Innovation in

Wealth Management
An IDC InfoBrief, sponsored by Avaloq
October 2018

Author
Thomas Zink

IDC# EMEA44374918

An IDC InfoBrief sponsored by

Introduction In which country is your bank located?

12% 12% 12% 12% 12%

10% 10% 10%
This IDC InfoBrief, sponsored by Avaloq, is based on the results of a research and analysis
study of European, Asian and Australian wealth management institutions (WMs). The study was 6%

designed to understand how successful these WMs are in their digital transformation journey
2% 2%
and what challenges they may have faced along the way. The InfoBrief aims to summarize
strategic objectives and technology priorities for the coming three years and will help you to take
a step toward forming and realizing your digital strategy in the context of
wealth management business. Australia Belgium France Germany Hong Kong Luxembourg Netherlands Singapore Spain Switzerland United Kingdom

Methodology How many people are employed by your company at all locations

Fewer than 100 employees

In June 2018, IDC conducted a survey of 50 senior decision makers for innovation from wealth
management institutions. These were spread over 9 Western European countries as well as 22% 100 to 249 employees
36%
Australia, Hong Kong, and Singapore.
8% 250 to 499 employees

10%
500 to 999 employees
24%
1,000 or more

2 © IDC 2018 An IDC InfoBrief sponsored by

 Operational efficiency is the main strategic objective for WMs, and 70% have been successful in achieving it.
In the next three years, the strategic objectives of WMs will become more balanced. Digital transformation and regulatory
compliance are becoming considerably more important.

Strategic objectives of WMs three years ago and in the next three years How successful were you in achieving
those objectives?

Operational Next three years 84%

-10% 70%
Wealth managers feel that they have
only made substantial progress in

efficiency Three years ago

94% operational efficiency

Regulatory Next three years 84%

+8% 28%
compliance Three years ago
76%

Digital Next three years 70%

18%
+5%
transformation Three years ago
65%

Revenue Next three years 62%

+6% 16%
growth Three years ago
56%

3 © IDC 2018 Source: IDC Survey sponsored by Avaloq, Innovation in Wealth Management, June 2018 (N=50) An IDC InfoBrief sponsored by
To achieve their strategic objectives, wealth managers are prioritizing
innovation in infrastructure, technology and digital transformation.
Perceived Business Impact
Infrastructure Infrastructure agility and operational efficiency are the top
agility and strategic objectives. WMs plan a cloud-first approach to
operational 78%
accelerate time to market. Building API gateways should
efficiency
allow them to control data flows better.
66%
Product Digital
innovation transformation Digital transformation should have the biggest business
High
18% impact on WMs’ business. Building omni-channel capabilities
62% 73%
and tools for digital customer experience will be the key
Top priorities factors of successful transformation.
to achieve Medium
strategic
objectives Technology innovation is having a significant impact on
Partnerships/ business value too. WMs innovate to automate risk, fraud, Low
open ecosystem
Technology 74%
innovation and compliance processes by adopting big data and
approach
machine learning technologies.
38% 62%

Business model Business model innovation has considerably lower priority

innovation
compared to other strategic objectives. However, WMs
54% 63%
believe switching their business model to outcome-based
will have a positive business impact.

4 © IDC 2018 Source: IDC Survey sponsored by Avaloq, Innovation in Wealth management. June 2018 (N=50) An IDC InfoBrief sponsored by
 The majority of WMs intend to adopt a cloud-first approach in the next three years to Infrastructure agility
Top
accelerate time to market. In addition, building API gateways and open API platforms is priorities and operational
efficiency
believed to deliver significant business benefits.

How are WMs driving infrastructure innovation and where is the value?
Perceived business value
What infrastructure agility and operational efficiency initiatives will your company focus on in the next three years?

Move to a cloud-first approach (public 67%

and private cloud) to accelerate time to 77% 69%

market for new applications 45%

52%
Build API gateway to control data flows
50% 79% High
into and out of the company
55%

39%
Build platform-agnostic applications
36% 61% Medium
based on container technology
45%

36%
Build an open API platform to connect to Low
32% 70%
the open ecosystem
45%

Move to open source software and operating 36%

systems for faster product cycles, to reduce cost 32% 63%
and avoid vendor lock-in 45%

Total Europe Asia

5 © IDC 2018 Source: IDC Survey sponsored by Avaloq, Innovation in Wealth Management, June 2018 (N=50) An IDC InfoBrief sponsored by
 The future is in the cloud, the majority of WMs will use "as a service" as a technology-driven Infrastructure agility
Top
priorities and operational
innovation platform, rather than BPO or on-premises software efficiency

Key responsibilities in "as a service" models What operating model does your company expect to use for technology-driven
innovation in the next 10 years?
Responsibility On-premises IaaS PaaS SaaS BPaaS
IaaS 34%

BPaaS 26%
Business operations
PaaS 22%

Data classification & accountability SaaS 12%

On-premises 4%

Client & end-point protection BPO 2%

Identity & access management

Pros and Cons of BPaaS
Application level controls

Network and virtualization

Pros Cons
Host infrastructure (servers, storage, Cost Degree of change
datacenter)
Operational efficiency Loss of control
Physical security Speed

