The Experience Factor: The New Growth Engine In Wealth Management

The Experience Factor: The New Growth Engine In Wealth Management

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?

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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.

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 common in the past, there is clear evidence of renewed costcutting.

More important, wealth managers have indicated their intention to shift their priorities toward revenue growth over the next few years, especially in Europe and the Americas. This renewed focus on revenue growth comes at a time when client needs and expectations are changing dramatically, influenced by their daily experiences with Amazon, Apple, Uber and other digital bellwethers. Furthermore, fintech entrants are making inroads in the wealth management space, commoditizing some aspects of the traditional model and creating a higher benchmark for service.

Although client experience has recently become a key area of interest for wealth managers, the concept has proven to be quite abstract with no common definition or benchmark. In this context, our research aimed to establish a concrete and comprehensive reference model to help wealth managers leverage client experience to acquire new clients and assets in support of the revenue growth agenda.

Combating margin pressure on the road to growth

In the face of increased regulation since 2008, many full-service investment banks have looked at their wealth management arms as their primary growth engines. The expanding fee-based business has provided a steady revenue stream and profit source as assets under management (AUM) increased and margins improved. Yet, more recently, analysts have pointed to margin pressures as a major challenge across the industry. Although profits continue to trend upward in some regions, it is worth asking whether they are sustainable in the face of increased competition and fee pressure, ongoing regulatory costs and a bull market that is showing signs of fatigue.

Perceptions on margins vary by region. Approximately 50% of firms in North America and LATAM believe margins are still improving, while views are less favorable in APAC (8%) and Europe (11%). Those citing margin improvements point to the benefits of costcutting measures (offshoring, process re-engineering, technology rationalization, etc.) and improved client segmentation strategies. Additionally, the emergence of enhanced digital advice capabilities will allow traditional wealth managers to service lower-tier clients more cost-effectively.

Although there is a case for improving margins, the global view is that the margin pressures facing the industry are very real. More than 75% of respondents cited the cost of regulatory compliance as the main cause of declining margins, followed by competitive fee pressure (64%) and macroeconomic conditions (52%). Taking the regional view, regulatory compliance costs were most cited in Europe (selected by 93% of respondents), while APAC highlighted fee pressure as the top factor (88%).

Bottom line, the current market turmoil, ongoing regulatory costs and increasing competition from digital entrants have led firms to refocus their efforts toward cutting costs. Although the margin picture varies by region, the compliance costs and fee pressures that are threatening margins are recognized globally.

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Demystifying client experience

Our journey into understanding wealth management clients’ views on their experience began by establishing three dimensions that encompass a broader, more comprehensive view of client experience: performance, engagement and trust.


The financial performance delivered by wealth managers through various elements of their offerings: products, financial education and advice. The key of this dimension is that, contrary to the common perception, performance will mean different things for different people.

Key client questions

  • Does my wealth manager understand my financial objectives?
  • Am I on track to achieve these objectives?


Encompasses the more common elements associated with client experience, namely the channels and nature of the interactions or touch points between clients and wealth managers, including the processes embedded within those interactions.

Key client questions

  • Can I do business on my own terms and on my own time?
  • Is interacting with my wealth manager simple and intuitive?


Clients’ perception of a wealth manager as a trusted advisor and the underlying drivers and elements by which wealth managers can gain that trust.

Key client questions

  • Can I trust my wealth manager with my financial health?
  • Does my wealth manager have my best interest in mind?

Next, we aimed to determine how these are perceived and prioritized by clients. Not surprisingly, our research shows that across regions, performance is valued most by clients, with engagement and trust valued equally by them.

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However, a closer look at these results shows that half of the client population equally weighs the three dimensions when defining the most important elements of their experience, confirming the need for wealth managers to view client experience as a holistic concept.


Investment performance is most important to clients, but there is no single performance definition.

While some clients’ expectations are to meet or outperform the market, other clients measure their performance expectations against their financial goals regardless of overall market performance. These varying expectations also lead to nuances in terms of client expectations and preferences regarding wealth advice and products and services.

