Why Wealth Management Firms Need to Adopt Intelligent Automation for Mergers and Acquisitions

M&A activity in the wealth management and financial advisory sectors has been on an upward trajectory for several years. It’s being driven by firms exiting the market due to MiFID II reporting requirements, increased operating costs and competition from wealthtech and robo-advice brands.

Almost £10bn of investor assets moved to new company ownership in 2020 alone. Meanwhile, consolidators and private equity firms who want to see a fast return on investment (ROI) are under pressure to ensure that post-acquisition they embed a more streamlined, centralized and repeatable operating model into the newly acquired firm. One that will offer simple, relevant and real-time digital experiences that heighten customer choice, lower operational costs and, most importantly, achieve growth.

There are three main ways to achieve growth and bottom-line profit for the average wealth management firm.

• Hire more people.
• Tighten employee costs by making people redundant.
• Leverage intelligent automation to augment and work alongside the existing workforce.

The first, hiring, is slow and often prohibitively expensive. The second, redundancy, runs the risk of having a negative impact on the firm in terms of lowering the capacity to do more business and runs the risk of reputational damage. The third, intelligent automation, has been proven to work time and again across all industries because by utilizing technology, the company can re-focus on its core business. For wealth managers, it provides investors an easy and smart way to have their investments handled. And in todays’ world, this needs to be managed through smart, intuitive technology that personalizes the experience during the customer life stages.

Growth Post-Acquisition Can Be Challenging

There are significant barriers to driving down costs in an acquired firm, including the ability to instantly connect systems of the buyer with the newly acquired target. An acquired firm often has different systems in place to the new parent company. While the wealth management software systems in-use are usually considered, those often overlooked include those for CRM, accountancy, payroll, portfolio management and HR, as well as databases and different types of investment platforms. These all need to be moved quickly to one system to lower costs and avoid duplication.

At the highest level, this requires data to be migrated to the chosen system. Firms can build APIs and other mechanisms to do this, but it all ends the same way, with teams of well-paid, skilled people acting as the glue between legacy systems and tasked with sifting through data, often manually re-entering it into new systems.

A second problematic area is that of KYC and AML suitability checks. The new parent company inherits any compliance obligations. Existing investors need to go through these mandatory checks again and this is often a manual, repetitive and time-intensive task. Only when these basics are completed can acquirers move into the much bigger picture of creating efficiency in the acquired firm.

Intelligent Automation: The Key Weapon in a Consolidator’s Armory

All banks and large financial institutions use intelligent automation in some shape or form and have done so for many years. In its strictest sense, it’s the automation of an entire process, which generally involves:

• Optical Character Recognition (OCR): the ability to extract key data from any document type through any medium. Robotic Process Automation (RPA) uses digital workers to work alongside employees to automate manual, repetitive processes that are currently performed by staff, freeing up their time to fulfill more value-added roles.
• Artificial Intelligence (AI): this uses machine learning and can adapt over time to make more well-informed decisions.

Within an acquisition scenario these readily available technologies can be used for:

1. Integrating front and back office processes. There are a multitude of tasks involved if rapid ROI is to be achieved. Most involve getting rid of any disparate and duplicate systems together with inherent processes.
2. Automating investor data migration and embedding the automation of data processing. Data migration isn’t one of our human skillsets. Digital workers are extremely good at it; they don’t make mistakes; they never deviate from best practice; and they communicate with other systems seamlessly. A process that would normally take months and cost an enormous amount can be reduced to minutes, with no impact on the business.
3. Automating AML and KYC, suitability checks and client on-boarding. Digital workers can carry these out whilst the targeted data for transfer is in flight between systems. Any discrepancies or checks that don’t pass the criteria set, will automatically be sent to an employee to look at the exception in more detail and decide on next steps. Processes that previously took thousands of days per year to complete, now take minutes or hours.
4. Digitalizing paper-based data. The use of paper is still rife in wealth management and financial advice, yet OCR technology has been around for decades. Traditionally the reserve of larger banks, it allows firms to scan and extract, classify and verify key information from paper and input it directly into any system of choice. Technology advances mean that it is now readily available to wealth managers as well. No more checking, no more re-keying and no more paper storage.
5. Automating across any business function or department. It’s critical to remember that automation doesn’t start and stop in the front office or in providing high client experiences. To truly drive growth, automation should be a key component of every department and business function within a firm. Unnecessary highly manual tasks can be found in all areas and these can be low hanging fruit for automation and cost reduction.

Importantly, intelligent automation that relies on specialist cloud and SaaS based providers can be deployed and leveraged extremely quickly - typically within four to six weeks.

Based on industry evidence, leading consultants estimate that between 30-40% of business processes relating to M&As can be automated. This can include anything from research of the potential target firm by the acquirer, all the way through to KYC checks and data centralisation.

Is the Cost of Intelligent Automation Out of Reach for Wealth Management Firms?

The short answer is no, because whilst this technology was previously the reserve of large financial institutions, the evolution of cloud technology and SaaS providers mean that 90% of wealth management firms can easily take advantage of it and see an ROI quickly.

The cost for using automation technology is a fraction of the cost of hiring additional staff or tasking employees with doing this work. It also has the benefit that once the targeted M&A processes have been completed, the digital workforce can automate more day-to-day activities such as investor report consolidation, automated portfolio rebalancing, and fee processing, to drive higher and faster ROI.

Intelligent automation is an essential facilitator of growth for wealth management IT leaders, COOs and CEOs who may be involved in, or contemplating, an acquisition. It’s no longer a ‘nice- to-have’ for acquisitive firms, in today’s fast-moving world and to remain competitive, it’s now a ‘must-have’.