Customer Provider Shared (e.g. provider provides

hardware, client manages it

IaaS (Infrastructure as a Service), PaaS (Platform as a Service), SaaS (Software as a Service), BPaaS (Business Process as a Service)
6 © IDC 2018 BPO (Business Process Outsourcing), XaaS (Anything as a Service) An IDC InfoBrief sponsored by
Source: IDC Survey sponsored by Avaloq, Innovation in Wealth Management, June 2018 (N=50)
 Open banking is seen as an opportunity rather than a threat, as it will empower customers Infrastructure agility
Top
priorities and operational
and improve their experience. However, data security concerns persist. efficiency

Open banking opportunities Open banking threats

84% expect a better customer experience 90% fear security implications and loss of control

70% believe it will empower customers and give them 70% feel they are not ready with their data
more choice management capabilities and GDPR compliance
50% fear stronger competition from outside the
Despite its potential
impact on their
66% expect a positive impact on transparency
industry
52%, however, also expect lower prices and more
competition
16% are concerned about decreasing customer loyalty
business, the
majority of wealth
Do you see open banking as a threat or an opportunity?
managers see
Total Europe Asia
open banking as an
opportunity rather
than a threat

Significant threat Some threat Neutral Some opportunity Significant opportunity

7 © IDC 2018 Source: IDC Survey sponsored by Avaloq, Innovation in Wealth Management, June 2018 (N=50) An IDC InfoBrief sponsored by
 A key pillar of WM's digital transformation strategy is building omni-channel capabilities,
Top
tools for digital customer experience and digital self-service. It will deliver a significant impact priorities Digital Transformation
on their business.

How are WMs driving digital transformation innovation and where is the value?
Perceived business value
What digital transformation initiatives will your company focus on in the next three years?

Omni-channel capabilities 90%

(consistent experience across all channels and 81% 79%

ability to change channels during transaction) 100%

90%
Digital customer experience
94% 81% High
(dashboards)
87%

Digital self-service 71%

(e.g. suitability assessment, KYC, 81% 71% Medium

onboarding tools) 60%

35%
Low
Digital sales 25% 64%
47%

35%
Digital marketing 19% 67%
53%

Total Europe Asia

8 © IDC 2018 Source: IDC Survey sponsored by Avaloq, Innovation in Wealth Management, June 2018 (N=50) An IDC InfoBrief sponsored by
 77% of organizations get stuck along the digital transformation journey Top
priorities Digital Transformation

77%
are stuck in their DX
Outdated KPIs
68% struggle to adapt to digital operating environment
(e.g. digital sales)
33% of leadership lack openness to innovation and
47.3% experimentation

29.4% Siloed DX initiatives

66% believe DX centers of excellence will help them to
20.8% increase synergies within the group
1.9% 0.6%
58% believe that innovation hubs will accelerate
internal innovation
Ad Hoc Opportunistic Repeatable Managed Optimized
Growth is slow Digitally enabled The institution The institution is an New business
due to inability to customer provides consistent early adopter in its models allow the Tactical plans & lack of clear digital strategy
engage and keep experiences, but & repeatable market providing institution to outgrow KEY DIGITAL 33% say their management lacks a clear digital strategy
up with technology products are products and competitive digital its peers through INNNOVATION and acts predominantly on a tactical approach
change inconsistent & still of experiences, but products and the disruption 66% say innovation suffers from a lack of funding
physical nature there is no true experiences & innovation of BARRIERS
innovation traditional models

Limited expertise & digital capabilities

64% struggle with engaging and understanding
customers
Best practice example for a successful digital transformation journey
100% lack the relevant technology and business
DBS: The bank transformed itself with an award-winning digital client experience in just three years analysis skills
to provide innovative apps which integrate into the day to day lifestyles of their clients — from
travel and entertainment to utilities and health. DBS created agile, multi-disciplinary DevOps teams,
Silos of innovation
including 50+ fintechs and clients, and ran innovation programs with over 1,000 experiments. 86% plan to accelerate innovation through internal
The bank researched over 250 customer and employee journeys, produced over 200 APIs, and cultural change (agile, design thinking, DevOps)

developed apps as micro-services which it deployed in the cloud. 50% lack an innovation culture

9 © IDC 2018 An IDC InfoBrief sponsored by

 WMs plan to focus on big data and machine learning to automate as well as better manage
Top Technology
risk, fraud, compliance, and security processes. Data-driven technology innovation is priorities
Innovation
believed to have the highest impact on the business.

How are WMs driving technology innovation and where is the value?
Perceived business value
What technology innovation initiatives will your company focus on in the next three years?

