Technology is allowing established wealth managers to offer a satisfying service to a sector they've traditionally found hard to reach, says Jeremy Boot.
The wealth management industry is poised for growth. A recent PricewaterhouseCoopers report predicted that global Assets under Management would almost double in size by 2025, from $84.4 trillion in 2016 to $111 trillion by 2020. By 2025, they expect them to grow again, this time to $145.4 trillion.
Much of that growth will come from the Mass Affluent (MA) market, a growing global middle class with money to invest. Till now it has been a hard market to serve as the comparatively small amounts of money under management have made it inefficient to offer these people the personalised, investment service that they both need and expect.
Technology changes that. We are already seeing that with the right systems, companies can create automated services that meet the needs of the MA investor. Fintechs were the first into this space, but retail banks and wealth managers are moving in too, realising that they can serve this segment in a satisfying and scaleable way, without compromising on affordability.
The key to wealth managers getting this market right will be a good understanding of what MA clients want out of their wealth management services. This is a segment of society that is used to a seamless digital experience in other aspects of life, so it is understandable their expectations are high.
Deloitte, for example, talks about the Rewired Investor as the new paradigm for this market segment. The Rewired Investor is high on expectations, even if they have less assets invested. This investor likes to stay in control of their investments, and requires products that are tailored to individual goals. Multi-channel, multi-source advice and a rich digital front end are vital to the Rewired Investor, while it is also important that these customers do not see themselves as being offered a 'second class' service. They require access to the same high yield assets and strategies once available only to wealthier clients. Accenture, too, talks of the 'high expectations' of MA clients who increasingly expect offerings that are on a par with those of High Net Worth Individuals (HNWI).
And whilst the MA investors' expectations are high, there may be less loyalty compared to private banking clients, because there is less of a personal tie. Wealth managers must work hard to keep these clients, with compelling and competitive offers.
The lower fees and 'digitally-driven' experience that consultants say this MA segment wants can only be achieved with the use of technology. Wealth Managers who want a slice of this growing market must invest, not just to improve the front-end experience, but also to produce back-end efficiencies to allow them to provide the needed services at affordable price points.
Client onboarding, time consuming Know Your Customer checks and compliance with new regulations such as MiFID II, to name but a few of the administrative functions involved in wealth management, all require significant amounts of adviser time. Compared to the HNWI segment, the return on investment for the time spent for the MA is far less. Automation is key.
Combining an efficient back office with a modern digital omni-channel customer experience is what will allow wealth managers to meet these high expectations. This can be achieved using tools such as robo-advisers, providing fully automated solutions for the lower tiers, as well as hybrid solutions that combine self-service with access to an RM for the higher tiers. Adding customer engagement tools and real-time analytics to help provide more contextual and personalised advice.
There is one other major benefit for wealth managers who broaden their offerings to this segment. Today's MA customer may be tomorrow's HNWI. Successful early investing coupled with the cascade of wealth down the generations means that many customers may start with a fully automated offering, or a hybrid offering that then evolves into a more bespoke service as their wealth grows and their needs become more sophisticated. It's important that the transfer between these different tiers of wealth management is smooth, and that the customer relationship and loyalty is maintained.
For wealth managers, the MA market should be seen as a prize worth fighting for. At a time when margins are being squeezed and the traditional business is being pulled into the digital age, this market provides a significant opportunity. Not only is it a growth area in its own right, but also many MA millennials should, with careful management, become a loyal customer base of HNWI's for future years as they build their wealth. Investing in the right technology will allow wealth managers to build their brands, gain new customers, and prepare for a future in which all their clients can be successfully serviced in this digital age.
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