5 Steps to Digital Transformation in Finance and Investment Management

Digital transformation is the foundation for future success in finance and investment management. Making these  changes can seem daunting, but with good planning and execution, the transformation process will be easier.

In the past, notably the pre-COVID years, the thought of upgrading your tech stack might have felt optional.

You've probably attended RIA industry conferences where the topic came up, but the idea of "digitally transforming" seemed abstract and something for the future.

Sure enough, only 36% of financial advisors "heavily embrace technology."

The future is now, and revamping your tech and having a digital strategy is more important than ever before. The COVID-19 outbreak further illustrated that point as many wealth and asset managers started working remotely.

What is Digital Transformation in Finance and Investment Management?

Digital transformation is the process of making technological improvements at all levels in an organization. The change runs deep; it's foundational.

In many cases, it means doing away with old systems in favor of a newer, more simplified setup. And by 'digital', the meaning is in the context of adopting cloud-based financial technology, moving away from locally installed servers and applications.

Part of this transformation comes with a shift in mindset. It's the belief and/or realization that technology will play a central role in your firm's future success.  

For financial services and investment managers, digital transformation helps carry out desired outcomes:

• improve the client experience (faster onboarding, better advisor-client communication, easier access to reports)
• drive greater efficiencies (save time, expedite workflows, reduce errors, and cut costs)
• boost team collaboration efforts (delegating workflows, file and document sharing, messaging, video conferencing)
• scale; grow your business (better sales and marketing efforts)

Digital Transformation Challenges

For as much there is a need and for all the benefits that go with digitally transforming, the change itself won't be easy.

So many things can stop progress:

• Internal pushback
• Lack of leadership and commitment
• Poor planning

While things won't be easy, it's easier if you have a plan.

Empaxis wants to help. We've helped countless RIAs, family offices, and hedge funds make these moves.

So, we have created these steps for digital transformation in finance and investment management below.

Finance and Investment Management Digital Transformation Steps

Step 1: Identify Pain Points and Goals

Your digital transformation will only be successful as long as you know what your goals are.

And if you're unsure what the goals are, start by identifying pain points.

• Are there too many manual processes?
• What are your reporting procedures like? Error-prone? Time consuming?
• Do you not have enough time to get everything done?
• Does it feel like you're inefficiently using your resources? (i.e. Highly skilled team members working on lower-level work)
• What's costing you the money? What's wasting the most money for you?

Whatever or wherever the pain is, start there if you need to. After that, identify the outcomes you're looking for:

• Improve the client experience
• Automate more
• Leverage AI
• Have more centralized systems, reports, and data
• Increase team collaboration
• Time savings and cost cutting

Step 2: Review Existing Res

Now that you've identified the pain points and ideal outcomes, see what systems are helping or hurting you.

Here are some examples of things that will hurt:

• Reliance on locally stored servers, applications, and devices.
• Outdated portfolio management and accounting systems that don't integrate well with other systems
• Siloed workflows (team members working in different environments and not collaborating enough)

Now you'll realize that some of your systems have to go.

In turn, that gives you a reason to look for better systems and tools. Consider those that let you:

• automate as much as you can.
• centralize as much as you can.
• digitize as much as you can.
• integrate as much as you can.

Another aspect of digital transformation is getting the most of your human talent; your CFA holders should not be doing lower-level work.

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Step 3: Assign Roles and Timelines

So much goes in to a (successful) digital transformation, and it takes a group effort.

First, identify who's responsible for researching the fintech solutions that will be part of the digital transformation.

After that, who will sign off on the decision? Executive management? The board of directors?

Also, make sure whoever signs off on it knows ahead of time that you're considering changes and investments in technology. The last thing you want is to get so far in the process only to be shut down.

Once that's been done, determine who will be in charge of implementing new systems and decommissioning the old ones. The actual setup (connectivity, integration, data mapping, feed setup, etc.) is usually the hardest part.

And these processes don't happen all at once; they take time. What's more, cybersecurity and compliance questions will arise. You, your team, your clients, and industry regulators will have to address these, so be ready to ask the right questions to service providers and gather the info you need around these matters.

You need time to research your options, get approval, and eventually implement.

Then, figure out when you want everything complete by. If you're getting rid of old systems, notify the providers so you're not left footing the bill for another year of subscribing to applications you don't need.

Step 4: Identify Potential Roadblocks in Fintech Implementation

As mentioned before, the path to digital transformation isn't easy, but it's easier when you know what to look out for.

As you get going, there will be obstacles. There's also the possibility that projects go past your expected timelines and budgets.

For various reasons, there will be bottlenecks. People who are supposed to give approval or provide what you need to move on will delay.

Also, there could be issues with integration, historical data migration, and data mapping. It's not that these challenges can't be overcome, but set expectations accordingly and take that into account as you map out your plans.

Step 5: Measure Your Results

As the saying goes, "You can't manage what you don't measure."

After all that work in digital transformation, you deserve to know the results.

Set up your own KPIs (Key Performance Indicators). Consider these metrics:

• Process turnaround times
• Money saved/long-term ROI
• Data and reporting defect rates
• Client satisfaction levels

While some metrics may not be fully quantifiable, such as better team collaboration, those improvements can lead to quantifiable results in other areas, such as those listed above.

Make Your Digital Transformation Happen

The need for RIAs, if they haven't already, to upgrade their tech infrastructure grows ever more important.

Admittedly, it can be a challenge going through the digital transformation process, and that's why we laid our steps and recommendations to make it easier.

As we mentioned earlier, Empaxis has helped wealth managers, asset managers, family offices, and hedge funds make their transformation.

Whether it's through us helping them leverage automation, setting them up on our all-in-one TAMP1 platform, optimizing their middle- and back-office processes, or even consulting for investment operations and digital transformation, we help in any capacity we can.

Is digital transformation in your future? Is this something you're curious to learn about for your organization? Empaxis is happy to have a conversation with you.