90%
Risk, fraud, compliance, and security 100% 86%
(e.g. big data and machine learning) 67%

68%
Shared infrastructure and trade efficiency 71%
64%
(e.g. blockchain for trade reconciliation, KYC registries) 78% High

61%
Customer and advisor experience
55% 71%
(e.g. virtual reality workstations for trader productivity) Medium
78%

32%
Operational analytics and smart automation
36% 72%
(e.g. RPA for process optimization) Low
22%

26%
Customer self-service
32% 75%
(e.g. AI to automate portfolio performance analysis)
11%

Advisor augmentation 19%

(e.g. artificial intelligence to support 23% 67%
product selection, leads generation) 11%

Total Europe Asia

10 © IDC 2018 Source: IDC Survey sponsored by Avaloq, Innovation in Wealth Management, June 2018 (N=50) An IDC InfoBrief sponsored by
 WMs plan to change their business models to outcome-based (pay for advice) and consider Top Business model
priorities
developing new services rather than expanding into lower-wealth segments. innovation

How are WMs driving business model innovation and where is the value?
Perceived business value
What business model innovation initiatives will your company focus on in the next three years?

81%
Outcome-based business models 82% 82%
(e.g. trusted advisor, pay for advice models) 80%

New services 63%

(tax planning and optimization, succession 64% 72% High

planning, estate planning) 60%

37%
Specialization in specific wealth segments
41% 64% Medium
(e.g. family office)
20%

37%
Low
Expansion into lower wealth segments 32% 56%
60%

22%
Philanthropy and full charity
operations support
23% 40%
20%

Total Europe Asia

11 © IDC 2018 Source: IDC Survey sponsored by Avaloq, Innovation in Wealth Management, June 2018 (N=50) An IDC InfoBrief sponsored by
The key investment focus for wealth managers is on the back and middle
office. Risk & compliance in particular remains at the top of the agenda.
Legacy What particular systems in the middle office will be an investment
84% see legacy systems as a cost driver and innovation
priority in the next three years?
barrier
57% are struggling with the automation of complex
processes Portfolio management 82%

Risk management (credit,

79%
Tech innovation
market)
53% have insufficient IT innovation budgets Operational risk
71%
46% complain that investments in technology fail to management (fraud, AML)
generate business value
Data management and
46%
governance

Compliance automation 43%

Operational risk and data security
KEY TECH &
95% are concerned about data security and privacy
86% are concerned about operational risk
OPERATIONAL
(e.g. fraud, cybercrime) CHALLENGES What particular systems in the back office will be an investment priority
in the next three years?
Core banking
Productivity 90%
modernization
57% of wealth managers feel they have hit an efficiency
plateau Shared infrastructure and
76%
38% feel their institution has not invested enough in standardization
operational efficiency Trade management and
62%
reconciliation
Complexity Modernization of non-core
77% struggle with the innovation and integration into 48%
legacy systems
complex system architectures
Connectivity to brokers
46% suffer from complex operations (such as manual 24%
bottlenecks and handovers)
and exchanges

12 © IDC 2018 An IDC InfoBrief sponsored by

 Key takeaways
Cloud is the future, and most WMs are interested in XaaS to provide immediate access to
1 technology through an innovative, agile, and effectively maintained infrastructure.

Business Process as a Service, as well as other XaaS models, can be seen as the future operating
2 models, replacing BPO and on-premises solutions.

Given the nature of the business, regulation is still increasing process complexity. WMs will
3 choose a partner that enables them to automate complex fraud, risk, compliance, and security
processes.

Open banking is seen as an opportunity by most WMs, but data security is again seen as their
4 biggest concern — more partners, more access, loss of control.

While business model innovation appears less of a priority than infrastructure, digital, or
5 technology change, outcome-based models and new services are seen as key to driving
business.

The move to digital has led to wealth managers prioritizing self-service capabilities and the omni-
6 channel digital experience over specific marketing, sales, or analytical tools.

13 © IDC 2018 An IDC InfoBrief sponsored by

About IDC
International Data Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications and consumer
technology markets. IDC helps IT professionals, business executives, and the investment community make fact-based decisions on technology purchases and business strategy. More
than 1,100 IDC analysts provide global, regional, and local expertise on technology and industry opportunities and trends in over 110 countries worldwide. For 50 years, IDC has provided
strategic insights to help our clients achieve their key business objectives.

IDC is a subsidiary of IDG, the world’s leading technology media, research, and events company. Further information is available on our websites at www.idc.com

IDC UK Global Headquarters

5th Floor, Ealing Cross, 5 Speen Street Framingham, MA
85 Uxbridge Road 01701 USA
London P.508.872.8200
W5 5TH, United Kingdom F.508.935.4015
44.208.987.7100 www.idc.com
Twitter: @IDC
idc-community.com
www.idc.com

Copyright Notice

The external publication of IDC information and data—this includes all IDC data and statements used for advertising purposes, press statements, or other publication —requires written approval from the appropriate IDC Vice
President or the respective Country Manager or business leader. A draft of the text to be published must be attached to the request. IDC reserves the right to reject the external publication of data.
For more information about this publication, please contact:
Mathew Heath, Marketing Director, +44 (0)20 8987 7107 or [email protected].
Copyright: IDC, 2018. Reproduction of this document without written permission is strictly forbidden.