The report, titled “The Next-Generation Wealth Manager,” found that 64% of wealth management executives believe the industry’s future lies with mass-affluent investors, a notable change considering that 32% agreed that this segment was highly important three years ago.
The change has much to do with the democratization of the financial services industry by technology. Wealth managers are adopting fintech and emerging technologies like artificial intelligence—the ingredients that have transformed the retail market—to advance their businesses, notably by refining the client experience though personalization and by deploying analytics to find market opportunities and launch new services.
“Younger investors expect technology in their investing experience,” said Gonzalo Pradas, head of wealth management at Openbank. “And now, thanks to the arrival of digital platforms, AI and robotic process automation, wealth managers are able to serve them in an optimal way.”
Results from the survey conducted for the report show that technology is the leading capability needed to acquire and retain the younger investors who will drive the industry into the future.
For Pradas and Openbank, the goal is to tap into the behaviors and goals of a pool of prospects who are not in the net-worth range typically targeted by wealth managers.
“Let’s not think about mass-affluent investors, high-net-worth investors or ultra-high-net-worth investors,” Pradas argued. “The requisites or needs of mass affluent and younger investors are not different just because they have less money. So let’s think in a different dimension about younger investors: What are their needs? What are their behaviors? And what technology allows us to tailor-make and scale our service to their needs?”
Less than 1% of adults in the world hold more than a million dollars. But wealth is rising globally: It’s projected to rise 26% by 2023, driven primarily by growth in the middle segment. The number of millionaires will grow over the same period to 55 million, according to the 2018 Credit Suisse Global Wealth Report.
That’s an opportunity that can’t be left on the table. As Pradas pointed out, if your threshold for customers is $1 million in investable assets, you’re leaving out 93% of the U.S. market.
“You’re not giving them the means to invest, and that’s a very large majority of the wealth out there,” he said.
Openbank’s solution is setting up a scalable and customizable digital platform that offers two ways to invest.
One is a robo-advisor that allows clients to get the best out of Openbank’s Investment Committee (advised by BlackRock) because their portfolios are automatically invested and rebalanced by the bank across a wide range of asset classes.
The other targets experienced investors who want to be self-directed. Customers can invest in over 2,000 mutual funds and ETFs and in 25 stock markets.
Aside from stocks and other asset classes, the platform offers sophisticated investments such as derivatives that have traditionally been available only to investors on the higher end of the wealth spectrum.
“We are trying to democratize wealth management for the affluent, the mass affluent, young investors—students, young professionals—and meet their individual needs,” Pradas said.
The company is doing that through partnerships in key areas. Its clients have access to a service managed in partnership with BlackRock, for example.
“We know what we are good at, and we know what we can have through partnerships with industry leaders,” he said. “To be client centric, to engage these investors, we have to be good in putting the best products and the best services in front of our clients. And for that, we may partner up with the best around the world.”
Openbank is engaging with mass-affluent investors by leveraging data on client behavior. The firm uses AI to determine which prospects are the best to acquire in terms of their propensity to invest and the degree to which products and services will be valuable to them.
The company also has a goals-based investing tool driven by a robo-advisory, or an algorithm that provides automated financial planning like asset allocation and rebalancing based on time horizon. Yet another offering, a micro-investing component, allows clients to invest as little as one Euro daily.
“That’s our way of getting everybody on board—both the ones who have invested and those who haven’t in their entire lives,” Pradas said. “We’re convinced that wealth management hasn’t been in the hands of retail investors or mass-affluent investors because banks didn’t have the technology. Now we do.”