The future of wealth management services
By Srini Venkateswaran and Kunal Vaed
Wealth managers are under pressure to rev up their profits. Over the past several years revenues have been sluggish, margins tighter, and costs - particularly those involving regulatory compliance - higher.
At the same time, clients are demanding more from their wealth managers, their expectations fed by the technology-enhanced customer experience they have grown accustomed to receiving from innovative organisations such as Amazon and Apple.
To succeed in the decade ahead, established wealth management companies will need to leverage technology in much the same way that their cutting-edge counterparts have in other industries.
This means embracing a digital approach to doing business that is online, mobile, social, real-time, and 24/7. Getting there will mean rethinking just about everything, from how they interact with clients to how they conduct business in the back office. And they must embrace digitisation in ways that complement the expertise of financial advisors and private bankers, especially for the ultra-rich.
What will this digitised wealth management firm look like? Four overarching imperatives stand out.
First, it will be hyper-connected and provide high-speed access to portfolio information through mobile channels. It will also be context aware, using big data analytics to deliver personalised advice to clients. Third, it will be collaborative, offering clients social platforms to engage with other clients and advisors. And, finally, it will be untethered, using cloud computing to reduce infrastructure costs. Let’s look at a few concrete examples.
Improving client acquisition
Most wealth management firms rely on using advisors as their largest channel for sourcing new clients. However, digital technologies offer other new avenues for finding valuable customers.
Potential clients searching for direction in a post-crisis world awash in social media are increasingly inclined to lean on the collective thinking of their peers - whether they are choosing a wealth advisor or buying into a mutual fund. Forward-thinking wealth managers are starting to leverage this insight.
Ameriprise is offering prospective clients the ability to search for new advisors on its website, and find out if anyone in the clients’ LinkedIn network knows these advisors; Morgan Stanley enables its advisors to engage with prospective clients on LinkedIn by sharing research.
These offerings allow prospective clients to draw on the wisdom of their peers, and they also establish a heightened level of credibility for the firms that create these opportunities.
Rethinking advice
We have already seen some investment advice being digitised, with wealth managers offering retirement calculators and basic financial planning tools to clients online. However, usage rates remain low due to the tools’ non-intuitive design, their lack of a clear call to action, and the limitations that most wealth managers impose on them.
For example, many wealth management firms offer digitised advice only on their own products and services. Contrast that with the transparent advice model employed by Progressive in the auto insurance industry. It lets customers compare rates and features for the company’s policies directly with those of its competitors.
Wealth managers who have products, services, and pricing capable of withstanding that sort of scrutiny - and who would be willing to make it easy for clients to undertake that level of scrutiny - could change the equilibrium of their industry by allowing and fostering it.
Digital technologies have already started to demystify the art of financial advice, by offering automated advice bundles based on a quick assessment of the investment objectives of clients. Startups like WealthFront and Personal Capital, as well as established companies like Schwab, are increasingly offering tailored advisory services for a fee. In the meantime, wealth managers also need to make their electronic advice services quicker, simpler, and less demanding of clients.
One new player company in that direction is SigFig, an independent Web-based service that links to users’ financial accounts and then automatically alerts users to underperforming investments and hidden or exorbitant costs in their portfolios. An example of its focus on efficiency? The time required to complete the online “tour” SigFig uses to introduce potential users to its service: 30 seconds.
Enhancing client experience
The tablet channel is going to be one of the most important ways of reaching the affluent client and building connectivity between the advisor and client. Most wealth management firms are just scratching the surface with today’s tablet applications, which enable clients to manage their portfolios, review reports, and enter trade orders while on the go.
The next generation of tablet-based applications will be highly collaborative, offering lifelike interactions with financial advisors and specialists through video and holography, interactive financial planning applications, rapid account opening processes, and secure exchanges through biometric electronic signatures.
Bettering the back office
For all the potential benefits of digitising the customer interface, that is not actually where wealth management firms will realise the greatest value from digitisation. That will happen in the back office, where technology can be leveraged to improve workflow and minimise manual operations in areas such as account opening, trade execution and settlement, and compliance.
Many wealth management firms remain surprisingly behind the curve in these areas. For proof, just visit the back office of a major mutual-fund company and see how many people are involved in setting net asset values for their funds at the close of each trading day.
Savings achieved in back-office operations can help to fund the enhancements firms want and need to offer to customers in the front end of their operations. Back-office improvements can also help wealth managers achieve front-end objectives directly, in areas such as client acquisition, by facilitating streamlined processes and procedures.
Right now, it can take just 30 minutes to open an account at a discount brokerage firm. At a traditional wirehouse, escorting a new client from initial interaction to completion of the process might take 30 days.
No one is suggesting that the trusted, experienced, individual advisor who has long been the key to client relationships is going to disappear, or that he or she should. Many clients still value the opportunity to meet face-to-face with an advisor when they feel it is appropriate.
Still, the individual advisor alone is no longer enough. Clients today want access to information when, where, and how it makes sense for them, whether in an annual meeting with their advisor, in a quick check of their portfolio on a tablet computer, via an actionable alert sent to their smartphone, or in online discussions with their peers.
Wealth management firms that can deliver this entire spectrum of experiences will be best positioned to prosper in the decade ahead.
Srini Venkateswaran is a partner and Kunal Vaed is a principal in Booz & Company’s financial services practice.
