Digital Wealth Management Is a Golden Opportunity for Growth

Wealth management is quickly becoming the largest opportunity for banks to both grow and retain customers – an imperative in the face of continued economic uncertainty.

Financial organizations represent trillions of dollars in deposits, but without a dedicated enterprise-level digital wealth platform, they are seeing a flow of dollars to digital-first investment platforms. Community banks face incredible pressure to retain deposits, increase fee-based revenue and stem deposit outflows to investment solutions that invariably try to upsell banking services to these new investors. But using the following key methods can give banks a way to implement investment services themselves – a move that could be a game changer for customer engagement and their bottom line.

Offering a thoughtfully crafted wealth strategy provides banks with myriad benefits – specifically a digital wealth and financial inclusion offering. Traditionally, wealth management services have been geared toward high net worth clients, creating a sizable gap in bank services. A digital wealth solution allows banks to effectively service wealth accounts as low as $500, enabling better service and soliciting more engagement from their broad customer base. Dramatically lowering the entry point to wealth management services gives banks an avenue to share greater access to financial services to their customers than they have been able to historically.

Implementing a digital investment offering means customers don’t have to seek a new relationship outside of the bank; instead, they can deepen their relationship with their current bank through additional lending and savings products. This is crucial in an operating environment where customer retention is paramount.

And the digital approach to investment services allows digitally native customers to use the investment platforms on their own terms. Investing in digital tools and channels also broaden a financial institution’s reach beyond the traditional branch model and hours of operation. Our banking clients report that about 25% of their digital wealth traffic occurs during nights and weekends – times their branch teams are not typically available to provide service.

The increasing focus on noninterest income, coupled with the retained deposit revenue, are the two primary drivers we see increasing interest from banks that want to build a wealth practice. Noninterest income is increasingly important to community banks; wealth management services are one of the best ways to increase this differentiated revenue stream.

So, where should banks even begin when it comes to providing wealth services? There are actually a number of ways to do it. The first option is to create a registered investment adviser, or RIA. Traditionally larger banks have built out this function in-house, using their size and scale to support the increased regulatory burden, compliance costs and additional operational requirements. Banks that choose this route maintain complete control over the client experience while the RIA provides trusted, timely advice to clients. But the start-up costs for building an RIA are quite high, so we often see institutions step into the wealth journey through other partnership or outsourcing models.

Another option is for financial institutions to hire an adviser led third party marketing, or TPM, provider to offer investment services. This alternative typically applies to mid-sized financial organizations looking for an advisory relationship, where the TPM provider handles the compliance and risk issues that may arise. This is an interesting opportunity, albeit one that is almost exclusively focused on the human adviser with minimal digital offerings. Working with advisers forces institutions to focus on their high net-worth customers, leaving a gap in the service model for customers who can’t reach certain account thresholds.

Lastly, financial institutions may choose to leverage a digital platform that offers wealth management as a service or platform. This option, which takes a page from the software as a service model, best works for banks that don’t have an existing wealth management offering or where there is a gap in the existing wealth offering depending on account sizes. Organizations often find this option promotes financial inclusion because it appeals to their entire customer base and enables them to retain client relationships as their business grows. In addition, embedded wealth management platforms typically have a faster implementation period and lower operating costs compared to hiring full-time staff into new roles. By outsourcing the wealth practice, financial institutions enjoy minimal operational or technical requirements with the benefits of a wealth solution.

When considering growth opportunities, financial institutions should consider digital investment services as a top option for speed of deployment and an efficient use of capital. Improving existing client satisfaction with a wider variety of services, appealing to a younger customer base through technology options, retaining client assets and increasing fee-based revenue are some of the significant benefits that digital wealth management brings to banks.