The 3 questions Bain Capital considers to transform wealth management

Private equity firm Bain Capital has shared how it believes the wealth management industry can be transformed, potentially shedding light on how it could evolve Insignia Financial should an acquisition proceed. 

The US private equity giant is currently one of two bidders remaining in the race to acquire Insignia Financial, which began last December, and is in a period of extended due diligence after submitting a bid of $5 per share, alongside CC Capital. The latest period of due diligence is expected to conclude around 15 May.

While the firm has not shared any commentary on its plan for the business specifically, it discussed in a blog post, written by financial services partners in Melbourne and Toronto, how it believes wealth management can be more efficient. 

“The challenge typically involves addressing legacy issues along three dimensions: longstanding business processes, legacy enterprise technology, and entrenched company culture. Outdated ways of working pervade core processes, from the annual budget cycle to engaging customers when they need advice," it wrote.

“While many financial services companies deploy some degree of automation, few have reimagined their processes, nor have they dealt with their legacy IT, which hinders efforts to create a simpler, modern business.”

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Firms should ask themselves three questions:

• What future design of our products and processes will help us leapfrog the competition?
• If we were a smaller business, would we be making different architectural choices?
• What can we do to bring business benefits forward? 

However, the private equity giant was optimistic about the outcomes for staff who it said should be energised and enthused by the changes ahead and compensated for their part in the transformation.

"Bain research highlights the potency of recognition and reward in positively influencing behavior, indicating that they have four times the impact of penalizing undesirable behaviors. It falls upon leaders to establish effective mechanisms for identifying individuals and teams that demonstrate positive adaptation in their routines and to offer explicit recognition and rewards to maintain the momentum of transformation. Importantly, rewards don’t always need to be monetary, as not everyone responds solely to financial incentives."

Artificial intelligence

It also heavily referenced the use of artificial intelligence (AI), a tool which Insignia has already flagged using within the business. In its Investor Strategy Day last year, chief executive Scott Hartley said the firm planned to increase efficiency and profitability in its advice division by harnessing AI to reduce the cost to service.

This will mean utilising AI in the back-end administration side of operations to reduce the cost to service and free up advisers to spend more time with existing and new clients.

Hartley said: “Today our advisers, on average, have 100 clients each. My view is that should be closer to 150 and we’re targeting that through investment in advice technology more broadly, but certainly leveraging AI and in that process.

“[AI] is absolutely a game-changing technology that we are embracing and we have embraced historically – we’re not new to this game – but will embrace more strongly to help humans do a better job.”

Commenting on AI's potential in wealth management, Bain said: “Most firms are excited about AI’s potential to transform existing processes, and many are already pushing through a set of use cases. The challenge will be scaling up use cases across the enterprise and integrating AI with other technical tools. 

“Heavy automation users are seeing even greater savings. And this does not come with a sacrifice in quality. Indeed, the most important benefits cited are higher service quality and accuracy, along with better financial controls and lower risk.

“One wealth and asset manager recognised that combining AI, automation with process redesign and current workflows would yield big benefits. The company deployed generative AI to speed up processes to develop or fix code and to resolve production incidents. 

"In parallel, it optimised the levels of automation, even while wrestling with legacy system issues. And the company took a holistic look at the entire software development life cycle, restructuring it to take maximum advantage of these new tools. On $600 million of annual IT spending, the company is on a path to realise about 15 per cent in cost savings.”