Hitting the target: making ‘holistic financial wellness’ a reality

Progress toward an accurate, articulate view of wealth clients’ ‘financial wellness’ is still slow, but market changes mean that the goal could soon be a reality. By identifying and tackling the remaining challenges, all market participants can benefit from this key development.

Incremental progress toward an industry goal

The movement toward ‘holistic financial wellness’ (HFW) – the notion of a ‘personal balance sheet’ for individuals to steer all aspects of their financial situation including savings, debt, investment and insurance (see Figure 1) – has been spoken about for a number of years in the advisory industry, but the target of successful and effective HFW remains elusive. However, some shifts in the cultural and technological landscape are improving the outlook for HFW.

Figure 1: HFW – the investor’s personal balance sheet

Source: Chartis Research

In the past decade, there have been transformational advances in wealth management. Technological innovation – in the form of cloud use, lower storage costs, open application programming interfaces (APIs), artificial intelligence (AI) tools, and mobile apps – has lowered the barriers to entry, improved operational efficiencies, and given new life to data. Digital investment apps initiated by robo advisory platforms have provided access to professional investment management for a broader range of investors and more convenience for the mass-affluent and high-net-worth markets. The pandemic has furthered advisor-clients’ use of apps/online portals and video communications. Overall, participants and investors are experiencing a quicker rate of change in the market.

All these changes are precursors to making HFW a reality. In this new environment, the key overarching elements of HFW’s success are data access and use, privacy regulation and technology (summarized in Figure 2). As discussed below, however, the industry still has challenges to overcome, and HFW’s progress will continue incrementally.

Figure 2: Breaking out the key elements of HFW

Source: Chartis Research

Wealth data aggregation – a lynchpin for HFW

In Europe, open banking and Payment Services Directive 2 (PSD2) emphasize individuals’ ability to view and control their share of data across banks and other types of financial entities, based on a clear and simple model of ‘customer consent’. But individual countries are at various stages in terms of data availability and, in terms of scope, regulation – while helping to enable improved views of relationship managers and investor clients – includes banking information (such as retail accounts, loans and credit cards) but not wealth accounts.

In the US, vendors of wealth data aggregation solutions are working with various associations to establish governance practices, and with industry participants for inclusion – and this is making for impressive asset and liability inclusiveness in financial plans. However, there is less transparency in business arrangements in the US, and individuals potentially have less visibility of data aggregation and use. And future regulation may upend the time and financial investment that vendors have already expended.

Within the domain of customer consent and control, as well as rigorous institutional responsibility for information security practices across the data chain, data aggregation is a lynchpin for a holistic view of an individual’s life-long financial health. But geopolitical and economic uncertainty, coupled with regulatory reversals and actions in the wake of the pandemic, will affect how far measures around data access and protection will be prioritized.

A financial institution’s (FI’s) ability to integrate all of a client’s banking, insurance and wealth activity and experience within its own enterprise is a solid starting point toward a holistic in-house view of the client. Yet even within their own walls, not all FIs can aggregate all client accounts across their siloed businesses.

Data privacy regulation – a growing need for trust

The data collection necessary for HFW requires client consent, the ability to revoke that consent, and transparency in how the data is used. Some countries have regulation to empower individuals, others do not.

The EU’s General Data Protection Regulation (GDPR) has become a global model of personal privacy protection. GDPR regulators are vigilant in policing its principles and have made clear that as the issue of privacy evolves, changes are on the horizon. Notably, EU member states are in varying stages of enforcement, and GDPR allows them to legislate in different areas, creating some variance. Overall, the EU has prioritized its citizens’ personal privacy, and GDPR’s content and use of corporate fines has made it a winner for individuals.

In the US, personal privacy rights under a national standard do not exist. While states may include aspects of data privacy in existing laws, fewer than 10 states have or are developing distinct data privacy regulation – and activity is inconsistent even across those states. This is not an effective approach for guaranteeing universal privacy rights to citizens.

People enjoy ease of access to social contacts and online commerce through their devices in exchange for providing personal information and/or platform activity. Yet this piecemeal data, aggregated from multiple sources (and using AI for speed) can paint an intimate and accurate view of a person’s life. And aside from being a great inconvenience, losing highly confidential personal data to hackers threatens people’s sense of security.  

A growing number of individuals are exhibiting a preference for owning, controlling and profiting from their own personal data. During the pandemic, technology firms have made connection possible during a year of relative isolation. Yet – as evidenced by the EU’s continued calling out of large tech firms on their actions – there is also a growing awareness of firms’ responsibility to ensure the right outcomes, and not abuse people’s trust.  

AdvisorTech – the central role of the advisor desktop

Wealth technology is evolving and advancing. The advisor desktop is a tool for orchestrating the client’s ultimate financial journey. A modern desktop has the potential to combine a raft of information about the client, including demographic and behavioral analytics, portfolio analytics, portfolio valuations and transactional data. As a central tool for keeping an advisor proactively engaged in optimal decisions and actions, the desktop supports oversight of practice management. Key performance and activity metrics help advisors attract new clients and provide excellent servicing. As a practice management tool, the desktop also helps to drive interaction and measurement, promoting client satisfaction, retention and referrals.

Financial planning platforms that integrate with the advisor desktop produce a financial plan. These systems are becoming more sophisticated, with better visualizations, improved interactions, and the consumption of more accurate data. A new generation of advisors is adopting the latest digital tools, and this will help to drive a cultural shift in wealth management toward documented planning. Platforms are increasingly digital, flexible and easier to use. The new generation of advisors is discovering that these tools, more than offering a decision-planning approach, can be used to educate investors, and to interact consistently with investor clients. The financial plan can provide evidence of progress and success, and a tool to enable investment adjustments to create success.

For a growing number of wealth managers, the ability to offer clients a digital journey indicates that firms are acknowledging and participating in seismic cultural changes and a generational shift in attitudes. The new mobile society favors ease of access, 24/7, and a personalized experience. Today, the distribution of financial products and services is omnichannel, requiring a consistent user experience across the organization. Wealth technology can add value to the advisor-client relationship and the way in which advisors manage their business for success.

Meeting the challenge

Unsurprisingly, perhaps the greatest challenge is to marshal and address the competing demands of all constituents: FIs’ executives, law makers and individuals. Consequently, investors could easily be a decade away from an accurate, articulate view of their HFW status. That said, in the current climate the signs have never been so positive. By exploring and addressing the challenges, firms can reach the target sooner rather than later.

In a series of forthcoming reports on the advisor desktop, data aggregation, privacy and client behavioral analytics, Chartis assesses these challenges, and how firms can address them.

Further reading

‘Investment Portfolio Excellence: The Conviction of One Truth’

(Chartis, 2021)

‘Outsourced Trading Solutions, 2021: Market and Vendor Landscape’

(Chartis, 2021)