacity of the securities and trading industry will grow at a 41% CAGR, from 119 Tbps to 474 Tbps.
The Index clearly indicates Interconnection will be essential as wealth management firms build for tomorrow
Robo-Advisors to AI: a changing relationship
One of the key after-effects of the 2008 crash is a permanent change in the relationship between wealth management companies and their clients. Firms know they’re under greater scrutiny and their customers are generally more cautious. Companies are working to respond with faster customer service – from anywhere on any device – and provide richer content. That content includes opinions built on the knowledge of multiple experts, not just a single advisor, as well as real-time news and information that could impact their customers.
In fact, a lot of investment and portfolio advice today isn’t coming from humans, but it’s being generated by online algorithms and robo-advisors accessing and analyzing information from multiple sources. Many companies are already adjusting to appeal to this growing demand. In a survey last year by PwC, “2016 Wealth Management Trends,” 46% of respondents agreed that robo-advisors will be crucial for engaging millennials.
But it’s not enough to simply produce generalized advice for a general demographic. Clients also want it to be customized to them. That means firms offering personalized strategies tailored to their clients’ specific financial circumstances and goals at any point in time have major appeal. Artificial intelligence (AI) is a key component in this. Wealth Management.com has predicted that AI will play a role in everything from investing and trading to product recommendation, customer services, marketing, compliance and cybersecurity. (That aligns with Equinix’s 2018 prediction that AI applications are about to surge into the mainstream.)
Superior connectivity becomes essential
This demand for low-cost, individualized, information-based investment advice comes with an emphasis on instant delivery. That’s resulted in services shifting from more stationary offerings to live, real-time digital portfolio analysis, and information reporting and performance alerts.
Superior connectivity also becomes more important as firms increasingly rely on greater collaboration with more partners. Research from Denise Valentine at the Aite Group focuses on the many “moving parts” of wealth management, including various inputs (market data, data analytics, client contracts), the management of those inputs (research, compliance, client reporting), and the custodial functions following various transactions (clearing, settlement). Firms that can get these parts moving in synch at the needed speed have a real advantage.
Firms are also finding the need for better collaboration as customer demand pushes them past their traditional areas of focus. According to the PwC survey, customers now want more than investment advice from their firms. They often seek help with tax and estate planning, insurance needs, healthcare policies, budgeting, spending and income generation. That requires more varied financial expertise and instant access to many more types of information and partnerships with other firms that specialize in these areas.
The bottom line is this: Real-time collaboration, analytics, and omichannel service delivery will all require fast, low-latency Interconnection among partners, locations, data sources and clouds. Only an Interconnection Oriented Architecture™ (IOA™) strategy can make all these components work together in real time.
Long distance WAN connections, all funneling back to a centralized corporate data center or over the public internet, can’t achieve the low latency required. But an IOA strategy moves all these components out to multiple global interconnection hubs at the digital edge, where they directly and securely link at high speeds with each other and nearby customers. By harnessing proximate, lower-cost LAN-like interconnections and choosing from a number of proximate cloud services and network providers, wealth management companies not only achieve real-time analytics and collaboration, they get them at a much lower cost than over expensive WANs. And they can ensure greater security as well.
Wealth management players can build an IOA framework on Platform Equinix™, which offers 190 data centers in 48 global markets, as well as direct access to 2,750 cloud and IT service providers. And the Equinix financial services ecosystem includes more than a thousand companies worldwide.
To find out more about how an IOA strategy can help wealth management firms transform and compete, check out our Wealth Management Industry Solution Brief.