Adjusting strategies to cope with changes in the wealth management sector

By Sean Raine | 27 November 2017


In an industry where there is a continual downwards pressure on fees and asset flows, the impact of shifting demographics and technology expectations are driving a step change in the user experience demanded by customers. IPBS looks at why wealth managers need to respond accordingly by reshaping products and services and investing in transformational technologies.

Global wealth ownership has undergone a number of changes driven by changing demographics, which in turn have impacted on customer behaviour. However, wealth managers have adapted at varying speeds.

One of the biggest changes was noted by Business Insider research which showed that the so called Millennial generation are increasingly turning to digital channels to perform their bank activities and shunning traditional branch based or call centre banking.

Head in the sand

Despite changes to the way in which cheques are processed with digital imaging, they, along with cash are in permanent decline. The research also indicated that the pace with which bank branches and even ATMs will become obsolete is accelerating with customer preference for using third parties for financial transactions and the continued rise in cost per transaction completed at a branch.

Two worrying facts for wealth managers; the consumer’s smartphone will become the main banking channel and third party financial aggregators have the potential to know more about your customer’s financial position than any human advisor.

Against this backdrop of seismic changes some wealth managers have had their head in the sand. A 2016 PWC survey indicated that only a quarter of wealth managers offer digital channels beyond email capabilities. Another survey this time from Ernst and Young showed that digital channels and self service capabilities were the top rated factor for client service experience (see diagram below).

It is clear that firms that do not respond to change simply won't survive in the medium to long term. Why? Research shows that 85% of High Net Worth Individuals (HNWI) use three or more digital services in their day to day lives. More than two thirds of HNWI use online or mobile banking and more than 40% use online channels to review portfolio or investment markets. These people want and demand that same consumer experience they get from Amazon, Uber and Apple in other areas of their lives, and banking is no different.

Indicator of dissatisfaction ‘Net Promoter Score’ is a widely used predictor of customer loyalty, it asks a single question: Would you recommend your current supplier?  Yet, the Business Insider research indicated only 39% of HNWI are likely to recommend their current wealth manager.  Put another way, 61% of HNWI are likely to have an element of disaffection which will drive higher churn rates, and this segment may be worth $200 billion according to estimates.  This is a significant warning sign for some and an opportunity for other wealth managers.

Despite evidence to the contrary, many wealth managers that I talk to frequently overestimate their own digital capabilities.  Some even rate their digital offering as sophisticated when the only service offered to customers is a website. Only one in ten wealth managers use social media with their clients and many are only now starting to invest in self-service web portals and mobile apps.

This situation is summed up by Barry Benjamin, Global Asset and Wealth Management Leader, PWC when he says: “This conflict within wealth management firms, combined with a client-base that feels only weak affiliation to its chosen providers, is creating a sector that is now acutely vulnerable, to digital innovation from fintech incomers, including robo-advice services.”

He added that, “Two-thirds of wealth relationship managers do not consider robo-advisors a threat to their business and repeatedly insist their clients do not want digital functionality - directly contradicting the importance their clients place on it.”

Digital readiness gap

The upshot of this digital readiness gap is that the sector is vulnerable to a digital disruptor, one that uses innovation to address current HNWI needs in a convenient and user friendly manner, including the use of robo advisers to efficiently service customers and deliver what they want, how they want it and when they want it.

If any of the above sounds familiar then it is time to take action now.

Digital has become a key accelerator for evolution and institutions must redouble their efforts to build a future ready digital infrastructure that provides a unified customer experience.  Digital should not be feared.  It has the power to enable you to deliver existing and new services in a way that is efficient and cost effective.

But how can slow moving and risk-averse wealth managers make the necessary changes if they lack the digital skills required?  One option is to look at strategically partnering with a FinTech innovator/disruptor. They will bring the speed of development and access to new capabilities the market is looking for.

Don’t just rip up the old

Wealth managers enjoy a high level of trust with clients so it is important that any efforts to introduce stronger digital capabilities doesn't jeopardise the trust engendered by and built on human interaction. There are five key areas of digital technology that can have an impact on the customer:

Smart devices and apps: Smartphones have millions of times more computing power than all of NASA when it put the first men on the moon in 1969. They are the gateway to delivering a frictionless banking and wealth management experience that is quick and convenient.

Social media offers the ability to communicate with the millennial generation and should form a key part of any digital planning.  It can enable wealth managers to engage in a two way dialogue and listen to what customers are saying.

Big data and advanced analytics are now within the reach of most organisations and allow you to analyse customers and behaviour in more detail than ever before to understand how to best meet their needs.

Remote technology can enable customers to tap into powerful solutions that replace the face to face role using chat or video.

Artificial intelligence can drive workflows that automate many common tasks easing pressure on staff to focus on higher value or more complex activities.
Conclusion: taking a digital view of the customer

Shifting demographics means the millennial generation are going to have an increasing influence on how products and services are designed in the future. Consequently, investing in transformational technologies may be one method of addressing this.

The impact of this can be significant, according to Mckinsey: “Digital has the potential to generate significant cost reductions through robotics and automation, change business models with digitally assisted advice, and drive disproportionate market-share gains through digital acquisition and servicing of clients.”

It is likely that the institutions that benefit most will be those that embrace the opportunity to close the digital readiness gap.  Of those institutions that are already digitally enabled, they need to continue to build on these offerings. These institutions will be in a position to better compete in the market by combining the best of technology and human service and are likely to remain relevant if not thrive in the future.

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