Twenty-First Century Wealth Management: A Question of Trust

It’s surprising how long the wealth management sector has managed to get away with a ‘trust us and don’t ask too many questions’ approach. True, most people want to leave the complicated stuff to the experts, but these days they also want to be able to look behind the curtain at what is happening to their money.
Providers and intermediaries looking to stay ahead of the curve need to embrace transparency and digital access, and understand how fintech partnerships can forge deeper bonds with their customers.
Financial services partnered with FintechIn the US the big meets small buddy system is already well underway amongst wealth management providers. Back in 2014 Morningstar paid $52.5m for employee financial wellness app HelloWallet, in 2015 BlackRock bought robo outfit FutureAdvisor, and earlier this year UBS partnered with San Francisco tech firm SigFig to deliver functionality for its 7,000 advisers. Bank of America/Merrill Lynch, Wells Fargo, TD, Fidelity and Capital One have also all partnered with or acquired tech providers.
JP Morgan has just launched a programme inviting fintech startups into its business to sit alongside its bankers, encouraging innovation across sectors such as blockchain, robotics and big data.
That is in stark contrast to the UK’s wealth management sector, where the word ‘zombie’ represents a plausible business model, most pension transfers still take months and most members of pension schemes don’t even get a figure showing their annual return on their fund.
And it’s not just providers. The intermediary sector is also riddled with antiquated systems. I still run into advisers scared of giving too much information to their clients, worried the more they know, the more they will ask.
Why does this matter? Because consumers are not going to stand for 20th century service standards for much longer.
AT Kearney’s Future of Advice 2016 study has found US customers are now divorcing their wealth manager in increasingly big numbers. AT Kearney calculates that, in the post-crunch period 2010-14, an average of 4 per cent of mass affluent Americans – those with upwards of $50,000 in household investable assets – would switch their primary investment firm each year. But it found the number of switchers leapt to 13 per cent in 2015, in part because fee differentials have been made clearer to them, but also because consumers are getting increasingly comfortable with digital procedures.
Recent research from Fujitsu found more than a third of consumers in Europe would move bank or insurer if they didn’t offer up to date tech. Perhaps more ominous for the techno-laggards is Fujitsu’s finding that 20 per cent said they would buy banking or insurance services from potential distributors such as Google, Amazon or Facebook.
Technological functionality may not be the primary reason why consumers are moving – AT Kearney emphasises cost as the key driver in its research. But tech is a key factor in their choice of where they move to.
A technology proposition does not have to be a full-blown robo operation – multi-channel is what most of today’s customers want. The customer expectation is 24/7 access to their own information as minimum, but with access to a human being if necessary. AT Kearney predicts the digital-plus service delivery model, which combines both technology and a human interaction where needed – will become the dominant choice for middle-aged US investors that switch.
Aggregation should prove to be a key driver in speeding the flow of asset transfers from provider to provider – if, and this is a big if, the industry can get its act together on transfer connectivity. If you can see on a single screen that your current provider’s charges are considerably lower than those on your legacy policies, and you can see how much you can save by switching, the driver to do so will be that much greater. That is the logic behind Aon’s Big Blue Touch 4Life , currently being distributed through blue-chip employers’ pension schemes – which has the potential to facilitate pension transfers on a non-advised basis, something that has historically commanded a very hefty adviser fee.
Providers cannot afford to carry on ignoring the digitally native millennial cohort. The oldest millennials are now 36, and before long will be the high-earners who are the primary target market of the wealth management industry.
BNY Mellon’s Generation Lost report found millennials feel financial services providers do not speak to them in the language they understand, and do not tailor products to their needs. But they do want a fresh approach to investing – BNY Mellon’s research found millennials globally would allocate an average of 42 per cent of their portfolio to social finance. However foolish or unrealistic you might think such a strategy is, the stat highlights just how much demand there is for new ideas for investing.