Wealth Management in the Digital Age: Innovation as a Success Factor
Wealth management is at a turning point. Never before have challenges and opportunities been so closely intertwined as they are today. While the number of high-net-worth individuals (HNWIs) and ultra-high-net-worth individuals (UHNWIs) in Germany and Switzerland continues to grow [1-3], their expectations are also rising: personalized advice, the urge for more self-determination, customized investment strategies and digital services are more in demand than ever [3-5].
In cooperation with Commerzbank AG, the Business Engineering Institute St. Gallen has written the white paper “Leading with Innovation in Wealth Management”. It highlights key developments and trends in wealth management with a particular focus on application programming interfaces (APIs) and distributed ledger technology (DLT). This article summarizes the key findings and shows why innovation can contribute to sustainable competitiveness in wealth management.
Digitization as a driving force
A look at the figures makes it clear why digitalization in wealth management is almost inevitable. The number of HNWIs in Germany is expected to rise from 3.38 million in 2023 to almost 5 million in 2027 [1-3]. The number of UHNWIs will also increase from 25,238 to 30,907 over the same period. A similar picture can be seen in Switzerland, where the number of HNWIs will rise from 1.06 million to 1.52 million and the number of UHNWIs from 15,860 to 18,912 [1-3].
With the growing number of wealthy individuals, not only is the demand for wealth management services increasing, but also, due to changing customer needs, the complexity of the requirements. Customers want customized, digital solutions that give them 24/7 access to their assets. At the same time, there is a growing desire for self-determination – coupled with a rising need for advice. This requires a modern approach to wealth management [3-5].
At the same time, banks and asset managers face a multitude of challenges: tighter regulatory requirements, demographic changes, increasing market volatility, and rising costs for compliance and IT infrastructure are putting the industry under pressure [6-9, 22].
APIs as a key factor in digital transformation
A central building block of digitalization in wealth management is the use of modern application programming interfaces (APIs). APIs enable banks to network financial services and exchange data with external partners. For example, Commerzbank relies on its Securities API [10-13], which allows wealth managers and their customers to consolidate securities accounts across different platforms. The principle is similar to multibanking: customers receive a centralized overview of their securities accounts at different banks – a decisive advantage in terms of transparency and control over their assets [10-13].
APIs also create the basis for innovative business models by enabling third-party providers to develop new services that can be seamlessly integrated into existing financial systems [10-15]. This makes wealth management more flexible, connected and customer-centric.
Artificial intelligence: increased efficiency and personalization
In addition to APIs, artificial intelligence (AI) is playing an increasingly important role. AI systems analyze vast amounts of financial data and support wealth managers in making informed decisions. Intelligent algorithms enable optimized portfolio management, early risk assessments and the development of customized investment strategies [4, 15-17].
In addition, AI can be used in customer advisory services: based on a customer’s investment behavior and preferences, AI generates individual recommendations. This makes the interaction between advisors and customer more efficient while maintaining a high level of personalization [4, 15-17].
Tokenization: new investment opportunities through DLT
Another topic for the future is the tokenization of assets. In this process, typically illiquid physical assets such as collectibles (e.g. watches, works of art and cars) or selected alternative investments (e.g. real estate or private equity funds) are represented by digital tokens on distributed ledger (DLT) or blockchain technologies [18-21]. The advantages of this tokenization approach are manifold:
Increased liquidity: traditionally illiquid assets such as real estate or works of art can be divided into smaller, tradable units by means of tokenization, thus facilitating trading and increasing market liquidity [18-21].
Transparency and security: DLT ensures tamper-proof documentation of ownership rights and enables transparent transactions [18-21].
New forms of investment: Tokenization of traditionally illiquid assets such as real estate, music, art and other collectibles enables easier access to alternative investments. This opens new diversification opportunities for HNWIs and UHNWIs [18-21].
Automation: boosting efficiency in the back office
The digital transformation is not limited to client interactions and new forms of investment – internal processes at banks and wealth management firms are also benefiting from automation. In the back office in particular, digitalization offers enormous potential for boosting efficiency. Manual processes such as transaction processing, compliance checks and client onboarding can be accelerated and made more cost-effective through automation. This frees up valuable resources that wealth managers can use for one of their key competencies – advising their clients [4,6,8].
Conclusion: the future belongs to the innovators
Wealth management is on the verge of a profound transformation. Those who want to be successful in the future must combine technology and personal advice in an intelligent way. Digital ecosystems, APIs and tokenization are not just passing trends but are becoming the new standards for the industry.
The key question for banks, external asset managers and family offices is how quickly they can adapt to the changing environment and create real added value for their customers. One thing is clear: the future of wealth management is personal and digital.
Sources
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With a strong academic background in International Economics and Development (B.A., University of Bayreuth) and a master's degree in Strategy, Impact & Entrepreneurship (Católica Lisbon School of Business & Economics), he combines in-depth scientific expertise with practical research. During his time as an Assistant Researcher at the Blockchain Research Lab, he dedicated himself to independent scientific research into blockchain technology and its social benefits. In this context, he published several scientific papers in renowned journals, including on blockchain-based fan tokens and on digital real estate economics in the metaverse. He also analyzed the integration of blockchain technology in unmanned aerial systems, researched the motivational drivers of investors in the digital ecosystem and examined the potential of modular blockchains.
Thanks to his international experience in Norway, the Czech Republic, Hungary, Portugal and Germany, he brings an intercultural perspective to his research and consulting work.