The Experience Factor: The New Growth Engine In Wealth Management by EY

The New Growth Engine In Wealth Management – Executive summary

The wealth management industry is experiencing an unprecedented level of change: depending on where you stand, these changes can feel like opportunities or threats. Shifting client demographics and preferences present new demands. Fintech entrants are commoditizing the traditional asset allocation advice model, which is eroding pricing power and simultaneously raising the bar for better and faster service.

Wealth managers face both significant opportunities to acquire new clients and assets, as well as daunting risks in terms of retaining clients in the face of competitive threats and digital disruption. So, how should wealth managers prepare to weather the storm and grow through this period of rapid change?

Shifting from efficiency and regulatory compliance to revenue growth

Amid concerns about a potential slowdown in the global economy, wealth managers continue to be challenged by margin pressures and regulatory concerns; however, their level of concern and optimism varies across regions. In the Americas, approximately 50% of firms believe that margins are improving, while the outlooks of firms in APAC and Europe are less optimistic. Although current strategic budgets are focused on addressing margin challenges, looking out two to three years reveals a strong investment shift toward revenue growth. However, firms in Europe and the Americas are more optimistic about directing their strategic budgets toward revenue growth compared to other regions.

The specific revenue growth initiatives that wealth managers are undertaking are focused on, or have a significant impact on, client experience. Yet, among wealth managers, there is much debate on what a differentiated client experience truly means. In our research of 2,000 individual clients across various segments such as regions, wealth levels and age groups, we aimed to demystify client experience and help wealth managers gain a deeper understanding of the levers that drive overall client acquisition and retention.

Bridging the gap between clients and wealth managers

Client experience in wealth management is unique as it spans an individual’s life journey of managing and preparing for the unknown. Financial market turbulence, life and career changes, and personal ups and downs — all of these shape the experience from the client’s perspective. Hence, client experience in wealth management transcends elements of engagement and client service common to other products and services. Our analysis of clients and their expectations highlights three essential elements in the wealth management relationship — performance, engagement and trust — which complement each other to form a comprehensive client experience model best suited for managing clients’ wealth. Delivering the kind of experience that clients value can be difficult to execute, as the intersection of performance, trust and engagement creates a high level of complexity due to the multiple layers of client needs, wants and expectations in play.

So, are wealth managers investing in the things that clients care about? The answer is yes and no. Clients and firms are aligned on most of the key client experience drivers, but there are three areas where firms are out of step with clients: transparency, channels and role of the advisor. These themes generally hold true on a global level, though some regional variances exist, notably in markets (such as Switzerland) with different wealth management business models.

  • Clients redefine transparency: Clients overwhelmingly identified transparency of portfolio performance and fees as the top driver of trust. However, clients are pushing the envelope on what transparency means to them and are eager for a new level of public transparency. Clients are eager to rate their advisors and connect with like clients in public forums. Traditional views of transparency are no longer enough.
  • Digital channels — clients expect more: Wealth managers that have been first movers in digital innovation and engagement are already moving a majority of service functions to digital channels, while asserting that they will keep core wealth advice activities in face-to-face channels. Clients, on the other hand, are significantly more open than firms to adopting digital channels for wealth advice. In fact, they consider digital to be a primary channel for both advice and service.
  • Role of wealth advisor must change: Historically, wealth advisors have been the rock that keeps clients steady through market turbulence and personal life changes. They’ve owned the client experience when it matters most. This is particularly true in countries where advisors are the only gateway to wealth management or in client segments that require a high level of product and service customization. Yet, some clients are questioning the value of this role and relationship.

Strategic considerations for wealth managers

Given these fundamental differences in what clients want, how should wealth managers prioritize their strategic bets? Firm reputation is no longer a barrier to entry; newcomers can build trust with transparency and steal current and potential clients. Digital service is already here, and digital advice is inevitable for certain client segments. The wealth advisor’s value goes well beyond assigning clients to asset allocation models, but clients need to become believers too. Firms need to evaluate their strategies against how they impact the key elements that drive client experience — performance, engagement and trust. Every wealth manager, regardless of size, region or target client segment, should ask these strategic questions:

  1. What’s the optimal core advice model — human, machine or hybrid?
  2. Is there a better fee proposition that improves transparency and justifies the value provided?
  3. Should you use social media to “talk less and listen more” to increase retention and referrals?
  4. How can wealth advisors become successful in the new world now that the rules of the game have changed?

Why change now?

Our research and analysis show there is a significant amount of assets in play globally. The vast majority (73%) of wealth management clients has relationships with multiple wealth managers, and 57% of them are open to consolidating, meaning 4 out of every 10 clients would consolidate their assets into fewer firms under the right circumstances.

Estimating conservatively, there is a US$175 billion to US$200 billion revenue opportunity for the firms that get ahead of the curve and use client experience as a competitive advantage. Wealth managers that take bold action now rather than rely on a wait-and-see approach will be in a prime position to capitalize on the opportunities presented by this changing environment.

Growth on the horizon: refocusing strategic budgets

Over the past few years, wealth managers’ strategic budgets have tilted heavily toward regulatory compliance and operational efficiency. However, looking forward to the next two to three years, a shift toward revenue growth appears inevitable.

Strategic shift toward revenue growth

Though the proportion of strategic spending dedicated to regulatory compliance is still relevant among wealth managers across the globe, the trend seems to be shifting. In fact, in markets like the US, regulatory costs are gradually becoming a predictable overhead cost or business-as-usual concern rather than a strategic priority.

Wealth Management

As this happens, wealth managers in all regions agree that achieving bottom-line growth through operational efficiencies and cost-cutting measures is an important budgetary factor. Over the last year, many firms have announced new initiatives to reduce total cost of ownership by rationalizing technology stack, right-sizing certain business units, outsourcing various functions and moving operations to low-cost locations. Although similar initiatives have been

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