The new face of wealth management

Jo Howes, Commercial Director at CREALOGIX UK

 

The wealth management space is long overdue a digital overhaul. Consumers have come to associate the industry with elitism and opaque decision-making, where heritage and tradition are potentially seen as barriers, not strengths. Several major consumer trends are paving the way for new challenger brands, piling pressure on incumbents to keep pace with innovation.

 

Digital challengers entering the market represent a response to a rapid shift in consumer preferences. A post-financial crisis slump in trust in high street banks spread to tarnish the image of investment services in general. This brand issue, along with demand for a more interactive and goal-oriented experience when it comes to personal finances, means that there is a growing preference across most consumer demographics for new approaches to investment and wealth management which are offered through digital channels.

 

One of the primary ways that challenger brands in the investing and pensions space are meeting these demands, and attracting droves of new customers in the process, is by offering digital-only streamlined or robo-advisory services. The global user base for robo-advisory services has doubled year on year, and it is expected that portfolios offered in this way will be managing over $1 trillion in global assets by 2020.

 

What is robo-advisory?

 

Originating from the regulatory drive to separate personal finance advice from investment management, robo-advisory is based on offering a self-managed investment experience without any requirement for human interaction, but which has some features of guidance and suitability profiling not offered by simple direct online share trading services. New investors can sign up by themselves without necessarily needing to speak to a human advisor, and are automatically assisted in setting their personal investment goals and defining their circumstances, knowledge levels, and risk appetite. These individual client data points are used to inform algorithms which then recommend a number of predefined investment strategies.

 

This is a tangible democratisation of the wealth management and investment process, giving users greater transparency and control. A well-designed platform can provide investors with a range of sophisticated investment strategies, all accessible following a simple, easy self-service onboarding process which users can complete in a matter of minutes via a mobile app.

 

On this wholly digital journey, users can set up and manage their investment portfolio independently without the need for manual assistance or intervention from expensive wealth management professionals. Far from being abandoned, users are given the ability to make better-informed decisions that, behind the algorithms, still partake of the expertise of a firm’s experienced analysts and advisors. When robo-advisory services are offered by established wealth management firms, rather than fintech startups, investors can still benefit from access to the extensive experience of real advisors, usually via a paid service or qualification based on assets for personal client relationship management.

 

A new competitive race in wealth management

 

The arrival of new, digital-first investment services has fired the starting gun on a new race to capture a large and mostly unaddressed consumer investment management market. The ease of opening an account, just to try out a service, is a huge attraction for consumers. Incumbent firms should see this as an ‘on-ramp’, first taking users through entry-level wealth management through robo-advisory services with smaller amounts of money, on to the development of confidence and the investment of much larger sums and use of higher value services.

 

Whilst the biggest user group of new fintech investment services are ordinary consumers, the technology can appeal equally to the mass affluent and high net worth investors: investors at private banks using digital wealth management solutions from CREALOGIX have opened portfolios exceeding £1m, while one recent deployment has a minimum entry investment of 50k EUR. Robo-advisory is therefore another opportunity for wealth management firms to engage (or re-engage) with their high net worth clients, with minimal cost per customer – the heavy lifting is done by a digital, automatic service.

 

A key strength of this business model is therefore its scalability. Never in the human-meeting-driven, paper-based old world of wealth management would it have been possible to bring on tens of thousands of new customers every month without concerns for service quality and profitability. Face-to-face, high-touch interactions are still sometimes necessary, and should still be made available by firms which have built their reputation on their service – the most important thing for many consumers, is that these are not required to begin the journey.

 

Attracting younger generations of high net worth clientele

 

Ease of access is the key that will open up a new market for wealth management firms, which have seen the average age of their clients increase to the point where “young” means mid fifties. Digital services appeal to a new demographic – ‘HENRYs’ (and Henriettas), or High Earning Not Rich Yet individuals, who are often at the start of a high-paying career or business venture, and have never had to deal with as much money as they find themselves with. Firms that can capture these customers early, and then craft their wealth management journeys successfully, will have a major advantage retaining these customers as they grow wealthier.

 

Robo-advisory is all about removing barriers to entry: if firms can attract and bring on board clients while they have (relatively) lower amounts to invest, they can reap the benefits for years or even decades to come.

 

A proactive strategy for digital wealth management

 

To combat the threat posed by wealth management challengers, their tactics and technology can be easily adopted by leading incumbent wealth management brands. Prioritising digital services first and foremost means keeping existing customers loyal, matching the key features they might otherwise look for in less established investment services. Wealth management firms which have enough innovation and convenience for their customers to stick around will be the ones who can attract new investors and grow their market share. The challenge for firms which have not traditionally been technology innovators is not insurmountable. Specialists such as CREALOGIX have sophisticated solutions ready for financial institutions to bring services to market rapidly, even in complex environments.

 

The hurdle for the wealth management industry is embracing a digital strategy more urgently. It is only getting easier for users to open accounts with digital challengers, which pose a real competitive threat. Incumbents must recognise this, and embrace the tangible commercial opportunity provided by being a fast mover in the robo-advisory market.

 

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