The most recent in a growing body of wealth insights by Booz & Company looks at the prospects for the global wealth management industry in 2014/15. According to the study, assets under management have seen a significant upswing around the world but these gains have not translated into the top-and-bottom-line growth that wealth managers would expect based on past recoveries. While prospects for wealth management have improved significantly over the last twelve months, wealth managers must learn new rules quickly and adapt their playbook accordingly if they are to capitalize on the continued economic recovery.
The Global Wealth Management Outlook suggests a four part solution to help wealth managers adapt to changing conditions: apply a “capabilities lens” to look for markets where you can compete effectively; rethink your firm’s value proposition with tiered offerings aimed at transparency and customer suitability; go digital with more effective use of information and communication tools; and use a Fit for Growth* approach to adapt your cost structure to the revenue realities.
Key insights with regards to digitization of wealth management is that the rise of digital business models across all markets continues and incumbents make significant technology investments to keep pace with new entrants. The underlying transformation is fueled by the fact that Customer Behaviour is changing across a number of dimensions:
- Continued growth in importance of self-directed customers – more and more HNWI customers are self directed, i.e., make their own investment decisions and execute trades on their own – either via broker or on a digital trading platform -. This trend is expected to continue going forward, especially as online trading platforms become more popular and “mainstream”
- One of the key issues re. customer behavior are changing pricing preferences and expectations. In general, clients demand and will receive better transparency on pricing due to three trends: 1) new regulatory standards that impose strict price transparency (e.g., MiFID II), 2) discussions and new rules around banning inducements/ retrocessions in different countries around the world, and 3) the emergence of price comparison websites and aggressive new market entrants that openly publish their (low) pricing schemes and cross swords with established incumbents especially on pricing
- Lowers willingness of clients to pay for standard products and services, especially if these are available alternatively online at very low cost (e.g., ETF funds, payments) or even for free (e.g., investment advice via research portals, investment blogs, twitter, investment communities, etc.) – on the other hand, clients are still willing to pay for tailored, high value add advisory and tailored solutions, e.g. structured products “mass-customized” to individual needs via proprietary “do-it-yourself” applications. The continued value add from good advisory is even augmented by the increasing ubiquitous dissemination of financial data and investment information which leads to information overload and brings retail investors back to banks and specialized investment advisors
- Channel preferences: Shift from physical interaction towards 24/7 multi-channel banking for standard products and services – personal interaction still preferred for more complex solutions, but the bar is rising: Especially Affluent and HNWI E&E clients increasingly prefer interactions when they have time for it and not the banker, i.e., evenings, early morning or on the weekend. Not being able to reach anyone after 10 pm or on a Saturday afternoon to discuss a brand new investment idea or respond to breaking news, can increasingly become an impediment for clients with their bank and advisory relationships
- Gen Y Affluent and HNWI clients show increasing interest in peer benchmarking and seek access to peer-to-peer networks and closed and open virtual communities. Investment decisions may no longer be made based on opinions exchanged in one´s circle of friends, but increasingly by following perceived “authorities” online, e.g., in virtual communities, blogs or discussion forums. The latest community and Peer to Peer investment platforms increasingly leverage these dynamics and let people “follow” successful portfolio managers by replicating their portfolios and trades. Hence, the new currency for advisors becomes online-published track record, number of ´followers´, ´retweets` and ´likes´
- While self-directed clients remain highly price sensitive and shop for lowest rates and commissions, more traditional investors will Increasingly show demand for modular value propositions and clearly framed bundles , where they receive defined service levels within a transparent pricing model (e.g., flat fee for basic packages, higher all-in-fees for advanced packages (which may implicitly include “fee for advice”) plus volume/transaction linked “on-top/excess fees” once a certain thresholds for transactions, volumes or interactions are reached)
Summary: Go Digital in Wealth Management
- Banks and wealth manager need to build a “Digital Agenda”
- Use Digital models to break into new markets/capture new client segments (e.g. pure online affluent offering to enter emerging markets)
- Embrace new digital business models and proactively integrate them in your bank
- Use opportunities from digitization to enhance multi-channel offering and intensify client interaction via online channels
- Leverage “big data” to extract value from customer data (and behavioral understanding)