Tag: Wealth Managers

With organizations increasingly reliant on cloud services, and vendors from multiple locations, to store and manage their data, it is essential to address concerns regarding the security of data stored in the cloud and the risks associated with outsourcing data services to vendors in different locations.

Storing data on the cloud can provide numerous benefits for wealth managers, such as improved accessibility, scalability, and cost-efficiency. However, ensuring the security of the data is of paramount importance for wealth managers who handle sensitive financial information.

Here are some key considerations regarding the security of storing data on the cloud for wealth managers:

1. Data Encryption:

Cloud service providers (CSPs) typically offer robust encryption mechanisms to protect data stored in the cloud. Wealth managers should ensure that sensitive data, such as client financial information and personal details, are encrypted both at rest and in transit. Strong encryption algorithms and protocols should be employed to prevent unauthorized access to the data.

2. Access Controls and Authentication:

Wealth managers should work with CSPs that implement strong access control mechanisms and multi-factor authentication (MFA). This ensures that only authorized individuals can access the data and perform administrative tasks. Implementing strong password policies, user role-based access controls, and regular access reviews is essential for maintaining data security.

3. Data Residency and Compliance:

Wealth managers often have legal and regulatory obligations regarding the storage and handling of client data. When selecting a cloud provider, it is important to consider data residency requirements and ensure that the data is stored in compliance with applicable regulations, such as GDPR, HIPAA, or industry-specific standards. Organizations should verify that the cloud provider can meet the necessary compliance requirements and obtain any required certifications or attestations.

4. Security Monitoring and Incident Response:

Wealth managers should choose cloud providers with robust security monitoring systems in place. Continuous monitoring helps detect suspicious activity or potential security breaches. Additionally, it is important to establish a well-defined incident response plan that outlines the steps to be taken in case of a security incident. This includes prompt notification of the wealth manager and appropriate authorities, as well as remediation procedures.

5. Vendor Due Diligence:

Performing due diligence on the cloud service provider is crucial. Wealth managers should assess the provider’s reputation, financial stability, security practices, and track record of maintaining data security. They should evaluate the vendor’s security certifications, audits, and compliance reports to gain confidence in their security measures. Businesses should consider engaging legal and compliance teams to review vendor contracts and ensure that appropriate security and data protection provisions are included.

6. Data Backup and Disaster Recovery:

Wealth managers should verify that the cloud provider has robust backup and disaster recovery mechanisms in place. This ensures that data can be recovered in the event of accidental loss, system failures, or natural disasters. Regular testing and validation of data backups and disaster recovery plans are essential to ensure the availability and integrity of stored data.

7. Employee Training and Awareness:

Wealth management firms should invest in employee training programs that raise awareness about data security best practices, including the proper handling and protection of sensitive client information. Educating employees on recognizing and mitigating security risks, such as phishing attacks or social engineering attempts, is vital for maintaining data security in a cloud environment.

Data stored on the cloud can be kept secure by wealth managers if the appropriate security measures are implemented. By selecting reputable cloud service providers, implementing strong encryption and access controls, ensuring compliance with regulations, conducting due diligence, and fostering a culture of data security, wealth managers can protect sensitive client data and mitigate potential risks associated with cloud storage. Regular monitoring, risk assessments, and staying updated with evolving security practices are also essential for maintaining data security on the cloud.

A traditional approach to wealth management may not attract empowered investors to collaborate with you. The pandemic has changed investor perspectives, relationships and behaviours. To be taken seriously as a preferred wealth manager, your platform must provide investors with insightful information about their investments via AI (Artificial Intelligence) and APIs (Application Programme Interface).

Low fees, better performance, personalised service, broader product ranges, lower and transparent fee structures, and regulatory pressures, to name a few factors, have made the industry extremely challenging and competitive. The ability to mitigate challenges and provide a unique digital experience to clients is the key to success and growth.

Regulators such as FINMA in Switzerland, FSRA in the Middle East, MAS in Singapore and CSSF in Luxembourg recognise the value of digitising investment management practises in achieving their goal of investor protection. As a result, they require financial intermediaries to conduct pre-trade checks on the client’s knowledge, experience, and risk-taking abilities based on prior classification and profiling. While these pre-trade checks can be performed without the use of technology, they would be impossible to manage efficiently as the size of the business and the number of new clients onboarded expands. Regulations like these, combined with the need to improve operational efficiency, have prompted wealth managers, private banks, and external/independent asset managers to consider large investments in IT tools.

What are the questions you should be asking to make an informed decision prior to engaging a solution provider? Here’s a helpful checklist to use to support this crucial strategic investment:

1. How experienced is your business and who are your backers?

• Are you a young start up? These businesses may be risky, immature, unprofitable and provide less functionality.
• Are you an established company?  These organizations will have mature functionalities, profitable operations, legacy systems and less flexibility to adapt to new technologies.
• New companies may be more attractive in their “Look and Feel” while older companies may have powerful engines and systems.
• Knowledge coming from years of solution development, number of full-time employees, shareholders backing them and financial infusions may provide useful information in comparing with competitors.

2. Which markets do you operate in and how many relevant clients do you serve?

• Solutions providers may have thousands of users within hundreds of clients in multiple locations. This information may be interesting but what is more important is how many clients such as yours are being serviced by these solutions providers and where.
• This will help establish if you are in the solution vendor’s core business and market.
• Hence ask for references to ascertain the vendor before committing for long term
• System migration can be painful, and you would want to avoid doing that frequently.

