EAMs & Tech: opening up the field of possibilities!
Over the last thirty years or so, the “digital revolution” has been gathering pace and has drastically changed our daily lives, both personally and professionally.
Major trends such as the spread of IT and the internet and the ubiquity of computers and smartphones have changed our habits forever, whether we are bankers or wealth managers. Today we know that they were only the first steps towards new disruptions that will have at least as much impact: decentralised finance, Web 3.0, big data, and the heralded advent of artificial intelligence (AI). And this is just the beginning! Not all sectors and economic players are embracing these levers at the same pace, leading to major asymmetries, not only in terms of competition, but also in terms of risk appetite, which could potentially widen. Although there are barriers to adoption, they are not insurmountable, and all those involved in wealth management need to develop digital strategies that leverage these different components, both to seize new opportunities and to protect against new risks.
 | Christophe Cantala Head of the External Asset Manager Market Societe Generale Private Banking Europe |
Cybersecurity: everyone's business
In recent months, the Swiss and international press has regularly reported on cases of hacking into IT systems, resulting in data (of clients, partners, etc.) being leaked onto the dark web. These incidents, which are becoming more frequent, highlight not only the risk of cyber-attacks, but also the differences in cyber-security maturity within the financial community.
This contrast is mainly due to differences in the resources, both human (profiles and skills) and financial (investment and operating budgets), that firms in the sector can devote to the issue. Recent developments, particularly in the regulatory area, have led many Swiss third-party asset managers to focus on other investments in order to meet their regulatory obligations and ensure compliance. As a result, the local ecosystem is uneven, with some well-equipped structures and others that are less mature in this area and clearly in need of tools and expertise. And it's not just a question of size, as digital maturity does not necessarily correlate with the size of assets under management or the size of the teams in place.
But while cybersecurity is not yet a priority for the industry as a whole, it will soon be. In fact, over and above legal liability, particularly in relation to the risk of fraud, which is increasing due to the growing sophistication of cyber-attacks, IT security is becoming a selling point for EAMs and a selection criterion for their clients. Previously, clients were mainly interested in the track record of a wealth manager, the quality of its services and management, and the robustness and complementarity of its custodian banks. Tomorrow, their ability to prevent cyber-attacks and protect their clients' data should become a major factor in an (U)HNWI[1]'s decision to entrust their assets to one manager rather than another.
Digital, a huge potential that is still untapped
Wealth management is undoubtedly a business in which data is extremely numerous and diverse (clients, markets, etc.). Properly exploited, this data can be used to gain a better understanding of a client, to personalise and optimise investment proposals, to digitise and streamline certain processes (subscription, reporting, etc.) and to offer self-care tools that improve the client experience. However, it has to be said that its potential is not being fully exploited by industry players for two main reasons. Firstly, Swiss and European regulations (nLPD and RGPD) restrict the use that can be made of some of this data. Secondly, the investment required to acquire the necessary tools and expertise is substantial and therefore not within everyone's reach. This asymmetry in adoption therefore represents a new competitive advantage for those who are able to get up to speed before others. Budget is certainly a key issue, but there are more agile solutions, such as drawing on partners or networks of external experts.
Blockchain is also an interesting technology because of the security, traceability and immutability of the data managed on it. Concrete use cases have already emerged in Switzerland. For example, Wecan offers banks a blockchain-based system for onboarding and managing relationships with their partner EAMs. At the same time, the tokenisation of assets is gaining momentum. Its proponents claim that it reduces intermediation, thereby improving operational efficiency, reducing settlement errors, facilitating investor access to different asset classes, and encouraging instrument innovation. A number of players in the financial sector have already taken this step, including Societe Generale, which issued its first digital green bond on 30 November 2023 in the form of a “security token” registered directly on the Ethereum blockchain by its subsidiary SG-FORGE.
AI is THE topic of the moment (and NVIDIA shareholders should be delighted), which is hardly surprising given that its potential seems almost limitless. When it comes to wealth management, some of the applications that can be envisaged include client support, investment advice, compliance, risk management, fraud detection or operational efficiency. Some of these applications are already a reality, with certain players offering increasingly sophisticated conversational robots to facilitate client relationships, regularly using predictive models to refine their asset allocations based on market data and using algorithms and software bots to automate some of their daily tasks. As a result, there is no longer any doubt that the industry will be profoundly transformed, with “augmented EAMs” able to better anticipate market movements and their clients' needs, enhance their value proposition and devote more time to high value-added tasks. The question today is no longer whether AI should be integrated into the wealth management business, but when and how. ESMA[2] has made no mistake about this, having just published a note with a series of best practices on AI, no doubt foreshadowing future European regulation in this area.
Ultimately, the latest wave of the “digital revolution”, like other megatrends before it, has already begun to transform wealth management. However, it is still difficult to measure the extent of these changes, as the adoption of these new technologies by the various players in the industry is still in its early stages. This context, which undoubtedly offers opportunities, is not without its constraints (as the FINMA communication of 7 June 2024 on cyber risks reminds us) and will not fail to raise the age-old questions of the concentration of the Swiss EAM market and strategic alliances with well-positioned players with sufficient financial resources.
Biography
Christophe Cantala began his career at BNP Paribas in 2004. In 2012, he was appointed Chief of Staff to the Country CEO for Switzerland. After moving to the CIB Division in 2014, he joined the Wealth Management Department in 2019. In January 2023, he joined Societe Generale Private Banking (SGPB) Switzerland and in October 2023, he was appointed Head of the EMA Market for SGPB Europe.
Christophe Cantala is a graduate of ESC Toulouse and ENS Paris-Saclay.
[1] (Ultra) High Net Worth Individual
[2] European Securities and Markets Authority