Wealth management confronts digital disruption as the rich demand progress
The world’s millionaires (and billionaires) have spoken. The wealth management industry that their extraordinary treasure trove sustains needs to lift its game and digitally transform its service offerings.
A growing majority of high network individuals (HNWI) will consider ditching their private bankers and wealth management companies unless those providers start to deliver an integrated digital experience.
And demography is like to exacerbate the issue since it is the under 40’s and the wealthy in the emerging economies of Asia Pacific who are most demanding.
These are among the key digital finding of Capgemini 17th annual World Wealth Report.
Around the world the wealth management sector has proven itself a laggard when it comes to delivering digital services, says Dorus van den Bizenbos, wealth management specialist at Capgemini.
Even within the established banks early digital transformation tends to be focused at the higher volume retail banking business which provides more bang for the investment buck. And the banks at reticent to let their most valuable clients loose on the new platforms until they have been road tested in economy class.
Not surprisingly those under 40 are even more demanding of digital integration with 80 per cent suggesting better digital services from a rival would give them a reason to leave, and regionally – 83 per cent of HNWIs in the Asia Pacific would consider the switch.
Client expectations into the future suggest the industry has a lot of work to do. The report says that globally, almost two-thirds of HNWIs expect to run most or all of their wealth relationship digitally within five years
The study’s authors write, “Wealth management stands vulnerable as an industry whose established business models are being recalibrated by digital technology, creating both challenges for firms in delivering positive client experiences, as well as enormous opportunity.”
Van den Bizenbos told Which-50, “The wealth management industry is quite a laggard when it comes to digital transformation. The excuse they have always had is to say that the industry is very dependent upon the personal relationship between the advisors and the client.”
“The view has been that we don’t want to invest in online platforms as the advisor is already expensive and investing in all these the technologies channels drives up cost.”
Whereas the retail banking sector has seen the emergence of new players directly threatening the fee streams of current providers, in the wealth management industry the insurgents are challenging incumbency less directly.
“The place where the new entrants – who are not really financial service providers – can play a role is by providing platforms that allow HNWI’s to see all their different assets in one location and to allow clients to create an overview for themselves rather than doing that through a bank. There are already web sites doing that,” says van den Bizenbos
“Getting such an holistic view is a big challenges for clients and all the banks are screaming to get that big picture because then they will know how much potential there is in their clients. Their goal is to try to get as many assets as possible under management from that same client rather than the client spreading it over multiple banks.”
According to the study, the key digital trends include;
- HNWIs are demanding digital capability from the wealth management industry, regardless of their age, wealth level, geography, or need for advice. More than half of HNWIs say all or most of their wealth management relationship already is conducted digitally, and nearly two-thirds expect this to be the case in five years. Ultra-HNWIs and advice-seeking HNWIs are among those asking for more digital interactions, contrary to conventional thinking.
- HNWIs prioritize digital capabilities that keep them informed and that enable transactions, but favor direct interactions (i.e., in-person, phone) to engage with firms for advice. The demand by HNWIs for emerging forms of digital interaction within wealth management, such as mobile applications, video, or social media, remains low compared to that for websites, although the gap is expected to close as these emerging technologies become more commonplace in the wealth management industry.
- HNWIs under 40 are leading the way toward greater use of the emerging mobile applications, video, and social media channels. More than double the amount of HNWIs under 40 view emerging channels as important for certain wealth management capabilities, compared to those over 40.
- About two-thirds of HNWIs would consider leaving their wealth management firm if an integrated and consistent client experience across all channels were not provided. Two-thirds also say they are likely to leave firms that do not allow them to transact digitally.
- Firms need to adopt a transformative mindset that ingrains digital throughout the experience. Future leaders will shift their mindset so that digital is not in itself the goal, but rather is essential to the client experience, prioritized based on how clients want to engage with their wealth managers and the firm. Wealth management firms need to explore new ROI methodologies, assess the implications of acquiring or nurturing digital capabilities in-house, and extract meaningful intelligence from customer derived big data.
2013 was a good year for millions with the number of HNWI’s increasing 15 per cent. North America and Asia-Pacific remained in a close race for the world’s largest HNWI market by population in 2013, with growth in Asia-Pacific narrowing North America’s lead to less than 10,000 individuals, according to the study.
“North America’s HNWI population expanded by 16 percent to 4.33 million, while Asia-Pacific’s grew by 17 percent to reach 4.32 million. North America maintained its position as the wealthiest region, increasing its HNWI wealth by 17 percent to reach AUD$15.10 trillion (US$14.88 trillion), though this growth was again outpaced by Asia-Pacific, where HNWI wealth expanded by 18 percent to reach AUD$14.65 trillion (US$14.20 trillion), “ according to Capgemini.
The company said Europe’s HNWI population grew by 12 percent to reach 3.83 million and its wealth at 14 percent to reach AUD$12.87 trillion (US$12.39 trillion). Latin America was the exception to strong global HNWI growth, increasing only four percent in population and two percent in wealth, due to slow GDP growth and challenged equity markets.