Wealth managers need to grasp the digital challenge - or risk irrelevance

CAPGEMINI'S latest wealth report sounds a stark warning to incumbents in the wealth management industry: High net worth individuals could potentially move as much as US$12 trillion in assets to a "BigTech'' firm - that is, data-driven giants such as Amazon, Google and Alibaba which are not traditionally in wealth management.

Its survey found that globally, about 37.5 per cent of HNWIs would consider allocating between 11 and 50 per cent of their wealth to a BigTech firm. The proportion for Asia-Pacific is even more startling - nearly 61 per cent of the region's wealthy would consider moving 11 to 50 per cent of their assets to a BigTech firm. This comes on the heels of findings that client satisfaction with their wealth managers was just lukewarm, despite two years of robust returns. What's more, satisfaction with banks' hybrid models, which combine digital capabilities with human advice, actually dropped by five percentage points.

To be sure there are formidable entry barriers into wealth management. Regulation, compliance, platform infrastructure, privacy and security are just a few. Incumbents in the industry may be sceptical, but to be complacent would be a mistake. As Capgemini points out, BigTech's strengths include their sheer technological capability, efficiency, and a rich trove of insights into users of their existing services. Capital, in any case, is not an issue. The top three cash-rich companies in the US at end-2017 are Apple, Microsoft and Alphabet/ Google. Already, BigTech firms have ventured into financial services such as payments through digital wallets and e-lending. Earlier this year Amazon, Berkshire Hathaway and JP Morgan announced a partnership to penetrate the US healthcare market, causing insurance and healthcare stocks in the US to drop.