As the wealth management industry finally moves into the digital realm. Overlooking the changing needs and expectations of clients could prove fatal for traditional providers.
Q3 2020 hedge fund letters, conferences and more
The demographic profile of current and prospective clients is going to vastly shift in the next decade. As the industry will see a rising female clientele and an increasing younger demographic. A key reason for this is the £58 trillion wealth transfer from baby boomers, that will occur by 2030.
Big industry players, who have historically showed their sluggishness in adapting to change, may struggle in this new arena.
Hyper-Personalisation For The Future
Today’s competitive landscape is driving young and old HNWIs to demand more from their wealth managers. In particular, investors are looking for greater personalisation in the services they receive.
As it stands, only 40% of HNWIs are currently satisfied with their wealth managers. Many attribute this low satisfaction to the fact that their wealth managers do not know them well personally: 28% highlighted their manager’s lack of emotional intelligence.
Therefore, the emphasis is on for advisors to deliver relevant and engaging content that is hyper-personalised to the client.
There are many ways technology, such as Virtual and Augmented Reality, can improve the whole wealth management experience. In education and insights, AR can activate the full-sensory experience bringing the content to life. Or even stimulate market downturns and tangible scenario planning. Here companies could show the importance of different investments, risk curves and the transition throughout the years. Gamification and visualisation are also tools to bring the jargon filled advice to life. Such advice is often complex and intimidating to people with little financial understanding.
HNWIs really want to harness the benefits of real-time data and intelligence insights that they have experienced from the big tech disruptors such as Apple and Netflix. These companies have revolutionised human and digital interaction in other aspects of HNWIs’ lives. As a result, HNWIs expect nothing less from their wealth managers that they pay significantly higher fees for.
And this is not a matter of choice.
82% of executives surveyed by Temenos and Forbes believe that only the wealth managers who increase product personalisation will succeed, leaving the rest behind. Therefore, the wealth managers will benefit from being the first to adapt to greater portfolio customisation and increased product personalisation.
A Digital Wealth Management Offering...
The best way to solve for these increasing expectations in personalisation is Technology.
The great paradox of 21st century wealth management is that improved human relationships and a deeper understanding of clients can be achieved through artificial intelligence (AI) and machine learning (ML) techniques.
A digital solution to an emotional problem.
However, the digital maturity of Wealth Management is severely lacking. Lagging well behind other financial services industries such as retail banking. This is greatly frustrating for many HNWIs, as nearly half of clients are expecting to use digital solutions in the next three years.
Moreover, many HNWIs have stated they will leave their wealth management firm if there is a lack of a digital experience. Again, showing how important a digital offering is to them.
“The clients of tomorrow will simply not accept working with a wealth management provider that does not have top digital capabilities to let them access what they need at any time they want.” – BCG, 2020.
That means the traditional wealth management industry must rise to the challenge – and quickly. This is especially important because, the demographics most likely to switch providers are the wealthiest and millennials. Here, wealth management firms have two options.
Model May Vary
Firms have the choice between organic growth or outsourcing and collaboration. Essentially, firms must either build the technology from scratch or partner up with existing wealth tech companies to enhance their capabilities, with their resource advantage, from the ground up.
Most traditional wealth management firms do not have the time or capital to develop these projects in house. Therefore, many industry experts are predicting the adoption of wealth tech solutions will become the new norm.
The advantage of collaborating with existing technology platforms is that wealth tech companies have the flexibility and agility required. Moreover, platforms like ARQ have already built their entire value proposition models around hyper-personalisation, transparency and value added services that give HNWIs better value for money.
Secondly, it also helps neutralise the threat of wealth-tech firms in the ecosystem.
The pressure from wealth tech platform have already driven some big changes in the industry. Forcing firms to redefine their business models and focus more on relationship-driven mandates in order to carve out a competitive advantage in a new, techno-centric world of big data, low-cost services and established networks.
Big Tech
There is also a significant worry about the entry of big tech into the wealth management arena for firms to consider. The biggest issue here is HNWIs’ current perception of big tech. Customers already know exactly what kind of innovative and hyper personalised experience they could potentially receive based on previous interactions with big tech firms.
In fact, nearly one fifth of HNWIs believe that big tech can deliver services better than incumbent firms. Tech firms can blow out the competition in value added services – essentially offering greater value for money.
A New Landscape Post Covid
It is also important to consider how the pandemic has shaped a HNWIs climate increasingly demanding for change. The lockdown highlighted the inadequacies in the current communication streams between advisor and clients. And the 35% market drop proved the need for greater transparency and trust in client-advisor relationships.
During the lockdown, there was no way for HNWIs to meet with their advisor, or to instantly and constantly hear from advisors throughout the high market volatility. Again, this has pushed HNWIs towards simple and accessible interactions through digital offerings.
Tomorrow's Clients Want More
It has also become clear that expectations surrounding fees have changed due to the impact of the coronavirus. HNWIs’ biggest priority is now value for money.
What makes your service worth the fees, and am I getting the most out of my money?
The wealth management industry is notorious for their lack of transparency in fees. This is because fees are taken from returns, and not paid directly, therefore investors do not always realise how much they’re paying in costs.
However, in times of market volatility, it’s very common for investors to pay far more attention to the fees. This is because high fees can quickly cut into very small returns.
Capgemini’s 2020 Global Wealth Report shows that:
- One in three individuals, with more than $1 million worth of investable assets, were uncomfortable with the fees they paid last year.
- One in five individuals plan to switch their primary wealth management firm in the next year. The top reason being high fees.
What is important, is that there are wealth tech apps and tools, like ARQ. These tools provide HNWIs full transparency on the fees they are paying so that clients can truly see if they are being overcharged. Many also perform online comparisons to show the most competitive offerings for clients to choose from.
As a result, traditional firms must revisit their cost structure. To build a more resilient business model that can compete with apps that provide full transparency.
Conclusion
Tech-savvy HNWIs are driving the need for technology-led change. Wealth management firms may struggle to find their new position in the evolving ecosystem unless they are proactive now. Firms can no longer ignore these growing needs and expectations, due to the wider cultural and behavioural shift caused by technology.
The coronavirus has amplified this demand, as it revealed many of the gaps in the current business model. Ultimately, wealth managers will be distinguished by their utilisation of technology and their ability to turn data into insights; those who succeed will be rewarded with client loyalty.
