Digitization in Wealth Management: Technology as an Enabler

Digitization is important in wealth management, but that is not all. Wealth management requires access to meaningful information, data analytics, and the mechanism to choose from thousands of products available in the domain of mutual funds, portfolio management services, alternates, etc. It is equally important that sufficient diligence is exercised on the digital platforms before one gets to use the services on a continuous basis. This is because where some of these platforms may lead to need not necessarily be efficient or flawless in the true sense of the term.

The process of digitization arrived with the technological revolution that enveloped the financial markets about two decades back, and the trend got accelerated in the last one decade as it moved forward step by step with the widespread financialisation. The need to look away from real assets, to build a part of the portfolio in financial assets, assumed a kind of priority in investment portfolios as they stood apart in terms of price discovery, liquidity, transparency, and convenience in dealing and transacting. The realisation of this was also prompted by the reduced use of cash in the economy in the aftermath of the withdrawal of high-value notes from the economy. The global pandemic was also an occasion which provided an impetus to go online.

Digitization provided the common man with many conveniences when it comes to financial markets and financial transactions. The most tangible benefit is the access to information for all. This entailed a kind of democratisation of information. For many decades, information remained a privilege of those who owned sophisticated information systems, and that determined the success of the operations or activities. This access to information and being better informed has resulted in better participation in the financial markets. The market penetration in all the major financial products is rising, though it is still much lower compared to other developed markets. When information is nobody’s exclusive privilege, the more inclusive the system becomes, and it has a positive distributive effect.

In addition to the information access, the availability of detailed analytics on data and market trends is another advantage that has percolated to all levels of investing strata. The ready availability of categorised and evaluated data, and the consequent results have helped quicker decision-making by investors. The plethora of platforms which provide this information and free access to such information has benefitted all. Though it is important to choose the platform through which one may go or operate based on practical experience.

An important aspect of wealth management is that the process of decision-making happens in stages. The investor needs to understand his risk profile. The advisor too needs to understand the profile. Then comes the asset allocation process. This is not a simple process. It is very personalised because the profile of one investor is quite different from that of the others. These profiles are unique; therefore, the solution too should be such that the specific requirements or goals are addressed. This may not be possible with a platform approach and many decisions are taken after thorough discussions. Personalised services are valued by people and more so by high-net-worth individuals. When it comes to designing portfolios, this personalisation assumes the greatest importance. Financial platforms may enable the process to a certain extent, but the real decisions will always come from the brain. There is no way the human element can be fully extinguished in core financial decisions, and technology could just be an enabler.

Disclaimer: The opinions expressed above are of the author and may not reflect the views of DSIJ.