Wealth Management Challenges in 2020: Client Retention in the Digital Age

There is a growing awareness in wealth management circles concerning the need for wealth managers and financial advisors to preserve the investment assets that they currently manage, as they are passed to the next generation. Obviously, some of those assets will shift into pension drawdown plans to cover day-to-day living expenses, but there will remain a sizeable proportion of estates (particularly among high net worth individuals) that will be handed down to future generations.

Difference between Millennials and Previous Generation Buying Behaviour 

The challenge is that Millennials are very different from the previous generation in terms of buying behaviour. Whereas the wealth manager’s traditional customer base was far more orientated toward personal dealings, the new investor’s motivation and expectations are for something other than rolling up outside a grand Mayfair office and being taken out for lunch by their financial advisor. Relationships still matter, but people are now accustomed to having a relationship with others whilst there is a computer in between them. As a consequence, advanced firms are looking at more dynamic solutions with which to interact and share information with their customers, and to improve their customer experience.

Yet many of the traditional wealth managers still question whether the inheriting generation will really want or expect different services/solutions from wealth managers. Often, I hear people say that new clients will not want to interact with, for example, a client portal, but in reality, even mature clients are accessing information and making transactions online all of the time.

Millennials Expectations from Advisors & Wealth Managers

What will the younger generation/millennials expect and how will wealth managers react to these demands? There will certainly be more of an emphasis on self-servicing between clients and wealth managers. There are already a large number of clients who require execution-only trading, which is self-servicing in many ways. Clients are conducting a considerable amount of their own research into which company, fund or ETF they should be investing in. There is so much data in the public realm that enables investors to perform this kind of self-service. Customer demands will therefore change, moving towards a better understanding of fees and value, an increased appetite for constantly evolving engagement tools and 24/7 investment data.

Technological Advancement and Changing Regulatory Requirements in the Wealth Management

In addition to the changing consumer, the other key driver for technological improvement is compliance. Regulators are pushing for more transparency, control and higher standards of proven conduct. All these requirements involve the use of advanced tools, particularly in the client-facing areas of the business. Technology will therefore be a significant enabler and firms that do not have modern, well-designed IT infrastructures will be at a significant disadvantage.

Yesterday’s telephone call has largely been replaced by text messages, which themselves are being replaced by WhatsApp, Facebook, Twitter and other social media. In the future, new communication channels will emerge and how clients access data and communicate with client relationship managers will change. Traditional face-to-face is certainly reducing and most investors are happy with this change. Skype or FaceTime is the new face-to-face and there are other channels of communication that will soon become mainstream in wealth management. The technology needs to allow the newer type of client to be in control (e.g. to provide an online view of investments) but still give the investor access to informed guidance.

The point here is that it will not be a case of choosing ‘old school’ or self-service; most clients will want a blend of the two. Sometimes clients will make the investment decisions by themselves, but on other occasions they will rely on an advisor. If a travel agent said to me ‘I can get you a better deal’ and I knew that they probably could, why would I book a holiday myself? If an investment manager can credibly claim to be able to deliver better performance as a result of their skills and knowledge than an investor would be able to achieve alone, then why wouldn’t the client pay them 1% if they can provide 3% better returns?

I believe that the entire area of brand loyalty is evolving. In the past it was the brand that was the most important factor for the client and wealth managers spent small fortunes every year sponsoring Ascot, the Boat Race or similar high-end events and hosting their clients at them. The top tier firms traded heavily on their heritage, making much of their 200-year history and so on. I think that this situation is gradually changing, such that loyalty is now much more centred on the client experience than the big brand, all firms start equal on the internet. If the top tier wealth managers fail to recognise this fact and continue as they have been for the last 20 years, then they will not retain the wealth that the next generation inherits. If the wealth manager is providing the best customer experience, however, then the investor is likely to remain. First Direct has achieved this aim very successfully in the banking sector, without necessarily offering the best interest rates.

The message is, however, beginning to filter through. The 2018 research paper ‘Technology and Operations Trends in Wealth Management’ published by WealthBriefing, examined what wealth managers are looking to achieve from technological innovation. Enhancing the client experience was the key response, securing 23% of the top-three votes (and double those for most other motivating factors). Of those who saw client experience enhancements as a top-three innovation priority, 58% gave this a number one rating.

Most investment managers recognise that they need to evolve to keep pace with the rest of the world, or they will fail to retain clients in the digital age. The key question is whether they can turn the rhetoric into action.