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  • Clients who are more focused on achieving their long-term goals value the quality of their interactions, and tend to prefer face-to-face personalized advice. Furthermore, these clients are more interested in offerings that bundle investment advice with services like banking, insurance and philanthropic services.
  • Conversely, clients more concentrated on outperforming the market are interested in broader investment product offerings (e.g., hedge funds, private equity). For these clients, speed and frequency of interaction are relevant and they value multichannel interaction. They are also much more willing to receive advice via mobile applications or give digital advice a try. This last point could be seen as counterintuitive considering that current digital advice offerings are exchange-traded-fund-based and therefore have limited ability to outperform the market. Our belief is that ultimately these clients are curious about the innovation behind digital advice, as well as the lower price point, but it does not mean they are considering or interested in shifting the bulk of their assets toward it.

In order for firms to meet these diverse expectations, they need a broad portfolio of products, multiple approaches for providing wealth advice (e.g., goals based vs. traditional asset allocation driven) and different channels for delivery (i.e., face to face, phone based or digital). The challenge is being able to do so profitably and without creating confusion among clients and advisors given the increased complexity arising from such a broad offering.

Furthermore, client segmentation beyond the traditional asset tiers is especially relevant as client investment expectations differ by various demographics such as age, gender and source of income. Firms need to better align client segments to actionable approaches that correlate with the above outlined expectations and behaviors.

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While clients are demanding broader digital and self-service capabilities, wealth managers can’t take their eyes off the basic elements of engagement.

As expected at a time when digital is front and center for client engagement across industries, digital capabilities are at the top of wealth management clients’ must-haves. In fact, the digital bar for wealth managers is rising as clients demand that wealth firms offer more interactions — from account opening to the provision of advice — through digital channels. The bottom line is that digital efforts must continue to evolve and expand.

Social media is one example of clients’ evolving digital needs; as clients of all ages have become comfortable with social media, engagement has taken on a new meaning. In clients’ minds, interacting with other clients or providing feedback in a public forum is just as relevant as talking to advisors or calling the help desk. Clients are eager to use social media to create and share their own content, while wealth managers see social media mainly as a channel to “push” communications to clients for brand-building and educational purposes.

As wealth managers look to respond to clients’ push for more digital capabilities, some might be tempted to delay or de-prioritize them altogether with the rationale that these are not relevant to them, given the high-touch nature of wealth management (specifically among higher-wealth tiers). Yet, the research shows that the relevance of digital cuts across age and wealth segments and therefore should not be put on the back burner.

Our research indicates that although digital will continue permeating wealth management relationships, advisors will remain important for some key interactions. Firms should then revisit the role of advisors and how they leverage growing digital capabilities to maximize the value, to both clients and firms, of these touch points. In this sense, the future of the advisory model is likely to combine a broad spectrum of capabilities, from pure digital to digitally enabled advisors, aligned to specific client needs and preferences.

Finally, the fact that basic services such as receiving accurate information are top of mind for customers suggests that firms may still need to work in terms of satisfying fundamental client needs. The truth is that wealth managers in general have significant room for improvement across key client-facing processes, which explains why these items remain top of mind for clients because they are not embedded into wealth management firms’ DNA as in other industries (e.g., having intuitive user interfaces isn’t just top of mind of Apple’s customers’ priorities; it’s a given). Herein is the challenge for firms, as meeting clients’ engagement expectations will require them to work both on developing new digital capabilities as well as addressing the inefficiencies and limitations of their existing processes. In this sense, there is a real opportunity to bring the two priorities together — addressing the basics and enhancing digital capabilities — by effectively leveraging digital to reinvent firms’ legacy processes while seamlessly integrating the different channels (on and offline) through which clients can engage with them.

Ultimately, it’s clear that firms must find a way to balance all these priorities within their strategic plans and budgets if they are to stay relevant and competitive.

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