Growth opportunities within the HNWI market

By Gareth Wilson, Vice President, Head of UK Banking & Capital Markets, Capgemini

The UK’s high-net-worth individual (HNWI) market has reached a turning point. Within the wider geopolitical landscape and subsequent economic challenges, including war, inflation and unpredictable markets, wealth management firms are faced with the need to innovate and remain agile in the face of ever-evolving client needs.

In 2021, the number of HNWI individuals in the UK rose 6.3% to 609,400, and the financial wealth held by these people increased 7.4% to $2.27 trillion. Alongside this increased wealth, the recent turbulence across the market has led to increased sensitivity among clients who are increasingly seeking out wealth management firms to accommodate for.

While the value of these services may be on the up, this does mean an easy win for wealth management firms. It’s a competitive market and firms that emerge victorious will be those who have strategically targeted growth segments and delivered fine-tuned client experiences built upon a foundation of emotional connections.

Delivering on client needs

The need and desires of the HNWI clientele are changing, and increasingly we’re seeing clients demanding a lot more from their wealth managers. Clients now expect tailored offerings, innovative products and expertise in alternative asset classes such as non-fungible tokens (NFTs) and cryptocurrencies.

For wealth managers, the terms of engagement in the market are changing. Companies like Amazon have set the standard for convenience, access and seamlessness, with customers coming to expect the same levels of service for their finances.

We’re now seeing a similar trend in banking, with disruptive FinTechs are offering customised and easily accessible app-based services. Wealth management clients are often digitally literate and prefer using self-directed digital tools to manage their portfolios. For incumbent wealth management firms, this new era certainly resembles the path less trodden.

To avoid falling behind and instead capitalise on these opportunities, it’s critical that wealth management firms leverage technology and data-driven insights to differentiate and personalise client experiences that target these emerging high-growth segments.

Riding the wave of wealth segmentation

Owing to technological innovation and emerging asset classes, the HNWI market is undergoing a period of segmentation and in which much of the market growth is occurring. However, just 27% of wealth management firms are actively pursuing these groups with targeted strategies.

One such group is tech wealth. The surge in venture capital-backed unicorns has produced a fast-growing group of ultra-HNWI’s, armed with IPO cash. These tech-savvy HNWI’s are seeking personalised and consolidated services that aid them with active investing, the majority of whom actually prefer family offices over large banks or wealth management firms.

Among this, women are one of the fastest growing segments, set to inherit 70% of the world’s wealth over the next two generations. While less confident than men in their ability to generate and grow it, this segment values purpose, connections, and content tailored to their needs. Take for example Ellevest, a women founded FinTech that has grown quickly by capitalising on demographic differences and implementing an investment algorithm that considers gender.

Similarly, millennials are also set to inherit considerable generational wealth, and while many still need assistance with the fundamentals of wealth management, they are increasingly demanding engagement through digital channels. HSBC’s Hong Kong business are capitalising on this by creating ‘Wealth Coach’ and ‘Wealth Bootcamp’ offerings to leverage education with their millennial clients.

A relatively new client segment that’s emerging is LGBTQ+ individuals who often face legal and financial barriers during milestone life events. This client segment values an inclusive approach with unique complexities, and yet 30% of global wealth managers stated that they didn’t understand LGBTQ+ client needs – indicative of the need for greater education around meeting these client expectations.

The mass affluent are leaning into and leveraging technological innovation to refine client experiences and win clients in the early stages of their wealth journeys. In 2021, JPMorgan Chase acquired Nutmeg, a British robo-advisor, to help the bank expand its digital wealth management offering and illustrates the need for digital and data literacy in wealth management strategies.

Realising the change

Capitalising on the opportunities presented by these emerging growth segments requires a balance of personalised products, capabilities and services that act as differentials in the eyes of clients.

Critical to achieving this is the ability to harness major data sources like FinTechs. Incumbent banks have swathes of data, however, traditionally they haven’t had much success in transforming it into insights. Investment in technologies such as AI and machine learning can help deliver actionable insights. HNWI clients expect easy access to their portfolios and at any time, from any device. Therefore, wealth management firms must embrace new delivery technologies to ensure that they are providing consistent services, irrespective of the channel.

Many incumbents have made strides with their digital offerings by partnering with or acquiring a FinTech that already has these capabilities. The next step should always be taking stock of your talent. Notably, wealth management firms should be hiring people that are fluent in technology, data and product skills. Additionally, as the wealth market continues to diversify, whether it be LGBTQ+, women, or millennials, your employees will be able to better meet these expectations if they are equally as diverse. A chief client officer can be an effective way of recognising and realising the emerging expectations of consumer groups.

A key unifier amongst the diversifying client segments is the desire for increased transparency. 27% of HNWI clients were dissatisfied with the fees they were charged, owing to poor transparency around pricing. Likewise, 64% said that they preferred fees that are based on metrics such as quality of service or investment performance.

As the wealth management industry continues along the trend of segmentation and clients attempt to navigate a volatile economic landscape, banks and wealth management firms must capitalise on the opportunity to develop strong emotional connections. Through this, firms will be able to better lead through these turbulent times, building relationships that are made to last.