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The future of wealth management

With technology being increasingly pivotal, Thirdrock is moving fast to digitalise all aspects of its business

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Thirdrock founder and CEO Jason Lai: 'The boundaries between fintechs, asset managers and independent asset managers will become increasingly blurred as they tap each other’s strength to compete for a bigger slice of the pie.'

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Melyvn Yeo, executive partner, Thirdrock Group: 'I believe our early focus on fintech puts us in good stead to ride the wave of digital disruption sweeping through the industry.'


THIRDROCK founder and chief executive officer Jason Lai paints a dilemma for asset managers like his in the ultra high net worth (UHNW) space.

With the rise of robo-advisors delivering web-based advice, should UHNW incumbents allow them to scoop up the mass market? Or should wealth managers invest heavily in tech so their wealthier clients would not be tempted to migrate?

“Both options are potentially costly,” says Mr Lai, who founded Thirdrock in 2010 and grew the independent asset manager to its current size of more than US$2 billion of assets under management (AUM).
“Incumbent wealth managers who are unable to maintain investments in digitalisation may, at best, lose profitability and market share, and at worst, face extinction or be swallowed up by larger or more digitally mature players,” he says.

Thirdrock’s biggest challenge today is to identify cutting-edge technologies which can provide clients with top-notch service and investment performance, while ensuring increasingly onerous regulatory requirements are met or exceeded.

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“These goals should be achieved without a significant increase in Thirdrock’s operating costs, so we can scale our business swiftly, efficiently and profitably,” he says.

To Mr Lai, the answer to the dilemma is clear: Because of the immense changes sweeping through the wealth management landscape and the sensitive, high-profile nature of Thirdrock’s client base, investments in technology are critical to ensure high levels of client service and risk management capabilities.

Thus, Thirdrock has invested intensively in digitalising all aspects of its business, from client acquisition and risk management to trade execution and portfolio monitoring for the future.

“The use of technology not only empowers our client advisers and enhances their value proposition, but also frees them from administrative aspects of their jobs to focus more on meeting clients’ needs,” he says.

A fragmented, competitive market

Mr Lai is investing heavily in tech because he foresees major shifts confronting wealth managers across three areas: the market landscape, client expectations and experience, and in the rise of digital tools.

The market landscape will become increasingly fragmented and competitive, he says. 

Nipping at the heels of global wealth managers – the top 25 private banks accounting for roughly 56 per cent of market share – are a pack of fast-growing domestic banks, established asset managers with large product offerings, and specialist firms like Thirdrock in the broad-ranging independent asset management space which covers organisations from fund managers to multi-family offices that serves a niche UNHW clientele.

“Currently, independent asset managers oversee about 5 to 6 per cent of Asia’s AUM, compared with Europe’s more than 30 per cent, and that number is expected to grow,” he says.

Yet, the biggest threat may come from fintechs, Mr Lai says. These companies are using technology to help clients build customised asset portfolios at a fraction of what a traditional wealth manager would charge.

Mr Lai believes the boundaries between fintechs, asset managers and independent asset managers will become increasingly blurred as they tap each other’s strengths to compete for a bigger slice of the pie.

Global asset managers might partner with independent wealth managers to expand their distribution capabilities. Independent wealth managers might internalise product development and partner leading fintech firms to enhance their business models.

“With access to large pools of investors, established and well-funded companies could drive rapid adoption of new forms of science-based advice and create new expectations for the rest of the market,” he says.

The sophisticated digital client

The second major shift will occur in client expectations in how they are serviced.

Technology is diminishing the traditional information-giving role of wealth managers, explains Mr Melvyn Yeo, executive partner, Thirdrock Group. 

More investors will be comfortable doing their own research as they have real-time access to multiple sources of information and advice, he says.

In a fragmented market, wealth managers will have to offer greater value to attract and retain clients.

“Clients will expect truly objective expert advice, global investment solutions that deliver, first-rate investment performance and execution capabilities, access to global investment opportunities, increased transparency, and innovative pricing models,” he says.

Wealth managers will have to use more web-based technologies to interact with clients and deliver advice. These include video calls, chat bots, text messaging and virtual meetings.

After all, it is a myth that more affluent clients have a limited appetite for technology, Mr Yeo says.

He points out that market surveys across Asia-Pacific and in the more developed markets show that most HNW individuals expect their future wealth management relationship to be mostly or entirely digital. 

