There will be no going back to the world as we knew it pre-COVID-19. The pandemic has only accelerated the digital migration that was taking place across societies, requiring wealth managers to shorten their own digital transformations from ten years to five. The future could be a hybrid of regular physical and digital interactions with clients, and the speed at which wealth managers should adapt to it has just doubled.

Massive outflows of wealth…

Digital transformation is a big ask. And one that firms should tackle at a time when their client base is undergoing the biggest intergenerational transfer of private wealth in history. Many are not feeling confident, as respondents to our recent Wealth Management C-Level Survey expect to lose an average of 32% of wealth set to be inherited over the next five years.

…driven by parallel shifts

If this happens, it would represent a massive outflow. One driven by several shifts that go to the heart of how wealth managers have operated and managed their clients up to now. Traditionally, the wealth industry has served two generations: baby boomers and their “silent” parents. But that group of generations is now five – as existing clients are joined by members of Generation X, Generation Y (or Millennials) and Generation Z.

This rising diversity brings two main challenges. The first is that wealth managers have historically prioritized relationships with the “typically male patriarch head of the family”, meaning their relationships with the spouse/matriarch and younger generations tend to be limited. The second is that the younger generations bring their own distinctive interests, expectations and views of the world. Put simply, they want to interact via social media and mobile devices, have personalized insights on-demand and invest their money in socially responsible ways.

Adapting to the new reality

To engage and meet the needs of multiple client cohorts, wealth managers have no choice but to change how they operate, and move to a more responsive, innovative and differentiated approach. This would be key to driving sustainable future revenue growth, since existing clients and families demand far less effort and investment than acquiring new ones.

At root, what wealth managers need is to reinvent ways to engage and service a more diverse and younger set of clients. I think three specific steps can be particularly effective:

  1. Employ advisers who are more attuned with younger clients. While your existing advisers have done well building patriarch relationships, the next generation may be more receptive to a younger and more diverse group of advisers who share their interests in areas like environmental, social and governance (ESG) investing and technology.
  2. Orchestrate peer-to-peer networks relevant to the next generation. I’m seeing growing numbers of wealth managers set up networks and young investor programs for NextGen family members, enabling younger clients to connect with peers and gain insights and education in areas such as preparing to inherit, diversity and sustainability. As well as engaging the next generation, these networks can also strengthen relationships with matriarchs and provide a ready-made sounding board for innovative new ideas and offerings.
  3. Invest in becoming a data and knowledge-intensive business. Traditionally, wealth management relationships have been based on data that was fragmented and focused on an individual. The future winners could be firms that use front-office client relationship management (CRM) and client lifecycle management (CLM) systems to integrate and personalize their data and intelligence, and put it at the fingertips of their advisers to better interact with multi-generational clients. To get the most from Human + Machine, it’s also vital to upskill the advisors using these systems.

Taking action

I’m already seeing many wealth managers look to reinvent themselves for future growth and success by adopting born-in-the-cloud CRM and CLM solutions. These more modular systems can be easily expanded to include new capabilities and integrated into related applications like portfolio management and core banking.

For all wealth managers, what’s clear is that clients are changing – and they /should change too. It’s time to adapt. I’m looking forward to your feedback on my thoughts and other actions that can be taken to succeed.

Ian Woodhouse

Ian Woodhouse

Associate Director – Wealth Management

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2 responses:

  1. Dear Ian. Thank you for sharing your thoughts. I agree with you on the required steps. However, I believe the picture is incomplete. You describe the client side and their changing needs and preferences well. To cater to those, a systematic approach to the management of the universe of investment instruments is required. Most service providers still operate opportunistically. Systematic management of investment instruments and of investment ideas ensures consistency and enables you to demonstrate an ongoing service in practice. I’m happy to demonstrate what I mean. Kind regards, Peter

    1. Dear Peter,
      Thank you for your comments . I mainly focussed on the client side to contain the length of the blog but you are right, there could also be a need for more systematic approach to the management of investment instruments across execution only, advisory and discretionary as the universe of instruments and risks has expanded. For some client segments, we see an increased uptake of goals based and financial planning approaches linked by algorithms to the performance of the underlying investment universe. This varies across geographies and is often mandated by the regulators. Taken together with technology that enables proactive alerting and next best action recommendations should the investments move out of tolerance to client risk, these are starting to help to better manage the investment universe in a more scalable way, although more could be done. A further key area to complete the picture is that we now see more attention being paid to more systematic upskilling and reskilling of financial advisors and intermediaries to enhance interaction with clients on topics of financial awareness and education including helping to better understand the universe of investment instruments and associated risks. Best regards

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