Wealth management firms appear to be in a bit of a quandary. Nearly half, 46%, are not satisfied or only partly satisfied with their current digital offerings.
But 100% focus on supporting their advisors in the context of wealth transfer — getting the wealth of heirs as the older generation dies off.
“In fact, firms that have invested in digital self-service platforms frequently treat next generation clients as a distinct persona,” says a new report from Refinitiv, one of the world’s largest providers of financial markets data and infrastructure and Aité Group.
Firms want to equip their advisors to weather the wealth transfer storm, said Alois Parker, research director at Aité Group.
“Firms across the globe haven’t figured out how to connect with the next generation; they have realized for quite a while this is a big problem coming their way and getting closer to the time when we see more assets shift. Tech should be vital for them, and they are lousy at it.”
The report is aimed at firms that use advisors, but that doesn’t mean that the traditional advisor-led firms aren’t well aware of passive funds.
Passive investing, especially through ETFs which are cheaper, easier to explain and easier to trade than mutual funds, are more suitable for mass affluent and even high net worth clients, said Joe Mrak, Global Head of Wealth Management at Refinitiv. An average account in the U.S. of $350,000 to $500,000 is not going to get a lot of attention from advisors in most firms.
“There is not a whole lot you can do with that size account, to be honest,” Mrak said.
At some firms you might get a newbie advisor for $50,000 in anticipation of future growth, or if she happens to be the niece of an advisor’s high net worth client, but most set a minimum around $1 million, he added.
On the bright side, “This has created a real opportunity for smaller community oriented banks to pick up accounts probably starting around $50,000 — tech makes it easy. Where they are using the right tech you can create tremendous efficiency.”
Wealth management firms are still using an advisor-led model but they are incorporating digital capabilities or plan to. “…The service element of client relationships is viewed as a key success factor for differentiation. The industry will ultimately move towards hybrid client engagement,” the report said.
You have pricing models are being put in question,’ said Mrak. “How do you make money now? You have to get better on the servicing side. Planning pops up in American and Europe, but it is early days, although funds say 10% of our advisors do planning already.”
The survey also found the number of clients per advisor is in the low triple digits — 100 to 200 — clients for each advisor. But Michael Kitces, a financial advisor and consultant writing in the February 2020 issue of Financial Planning , said that as the advisory business has become more relationship based, it requires more time from advisors. He thinks 75 to 100 clients is the most an advisor can handle. He also discusses several intriguing small-scale models including lifestyle advisory firms and little giants. He also noted that “The growing availablity of technology has made solo advisory firms more efficient and profitable than ever.”
(I wrote about that in “Billion-Dollar Broker Workstation Vs. $5,000 DIY Financial Advisor MacBook Platform,” in 2018.)
However, the Refinitiv report found, that around the globe wealth managers often lack a digital transformation strategy.
“Some of the most common challenges for the adoption of digital capabilities cited include, cost, speed of delivery, and integration with legacy systems.”
Like other areas of finance, wealth management has lots of legacy systems that often don’t deign to talk to each other. Increasingly firms are willing to outsource some of their operations, ranging from 58% in Europe to 70% in Asia and the Americas.
“Larger institutions even go as far as taking stakes in their fintech partners and/or acquiring the partner outright. Some larger firms have created venture arms that allow them to keep track of innovative startups, invest in them, and take advantage of newly created solutions.”
While customer knowledge and data to tailor offerings to individual are high priorities in theory, wealth management seems most intensely focused on IT operations. In a list of priorities, Analytics/Creating insights for clients takes second place, at 61%. All the other priorities display a heavy in-ward looking, IT-dominated approach, from operational scale to cloud deployment, with never another mention of clients. Although perhaps that’s because they have so much to do just to get started on understanding their customers.
“Most firms are still building out their databases and working to make their data cleaner and with the right level of depth before they feel confident enough to apply analytics...many wealth managers are still struggling with data that is inconsistent dispersed across the organization, and frequently hard to consolidate.”
Aité’s Parker is not optimistic. Looking across the globe at some key areas, from customer satisfaction to advisor analytics, firms know they need to get better. Some say their current clients aren’t asking for it, but doesn’t mean the future clients won’t ask for it, he added.
“Right now their portals are lousy, so clients ask why use it since it doesn’t give me any value.” He has uncovered some new approaches in odd places.
Deutsche Bank is putting in a social network for the next generation. In the UK, Coutts, founded in 1692, has launched Coutts Connect where “Clients can now interact with other clients online using our exclusive networking site.”
Closer to home, Parker cites Goldman Sachs “a firm that used to be completely unrelated to retail. All of a sudden they are playing a really smart hand with the next generation, Apple Card, and Marcus.”
This article was originally published on Forbes.