3. How profitable are you?

• Most wealth tech companies are not profitable. Developing new solutions is capital intensive, and can take years, before achieving the onboarding of client business sufficient to break even.
• Some companies may not have business plans to be profitable as they operate in the low fee game to gain higher market share before cashing out either by selling to a bigger player (clients then shifting to the latter’s platform) or to a private equity firm (increase prices to optimise profitability).

4. Where are your development and support centre(s) located?

• The wealth management industry requires extensive knowledge of banking operations. Hence, offshoring of development and support to countries with a lack of European banking knowledge and communication (English as a basic) can be detrimental to the selection of vendors in other geographies.
• Therefore, knowledge of banking operations helps in developing functionalities related to your core business.

5. How strong is your connectivity and functional scope?

• Connectivity is the key decision parameter in selection of a solution provider.
• The more custodial connections and/or connections to data aggregators, to ensure most or all of the client’s portfolios in multiple custody banks are captured, will help in shortlisting the vendor for further engagements.
• The latest trend in the EAM segment, which used to automate the download of data from banks to their PMS system, now automates the uploading of trading instructions from their PMS system to the bank mainly using FIX protocol.
• Studying the functional scope of the project with the Wealth Tech company is paramount. As businesses evolve, complex solutions may be required to support new functions. The platform’s ability to be flexible in accommodating those scopes, rather than looking for newer systems and vendors, will ensure long term association.

6. How do you calculate performance – position/transaction based?

• Core banking systems use transactions to calculate performance and position of a portfolio. Solutions for EAMs offer simple steps – replicating one to one the custody bank positions in their portfolio management systems and offer a picture that is exactly the same. This method is cheaper to implement.
• This method has limitations in calculating performance contribution (TW + MW) and offers less flexibility on past modifications of portfolios.
• It is therefore important to know the answers to these questions to take an informed decision on its implications.

7. Where do you host the client’s data?

• Older Wealth Tech solutions still have physical onsite servers that generate high costs and security risk. Most Wealth Techs offer a Software as a Service (SaaS) solution by hosting on a public or private cloud.
• Regulators in Switzerland in particular require data to be stored in the country and not elsewhere. Hence, the following needs to be verified before selecting a vendor: Evidence certificate, back up architecture and disaster recovery tests and location of the data (if the vendor is operating in multiple geographies).

8. How do you price?

• Each Wealth Tech company has its own pricing modules which makes comparison difficult. Some charge based on AUM (Assets under Management) and some charge based on user licences.
• It is therefore important to receive the complete cost structure (one time set up plus recurring costs) to analyse whether there are limitations which may increase the overall costs later. Therefore, a careful study needs to be done before taking the decision.

This eight point checklist will allow you to make informed decisions before contracting with a solution provider who you will be married to for many years.

The wealth management landscape has shifted dramatically in recent years. Wealth managers are facing a new reality of rising costs, accelerating digital transformation and heightened client expectations for quality of service. But what do these challenges really mean for wealth advisors and how can they overcome them?

Rising Costs, Digital Transformation and Client Expectations

A host of factors are disrupting how wealth advisors operate as they grapple with rising threats to their business model and greater costs of doing business. These challenges stem from multiple sources including increased account aggregation, greater passive investment, the decline of fee minimums, cost inflation across technology, salary and other expenses, and a global regulatory push towards transparency, suitability and lower fees.

As costs are rising, so are client expectations. Clients are seeking both, higher returns through alternative investments and sophisticated investment risk mitigation and diversification in a challenging and unpredictable world. They are also demanding a seamless, convenient and personalised client experience. Increasingly, they expect this to be delivered through a hybrid of in-person and virtual engagement, often across multiple jurisdictions and geographies. Additionally, environmental, social and governance (ESG) investing is firmly on the radar of most clients. They are frequently considering ESG factors alongside traditional financial metrics to invest in a sustainable and responsible way.

Consequently, wealth advisors are facing increased client expectations for high-quality service, broader product offerings and sophisticated investment advice at a time when business cost and complexity is rising.

Technology Drives Profitability and Growth

Advisors are leveraging advanced technology to adapt their strategy and operations to this new reality. This can help them deliver the intuitive digital experience investors seek, provide a broad range of sophisticated products and services, and enhance the quality of investment advice. Crucially, it enables them to provide this improved offering while also enhancing operational efficiency and reducing cost.

For example, advisors are investing in enhanced data management to aggregate, standardise and harmonise data across multiple custodian, broker, currency and product data sets. This ensures data is available in the correct place and format for investment analysis, portfolio management, portfolio reporting and client service. They are enhancing the monitoring of portfolio insights, building holistic views of assets across portfolios, implementing advanced attribution and visualisation capabilities, and using open APIs for upward and downward integrations and to scale and expand. With the right technology, they can do all this while maintaining effective oversight, control and cost efficiency.

Achieving Business Results as Pressures Mount

In this challenging environment, the pressure is mounting for wealth managers to improve business performance and competitive advantage and deliver superior digital services and investment outcomes for clients. A technology-driven wealth management approach is crucial for wealth advisors to remain profitable and deliver sustained growth in a fast-changing market.

For more information about Valuefy’s wealth management technology solutions please contact us.

Get in touch to arrange a meeting to explore these themes in more detail and discuss our insights in wealth management technology.

About Valuefy

Valuefy is a premier investment technology lab with cutting-edge solutions serving leading financial institutions across the globe. Its Wealth Management Solutions has enabled Wealth Managers globally by providing production-grade investment technology solutions for an uberized customer experience.