The following is an excerpt from a report written in collaboration with Forbes Insights: The Rise of Bionic Wealth.
The changes occurring in wealth management can be likened to the shift to streaming in the movie business. Streaming is now a big part of the industry, but Netflix's DVD business is still thriving. People still go to the movies in droves. A pure play on bricks-and-mortar that failed to alter its business model, continuing to charge fees and thus alienating its customers, Blockbuster went bankrupt.
The lesson for wealth management is channel diversification—and services diversification. It is critical to understand the power of networks and how to employ them, which means knowing what your clients and prospects want. Well, what do wealthy investors want?
Wealth Management Qualities
Clients surveyed value wealth managers' ability to educate them on financial matters more highly than other characteristics. A third feel it is highly important for wealth managers to have a global perspective. And they highly value insights on markets and financial solutions. Even more telling is the importance of an advisor's social media presence—a quarter of these young investors rate that quality as highly important.
"For wealth management, it's important to keep the client engaged and empowered—and we strongly believe that when it comes to serving our clients, the combination of having our wealth managers work with clients in tandem with technology is a winning proposition." CHRISTIAN HUBER, Chief Operating Officer, Private Banking Asia Pacific, Credit Suisse
And They Are Right
A 2012 report by Forrester showed that client-advisor interaction through digital channels correlated with higher fees paid to advisors than traditional methods of communications—phone calls and in-person meetings. And a 2012 trial by a major investment bank revealed that, of the 600 advisors it allowed to use LinkedIn and Twitter, 40% brought in new clients through those channels—and 60% of those 240 advisors acquired new clients with $1 million or more in assets.
Trust And Security
Trust is the lifeblood of wealth management. But the nature of that bond—how it's acquired and kept—is changing and divergent along generational lines. Much of client trust today is formed around the use and handling of data. Younger investors in particular want to understand data about markets and their portfolios. For them, insight and performance breed trust. "Traditional clients rely much more on their trust about data—that it was there, that it was studied,"
Gatesman says. "But the newer generation actually wants to see the data points and digest them a bit." Investors over age 50 tend to be more focused on the security of data. "In wealth management, privacy is one of the most important values," Thüring says. He talks of client on-boarding, still mostly done by hand in the industry. Some firms are using Skype-similar software to identify clients, he says, but the documentation still needs to be delivered in print or scanned form—and many clients don't use security email infrastructure that enables security certificates or encryption.
"I would rather invest in strong process and protection so our clients can see their data is safe and secure and private; then I would go to the Internet and open platforms, but not the other way around."
Understanding the feelings and preferences of clients on a deeply personal level—with the nuance revealed by the Forbes/Temenos survey—is at the core of retention, the underpinning business objective for the industry. Which begs a question: why do clients leave—and how aligned are wealth managers with the sentiments of their clients?
Consider where the perspectives of wealth managers and clients diverge: poor investment performance is the dominant reason clients leave (59%)—more than imagined by surveyed wealth managers. Almost 40% of them believe clients leave over investment results. A third of clients say they leave over a lack of transparency or control over their investment portfolio; but only about 13% of wealth managers see it that way.
The alignment between wealth managers and clients might be most telling: both parties in nearly equal percentages—about a third of both—see recommendations by the friends and peers of clients as a factor in attrition, which speaks to the importance of wealth managers' social presence. About a third of managers and clients cite the inadequacy of a firm's technology, which speaks to the impact of legacy systems. And a quarter of both clients and wealth managers believe that clashes over investment approach fuel departures.
Indeed, the human factor is at the core of a retention strategy, according to Gatesman. "The single biggest factor is the use of family planning while the first generation is still alive," he says. "The greatest tool for wealth managers to keep the wealth as it passes from generation to generation is doing multigenerational planning with the whole family. Otherwise, you risk disagreements on investment philosophy with the younger generation that could cause you to lose the relationship."
About the research:
To gain a unique view into the experiences of both clients and advisors as the wealth management industry faces change, Forbes Insights, in partnership with Temenos, surveyed more than 60 wealth managers and 35 High-Net-Worth (HNW) clients about the evolving banking experience—how they communicate, their needs and the importance of technology. More than half of the executives surveyed are CEOs, and almost 30% are heads of asset management. Three-quarters of the executives are evenly split across Asia Pacific, Europe and North America. Almost 90% of clients surveyed have net worth between $1.4 million and $7 million. This report outlines the key findings from the research, with commentary from executives at three leading investment and private banks.