By Shri Krishnansen Posted on 10.04.2025
The wealth management sector exists in a risk-averse environment – and with good reason. On the one hand, there is a huge responsibility that comes with taking care of people’s life savings. On the other hand, financial services businesses are subject to increasingly complex and stringent regulations.
Yet risk aversion shouldn’t automatically lead to timidity when it comes to tech innovation. But it does. Recent PwC research1 revealed that a staggering 68 percent of asset and wealth managers allocate less than one-sixth of their capital expenditure to innovative technologies. This suggests wealth management businesses are at odds with the prevailing digital innovation trend across the wider economy.
A hesitancy to be a ‘first mover’ with new cloud-based tech can leave companies in danger of being out-competed by agile rivals or disruptors, who use tech to plug knowledge gaps, operate more efficiently and offer a superior customer experience.
Worryingly, businesses that cling to outdated on-premise systems amid fears of digital tech’s impact on cybersecurity may also be making themselves more vulnerable. The UK’s National Audit Office2 says legacy systems are at risk because their creators no longer update or support their use and few people have the skills to maintain them. However, IBM’s Cost of Data Breach 2024 report3 showed that organisations using the latest AI-powered cybersecurity tools saved an average of $2.2 million in breach costs compared to those that didn’t.
Another symptom of risk aversion is the tendency to rely on a single technology supplier. If they fail or are subject to regulatory action, this can cause issues such as delays to new strategic plans.
It’s vital therefore that wealth management providers not only understand the supplier landscape but also consider diversifying partnerships to mitigate the risk of disruption when things go wrong. That way, you’ll be well placed to continue your growth plans without missing a beat.
In summary, what the above points highlight is how risk averse business cultures are potentially causing damaging short-sightedness when it comes to tech adoption.
Ensure risk-aware innovation with these five principles
What should you look for when evaluating prospective tech providers? Here are five risk-aware principles that you can use to benchmark new technology:
1. Avoid costly ‘rip and replace’ scenarios with a phased modernisation approach – new technology should seamlessly integrate with existing systems, regardless of their age. Robust APIs are essential for connecting legacy infrastructure with modern tools that enable digital experiences and streamlined processes.
2. Deploy cloud solutions to drive cost efficiencies and eliminate the need for large capital expenditures on hardware – cloud-based technologies offer the flexibility to scale rapidly, accommodating growth in client volumes and transactions without performance degradation. This agility is critical for responding to market changes and seizing new opportunities.
3. Minimise disruption with a ‘plug-and-play’ approach that allows for targeted improvements
– a good tech partner allows for modular transformation, enabling firms to adopt new technologies incrementally without disrupting their entire infrastructure.
4. Protect client data to stay compliant and maintain customer trust – robust security measures are non-negotiable. Look for solutions with multi-factor authentication, encryption, secure data storage, regular security audits and data anonymisation capabilities.
5. Choose partners who prioritise compliance by design and proactively adapt to evolving regulations – while technology providers may not be directly regulated, they must have a deep understanding of the financial services regulatory landscape. It can bring real peace of mind knowing that a solution has been designed and built by industry professionals with a background in internationally critical financial services infrastructure.
Protect your business: build a resilient, risk-aware technology strategy today
No one wants to fall foul of industry watchdogs or destroy their reputation through the mishandling of billions of pounds of investments. One way to avoid such pitfalls is to develop a ‘black book’ of suppliers as part of a long-term resilience strategy.
Before engaging any partner you can use the above five risk-aware principles to evaluate your tech and ask critical questions about its efficacy. This will turbocharge your benchmarking and due diligence processes, empowering procurement colleagues to accurately assess current and prospective tech partners’ capabilities and suitability.
Importantly, it will also help you to answer the question: are we managing for the right kinds of risk coming from ageing tech? This holistic approach, encompassing supplier selection and tech evaluation, will strengthen your overall resilience. Indeed, by sticking to our five risk-aware principles, wealth management firms can embrace innovation without compromising security or regulatory compliance.
Contact WealthOS to discover how our next-generation platform and risk-aware approach can help you overcome technology adoption challenges.
Sources:
2. Cyber threat to UK government is severe and advancing quickly, spending watchdog finds
3. IBM Report: Escalating Data Breach Disruption Pushes Costs to New Highs