2020 was full of surprises but incumbent banks and firms have vast pools of cash to draw on in emergencies. Smaller firms and start-ups may not be as lucky. How have they, with a digital-first approach in a relationship business, coped through a global pandemic? Patrick Brusnahan writes

The COVID-19 pandemic, to put it mildly, limited what people could do in terms of interaction. Many countries enforced lockdowns and curfews. Face-to-face interaction was more or less banned for a lot of people. This is devastating for a sector such as private banking that thrives on relationships.

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However, other preferences either evolved or were revealed. According to GlobalData, 51% of millennials now prefer using online or mobile channels when arranging their investments. They are not the only ones; 49% of Gen X, 43% of Gen Z, and 38% of baby boomers feel the same way.

The way investors and private banking clients interact is changing. Many also do not see things returning to the way they once were.

A study from UBS reported three-quarters of wealthy investors across the globe believe that life will never be the same again following the Covid-19 pandemic. This includes aspects such as reduction in travel, moving closer to family, and forsaking cities.

However, there is opportunity here as 83% of respondents wanted more guidance than usual on financial affairs from their adviser.

Providing when and where

Wealthtech Moonfare offers private equity investment opportunities to those previously excluded.

Since 2018, it has offered more than 20 private equity funds to its investors and as of June 2020, it won trust from 600 clients. In October 2020, its assets under management (AuM) climbed above €400m ($479m).

How has a firm as new as this coped with the trials and tribulations of 2020?

Moonfare CEO Dr Steffen Wells tells PBI: “From a company perspective and an operational perspective, we had to deal with the same difficulties as everyone had. So you shut down, everything is in remote work, a very new experience for the team and me. We have been working basically 100% remotely the entire lockdown.

“For a technology company, it’s easier, than for an offline traditional business. But it poses some challenges in terms of phasing in new employees, keeping the spirit up, etc. But I think overall, we managed very well. It sounds cynical, but Moonfare is one of those businesses in the digital space that’s actually benefiting from Covid-19.

“People are getting more used to the new tools, the Zooms of this world, and do things more digitally. After a very short down period in March, when we didn’t know how to deal with it, business picked up in April significantly. And since then, we had record month after record month, so May was our best month ever. Then it was broken by June, it was broken by September.”

Is being based in technology an advantage? Yes, but it cannot just be that.

Pauls continues: “Another thing that played to our advantage was the sudden perceived volatility in the markets.

“We launched our first what we call B2B Partnership, which is a partnership with one of the oldest and largest German private banks; Berenberg.

“This went live, actually during lockdown, and was a very successful launch in terms of customer feedback, but also in terms of AuM.”

As shown in the research from UBS, wealthy individuals are expecting and accepting change. Many could start looking to diversify their portfolios with a new firm such as Moonfare.

“Of course, it’s a natural trend,” Pauls explains. “If you take today, people that are in their 30s, they probably will never use the traditional banks.

“Even I don’t have a relationship anymore with a traditional bank. It’s very much, I believe, a matter of age and technology, openness, how technology savvy you are. More and more people do accept and do look for non-traditional banks and wealth management service providers in the digital space for convenience reasons. Trust has increased in the space.”

Embracing digital

There are firms that have been involved in technology and digital for longer than Moonfare. Are people turning towards these firms? Will the long-established relationship with modernity be an aid?

InvestCloud sprung from six founders and a garage in California, USA, in 2010. The core tech innovations were made “right at the end inception of the company”.

Speaking to PBI, Mark Trousdale, chief growth officer, explains InvestCloud’s innovation: “We have out digital warehouse and the other big piece of innovation was what we call programmes writing programmes, or PWP, and that’s our code generator.

“It’s an AI powered code generator, that allows non technologists to produce 100% of the UI that you see in our product and large chunks of the rest of the product stack.

“And so, as a result, part of the appeal, for me personally coming across, besides knowing some of the founders, and respecting them already was, the attention had been paid to core investments rather than just having a tool that does this day one, or that, and that was important, because structurally, we’re very different.”

Product coverage has grown, even if ideals have remained the same. It started off in asset services and wealth management, but InvestCloud is now involved in much more. This includes rebalancing, performance measurement, and portfolio accounting. Expansion was made easy due to the firm being cloud native and has grown outside only the US to Latin America and the Asia Pacific region.

Disruption

In terms of disruption, Trousdale believes “any digital is disruption”.

He says: “The electric light did not come from continuous improvement of candles. The reason I’d say we’re not disruptive in the sense of breaking everything and causing chaos is because not everything has cliff edges. There are some step changes, say, getting rid of all paper statements.

“There are opportunities to improve digitally in a lot of different ways. And that doesn’t mean trashing everything you’ve got.”

But what about the digital push in 2020 during the COVID-19 pandemic? Has this been disruptive?

Trousdale concludes: “If you just look at what happened this year with remote work and remote communications and not being able to meet your clients, there’s been a huge change to the way people are really forced to communicate. We’ve run our own studies, and we’ve got a data science practice as well. On our platforms for newly won clients, we’ve seen an uptake of 34% in 2020 in online activity.

“That may not sound like a really high number. But that’s shockingly high for InvestCloud because you got to remember, we’re already offering inherently digital portals. So to see 34%, more digital on digital is a huge uptick.

“I also think it’s a little bit of a misconception or a mistake, to assume that there’s less human in digital. Obviously, if you’re not face to face, like, it feels less human. We use a lot of behavioural science and we also focus a lot on digital personas and sets of user needs online. The more you focus on personas and digital needs, the more you’re actually investigating another facet of the person’s personality.

“With personas, you build more of an understanding of how a person really likes to be communicated with. That’s not necessarily something that a lot of wealth managers have focused on because they just do their thing live and traditionally when they meet [clients].

“When you do that and you use a digital portal to reflect the interests and preferences of the investor back to him or her, then that’s real empathy. Empathy is understanding the feelings of another and reflecting it back. You can do that in a digital way. That means digital communication mediums can actually be more personalised and more individualised, and therefore highly empathetic. I’m not sure that that’s obvious to the industry.”

What both Moonfare and InvestCloud show is a changing mindset from both clients and the sector. A situation often described as the “new normal” is fast becoming plain normal.

Furthermore, wealthtech was quick to adapt. Incumbents must learn from this or be left behind.