Great Expectations and Unintended Consequences

History is full of simple ideas that have captured the imagination, energy and money of large groups of people, but resulted in very few actually finding a reward. A good friend of mine recently provided me with a great example that he teaches in his history classes.

The Californian Goldrush started in 1848 when gold was found at Sutter's Mill in California. In the years that followed hundreds of thousands of people flocked to California in search of their fortunes, but ultimately very few of the individual miners made significant amounts of money. Due, in part, to prospectors’ lack of mining skill, experience and planning it was in fact the suppliers who really struck it rich. The first gold-rush millionaire was reported to be a supply store owner by the name of Samual Brannan, and one of the longest running success stories is that of Levi Strauss & Co. 

Wealth Management has always been a lucrative industry where success has historically come for those who built strong reputations through a combination of good client service and consistent investment returns but over the past few years many have begun to view digital wealth management solutions with goldrush-esque excitement. 

It’s clear that digital wealth management solutions will have a significant long term impact on the wealth management industry, but no one should be creating a digital solution just because everyone else is. In fact doing so without a clear plan is the modern wealth management equivalent of hopping onto a steamship, heading for California and expecting to get rich.

By the time the gold rush petered out most people had found out the hard way that prospecting was an unsustainable way to make money, but there were a small number who succeeded by effectively mining the right area with the right tools.

A golden age

One of the most talked about opportunities to seek digital fortune is the millennials, next-gens and intergenerational wealth transfer. On the surface a digitally native cohort expected to inherit enormous wealth over the next decade is the perfect place to seek your fortune, but dig deeper and you might find this is a difficult place to start.

Inevitably wealth will transfer from baby boomers to the generations below, but only after the ‘boomers’ have lived a full, enjoyable and increasingly long life, decreasing the size and delaying the inheritance. Then, before an inheritance makes its way into a wealth manager’s ‘digital-pan’, consideration will be given to property - either a direct purchase or a repayment of an existing mortgage - reducing any investable amounts further. But the biggest challenge to success with this group is attracting and keeping them.

Once he’d stocked his store of every shovel and pickaxe he could find Samuel Brannan famously ran up and down the streets of San Francisco shouting ‘Gold, Gold, Gold!’ leading to a rush of people into his store to buy supplies. Unfortunately, D2C marketing is no longer as simple or immediately fruitful. Many wealth firms have grown in size through a combination of B2B sales and personal referrals nurtured carefully over time, but neither approach is likely to bring the volumes needed for a digital solution. While digital marketing may be a little more targeted than running down the high street shouting ‘Gold!’, the principle is the same. The key is getting your message heard as much as possible by as many of the right kinds of people as possible, and that will require some investment.

The contrast between effective high volume digital marketing and the traditional approach to winning new business is as stark as the difference between digital wealth management solutions and high human touch wealth management. The wealth management industry is well equipped to cater for asset-rich HNWIs, but although it has the knowledge to serve clients of any net worth it struggles commercially when clients are less well off. Digital potentially solves many of those problems since costly face to face interactions can be replaced by self-service and automation of simplified advice, but simply automating what you do today isn’t enough to attract the client of tomorrow. Digital experiences need to engage the user, and the bar is always being raised which means continual evolution if a digital solution is to retain a client’s interest.  

Learning the lessons of the past

Brannan and Levi Strauss were both store owners before the goldrush, their success came by applying a lifetime of store-owning experience at scale, this is a great lesson for established wealth managers looking at why or how to digitise. 

It is estimated that ten years’ worth of digital adoption has occurred in the last two years, existing asset-rich HNW clients have already embraced some digitisation and, because of that, existing clients and prospective clients similar to them will be the most profitable seam to mine.

Done correctly, and with a proper plan, digitisation will create efficiencies for the wealth manager, will augment the high touch service the client receives and will increase their loyalty and the potential of them making referrals. By focusing on existing, digitally-keen clients first, firms can test, improve and refine their approach before committing to a fuller roll out.

Digital clients of all ages are becoming increasingly discerning with experience, so now digitisation has begun, it is paramount to continually reinvest in digital technology. In the same way that a mining company continually evolves its process in order to create operating efficiency in the mines they are active in, digital technology needs to continually advance in all aspects, from digital delivery channels through user experiences, and into the core operating model.

While it may seem like an excuse from a technology firm to spend more on tech and marketing, the digitisation of wealth management has the potential to be an inflection point in this industry. If a wealth manager commits to continually evolving its digital capabilities it won't be long before the digital experience of existing clients is revolutionised and historically unprofitable clients become a rich discovery. As Mark Twain, a reporter for the San Francisco Morning Call during the gold rush, wrote in ‘the American Claimant’ - There is gold in them thar hills!!