“This digital demand is consistent across all wealth bands,” he says. 

In the future, even service levels in processes like account opening and client onboarding will have to change. 

Just as e-commerce and ride sharing services have raised user expectations in retail and transport, clients will expect a similarly seamless experience from their wealth managers, he says.

New digital tools

As technologies develop, the third major shift wealth managers have to grapple with will be in the type of digital tools they can offer.

The future of wealth management will marry both human and artificial intelligence in ways that are previously unimaginable, Mr Lai says.

For example, biometrics may be incorporated in analysing a client’s risk tolerance.

“While we now ask a series of written questions and assign a risk category to clients based on their quantitative score, the future may see a computer asking questions and gauging responses based on the clients’ physical reaction, breathing and even heart rate,” he says.

Artificial intelligence and machine learning will be used by wealth managers to create sophisticated models to analyse markets, allocate assets and pick stocks. 

Advisers may even be creating the investment strategies behind machine models.

“The winning advisory model will be a hybrid one that merges big data and algorithm-powered asset allocation models with human insights. The balance between the two will likely vary across investor segments based on investors’ ability to pay for advice, the complexity of financial needs, their self-confidence, and financial background,” Mr Lai says.

The future investment office will include engineers, scientists and market analysts. Machine learning will inform human investment decisions.

Even though the way investment advice is produced and delivered will change, the human adviser is still important to provide perspective, empathy and discipline that machines alone cannot deliver, Mr Lai says. 

While investment products now remain the domain of incumbents, this could all change. The rise of mobile technology and the social networked economy has democratised investment innovation and distribution, allowing smaller wealth managers who embrace technology to compete for share of the investment production and advisory chain, Mr Lai says.

“Connectivity, enabled by technologies such as APIs and the Internet of Things, has made innovation easily accessible and scalable. This gives smaller players an edge as it makes scale less relevant,” he says.

How Thirdrock’s tech benefits clients

Thirdrock is ready to deal with the three challenges of a transforming market, changing client expectations and the rise of digital tools, Mr Yeo says.

While smaller players might not be able to invest in comprehensive front and back end technologies, Thirdrock has sufficient scale to bring its infrastructure and operations up to speed, he says.
“I believe our early focus on fintech puts us in good stead to ride the wave of digital disruption sweeping through the industry,” Mr Yeo says.

At Thirdrock, technology is being built into all aspects of the firm. These include client acquisition, customer relationship management (CRM), trade execution, portfolio consolidation and reporting, risk monitoring, analysis and compliance surveillance. 

Daily tasks will be automated to improve efficiencies. Clients will receive personalised investment advice seamlessly across both face-to-face and online channels. A CRM portal allows client advisers to manage their clients’ portfolios more effectively.

The firm’s platform notably includes its partner custodian banks, information providers and investment managers. 

“This creates synergy and a comprehensive portfolio analysis and risk management system, compared to most independent wealth managers who face the challenges of a dispersed eco-system, Mr Lai says.”

With centralised risk management, reporting and analysis, clients also benefit from a clear overview of portfolio and an ability to drill down to gain a deeper understanding of their assets.

From its beginnings as a multi-family office, Thirdrock now has a wealth advisory arm, a corporate advisory arm, a funds and discretionary portfolio management platform, and a fintech lab – a prime example of the synergistic convergence of products, distribution and technology in the wealth management space.

The firm has invested in several fintech firms that leverage AI and big data analysis to generate publicly-listed and direct investment ideas and will continue to keep a close eye on startups integrating artificial and cognitive intelligence and deep learning into the investment process, Mr Lai says.

“We will continue to build on our platform to cater to increasingly digitally savvy UNHW clients who might wish to go entirely paperless, access relevant research articles or get a single view of their total wealth or investment performance on the go,” Mr Lai says.

The firm continues to invest to grow with close to 40 employees including an investment team of 20. 

Thirdrock is also planning to expand into Hong Kong to give its clients access to a bigger scope of investment opportunities in the region. Once its Hong Kong office is operational, Thirdrock will be amongst the first independent asset managers in Asia to operate in both cities, Mr Lai says.

Ultimately, the firm will continue to stay ahead in a crowded wealth management market through its comprehensive, independent and innovative offerings, Mr Lai says.

“Firms will increasingly face pressures to digitalise themselves due to client expectations, new competition and compliance needs. It will be the survival of the digitally fittest.”

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