To date, the rise of digital investment platforms has centred mostly on the needs of retail investors, while high net worth (HNW) and ultra-high net worth (UHNW) clients continued to rely on a personal, relationship-based service.
But wealth managers are now realising that this model is flawed, in that HNW clients expect a digital experience and services as part of their overall manager relationship, writes Dolfin’s head of wealth management, Nick McCall.
The gap in the market
The minimum investment threshold for wealth managers to provide personalised services to clients has been steadily rising, with thresholds of £5m ($6.17m, €5.6m) not uncommon today.
This leaves many mass-affluent consumers, usually defined as those with at least £500,000 to invest, underserved.
According to the Office for National Statistics Wealth and Assets Survey, the top 40% of the British population have between £500k and £2.5m to invest.
That represents about 26 million people who would benefit from a digital offering that meets their full range of financial planning needs – a sizeable market.
Conversely, many clients who have enjoyed the personalised services of wealth managers are after a digital offering to complement the personalised service.
For wealth managers, the challenge is to provide a low-cost, digital experience that matches the level of their personal service.
So, how can this be achieved?
Potential solutions
We have seen companies join forces to try to find solutions.
For example, Goldman Sachs has invested in robo-adviser Nutmeg and tech-savvy asset manager United Capital, BlackRock has tied up with digital service provider Scalable Capital, and Allianz has joined forces with robo-adviser Moneyfarm.
In doing so, these companies are moving towards financial platforms and apps that will allow clients to integrate their collections of financial products.
While this is a good start, it unlikely to represent a comprehensive and long-term solution.
The way forward is to take a two-pronged approach.
Companies need to continue serving HNW and UHNW clients in the bespoke, high-touch way they always have done, while concurrently developing B2B digital platforms and client relationship management tools, which in turn are made available to their advisers.
This illustrates how technology allows the industry to collaborate – enabling smaller wealth managers, multi-family offices and boutique private banks to get a head-start on offering compelling solutions to their clients.
Slow off the mark
Despite overwhelming evidence that consumers value digital offerings and are willing to receive services through digital platforms, many private banks are still slow off the mark.
It can take a bank years to launch an app, yet when the product does eventually hit the market, it often only works on one of the necessary range of devices.
While many larger banks are now coming around to the realisation that digital isn’t just an option, but a must for their customers, they still do not believe that it will “take off”.
While it’s undeniable that some consumers will prefer face-to-face interaction, by the same token there are others who won’t and demand full digital access.
Meanwhile, retail investment platforms are attracting HNW and UHNW clients through the strength of their digital offerings, something that was unthinkable a few years ago.
This is the result of two things: one, technological advancements have made it possible; and two, demographics are changing, meaning some of the world’s richest people are also very tech-savvy individuals.
Disruption in the market
Those who leverage the best of technology in conjunction with high quality, bespoke personal services will emerge victoriously.
These companies will be able to offer the best service to all segments in the market, regardless of investable assets and clients’ circumstances.
The covid-19 crisis has only highlighted the need for wealth managers to act.
To quote Charles Darwin, “It is not the strongest of the species that survives, nor the most intelligent; it is the one that is most adaptable to change”.
During the pandemic, those able to swiftly provide services remotely will have proven their adaptability to their clients.
Since the 2008 financial crisis, there have been huge investments made in technology.
Firms who invested in the cloud, built a robust digital media presence, digital customer onboarding and sleek client portals will have seen the benefits today.
In the future, utilising AI may even lead to more comprehensive solutions.
Companies are already using AI to understand clients’ financial needs and build long-term financial plans, while all the time retaining the ability to adjust as clients’ circumstances change.
AI also has the ability to replicate the face-to-face experience clients have with their wealth managers, and instead of a two-hour meeting in remote locations, they have the freedom to interact with apps at a convenient time from the comfort of their own home.
The wealth management sector is facing unprecedented challenges, and not only due to the outbreak of the global pandemic.
Technology has been changing the face of the industry for many years already.
High-quality wealth management is clearly no longer the preserve of the rich and by leveraging the best of technology in combination with bespoke face-to-face services, forward-looking firms are democratising wealth management.
This article was written for International Adviser by Nick McCall, head of wealth management at Dolfin.
