London: Nick Levy, managing principal of Capco, assesses the challenges of 21st century wealth management.
There are hundreds of thousands, if not millions, of clients in wealth categories spanning mass affluent to ultra-high net worth. Many of these individuals are likely to be part of the 'wealth transfer time bomb'. This is a widely predicted, and unprecedented, wave of client activity. It will break as the current population of entrepreneurs and other prosperous individuals transfer wealth to the generations left behind them.
The recipients of inherited wealth are 'digital savvy'. They will not make allowances for their financial institution as a 'special case' offering inferior digital experience with impunity. If unhappy, they can and will walk. The wealth transfer process itself will compound this pressure. Moving, or even thinking about moving money will cause clients to re-evaluate their current wealth management service. Even the longest, 'stickiest' relationships with trusted family wealth managers will not escape appraisal and potential termination.
Successful wealth managing financial services institutions — those retaining and attracting clients and building revenues — must re-position to appeal to the generation Y, digitally weaned, client.
The core challenge is to devise and deliver a digital relationship — via online and mobile platforms — that exceeds the expectations of the time poor, demand rich, '25 hours a day' customer. These clients are the (great) grandchildren of the people who took tea with the bank manager in his office. They have moved on. So too must their wealth management experience.
The boundaries between service provider profiles are also blurring. They all face obstacles, as they attempt to retain clients through the relationship lifecycle and increase the range of products and services on offer. Achieving top line growth is extremely challenging, in a regulatory environment that is constantly driving up compliance and risk costs.
If service providers are 'hurting', then so are their clients. Investors seem to have no predictable safe havens any more. Many are uncertain about where to put their money and who to trust. They are all looking for sound and reliable advice.
The idea of 'relationship' and its core values has to be re-interpreted in the digital environment. Generation X and Y customers will freely give personal data in an impersonal, online environment. They have less expectation of regular, face-to-face meetings. But they do demand accuracy and immediacy.
In the light of this major shift, wealth managers need to re-examine client segmentation. They must engineer clear service offering differentiation, both within each customer segment and according to key indicators such as lifecycle, geography and source of wealth.
Delivery of a digital wealth management solution is not a simple task. 'Smart' action from successful financial institutions will involve bringing rapidly scalable, cost-effective and tightly targeted innovations to the digital wealth management market. 'Sticky', 'real time', 'relevant', 'personal', 'transparent', 'portable' and 'unified dashboard' will be key experiential attributes.
You can find Capco's whitepaper on 'Digital Services in Wealth Management' here.