Will CDOs become commonplace in private wealth firms, and what responsibilities will they have?

Jun 28, 2016 | Private Asset Management

In framing the conversation around the need for chief digital officers (CDOs) in wealth management firms, it’s relevant and worth mentioning what is happening more broadly in the financial services landscape. Based on my conversations with industry practitioners, fewer than 10% of financial services companies have appointed a CDO. It’s fair to say that financial service firms have been slow as molasses in adopting to digital, particularly compared to other industries.

Yet, in the past year, more and more board members are hopping on the digital bandwagon and recognize the need to become more innovative. If they don’t, their competitors will.

There are many considerations to have when formulating digital strategies and determining whether it may be the time to consider a CDO hire. Before a firm decides whether or not to create a position for this role, key stakeholders should ask questions such as:

  1. How will digital and big data reshape our business and our culture, and at what cost?
  2. What will be the duties of the CDO? With which other executive team members will they interact?
  3. Do we need a functional specialist, or more of a generalist with digital experience?
  4. How will the CDO create value and drive firm revenue/investment growth?
  5. Is there anyone internally that can take on this role?

Responsibilities and duties of the CDO

In considering the timing and need to hire a CDO, wealth management firms and multifamily offices should understand the full scope and breadth of what a CDO can bring to their organization. A CDO should be able to perform the following:

  • Oversee big data collection and use throughout the entire organization
  • Create a data-driven culture where accurate information is gathered ethically, shared widely and used to achieve strategic targets
  • Manage a team that handles all data analysis, from social media to customer service and operational processes
  • Identify promising research areas and pathways to revenue and suggest shifts in corporate strategy
  • Alert the executive board to threats and opportunities and oversee the back-end development of internal and external-facing systems relying on big data
  • Provide ethical oversight over data collection

The best CDOs are strategic. They have soft skills to complement their technical know-how and are capable of relentlessly identifying, collecting, structuring and analyzing data that is meaningful and actionable. Additionally, the CDO should possess the following technical traits:

  • Deep experience with big data solutions, including Hadoop or HBase
  • Knowledge of data collection, classification, warehousing, architecture, integration, quality management and a very large database (VLDBs)
  • Keen understanding of modeling techniques
  • Familiarity with business and academic research methods
  • Knowledge of how data solutions are implemented in existing programming languages and design patterns

From our perspective, the most valuable soft skills in a CDO are empathy, courage and resilience. A CDO will often have to question or challenge other executives, including the CEO and board members.

Finding the right candidate

There is undoubtedly a shortage of people with the right knowledge and skillset – including both technical and financial – required for the CDO role.
To drive progress on its digital agenda, companies must remove internal barriers, such as structures that support legacy business models. The company must also remove cultural barriers – that’s a recipe for disaster. Organizations require a leader with vision who can embrace the fast-paced opportunities of the digital enterprise and overcome traditional reluctance to change in this industry.