Empower me! 10 ways wealth management has to change by 2030
The credit crisis, regulation, technology and ethics are among the features in the changing face of wealth management.
Teodoro D.Cocca, a professor for asset and wealth management at Johannes Kepler University Linz, has produced a report in association with Deutsche Asset & Wealth Management, which attempts to create a picture of how the wealth management landscape will look in 2030.
A former Citibank private banker, Cocca highlights 10 issues wealth firms need to address if they want to thrive in this brave new world.
Compared with previous generations, today’s customers have radically different expectations regarding transparency and spontaneity in their interaction with product and service providers.
’While some financial institutions have yet to get up to speed on e-mail, many young people already view this form of communication as a relic of the past,' Cocca explains
'As social interaction increasingly takes on new forms, the ways that banks interact with their wealth man¬agement customers will have to be expanded or even rede¬fined. Today, such interaction continues to be dominated by personal contact in the form of a face-to-face meeting with a bank adviser. In the future, virtual channels will be added to this approach.
'For increasingly standardized services, a virtual provider will become the normal approach used in wealth management . The usefulness of standardized, automated and digitized customer-assistance services is being significantly underestimated by established banks.'
The philosophy of ‘customer empowerment’ will become the centrepiece of the innovation process in banking. Tomorrow’s generation will want to have more autonomy and say in their banking business.
‘Empowering wealth management customers will involve providing them with new freedom to make and influence decisions about their financial affairs. One key feature of customer empowerment in virtual worlds is access,' Cocca says.
'Wealth management of the future will provide customers with tools and solutions that will give them direct access to internal bank systems, trading platforms, databases and know-how. The exclusivity of wealth management will boil down to the question of access to smarter, cleverer investment solutions and options.'
High net-worth individuals have a special social responsibility and want to fulfil it, with growing evidence that bank customers are determined to more actively assume this responsibility, including the desire to know how invested funds contribute to the greater good of society.
Cocca points out: 'Unlike traditional philanthropists, neXtGEN investors expect to have their capital returned, possibly with interest – in addition to producing a measurable social benefit.
'But a growing number of such investors are also willing to forgo returns on the investment if the particular enterprise makes a major contribution to society, politics or the environment.'
At the moment, the contours of collaborative knowledge creation or the provision of services are just now taking shape in social networks. But this will ultimately become an inexhaustible source of new business models – financial service pro¬viders must ensure that their customers have access to such communities.
Communities are nothing new to the wealth management business. For centuries, wealth managers have formed such groups by bringing together customers with the same interests or have served as the people who open the door to an exclusive society for their customers,' Cocca highlights
'It is just as possible to connect customers in virtual worlds. But this can be done in a more scalable and systematic manner if exclusivity, an important feature of wealth management , can be main¬tained for the high net-worth clients of a wealth manager. This can mean networking with experts to discuss various issues, entering exclusive communities.'
The image of banking and the wealth management industry has been tarnished by the credit crisis, with certain asset classes taking a beating.
Providers of wealth management services also frequently have bland advertising campaigns, and up to now values such as security and stability have been the centrepiece themes of these campaigns.
However, this is changing. ‘Older banking customers tend to be very discreet about discussing their banking relationships (if they bring up the issue at all). But younger generations have not grown up in a world of banking confidentiality and sealed lips, Cocca says. 'As customers, they want to make a statement when they bring up the name of their preferred provider of asset-man¬agement services.'
‘Eventually, such customers may even want to be proud of their provider because this company is known for the novel approaches it takes in the world of finance. To reach this level of customer commitment, a bank must invest heavily in the creation of such an image. The key issue here is that the brand message must be transmitted along the whole value chain and in the customer’s entire world of experience.’
In the wake of the financial crisis and the sweeping damage these events inflicted on the banking industry’s image, the public is keeping a close eye on the behaviour of these institutions.
‘This development has given fresh life to a long-running standoff between the concepts of legality and legitimacy. It is simply not enough for a business activity to be carried out within the framework of legality. A company also needs the approval, and thus a seal of legitimacy, bestowed by employees, customers, shareholders, lenders and other stakeholders,' Cocca says.
‘To become legitimate, a business activity must do something more than fulfill requirements laid done by a code of laws. It must also meet an ethical standard that extends beyond the conditions defined by this very code. Such sustainable business practices have come to be known as “corporate responsibility.”
'For this reason, the essence of conscientious, ethical company management is a continuous decision-making process regarding what should be done and avoided within the context of corporate responsibility – and done in a way that extends beyond legal requirements.'
In wealth management, customer recommendations are an essential part of customer-acquisition efforts. Thanks to the use of new media, this feedback process takes on a new dimension of importance: positive customer reviews (likes ) and negative customer reviews (dislikes) spread much faster in virtual space.
‘As a result, these assessments cast a harsh spotlight on the qualitative performance of the bank/adviser (including the investment return that was achieved), Cocca explains. 'This evolution in communication now gives every customer more opportunities to influence the community’s actions.'
‘Satisfaction is no longer enough. Particularly, the upscale business of wealth management, the new place to make a difference must be customer excitement. Increasingly, customers are not just comparing banks with one another. They are also measuring their performance against best-in-class companies in other industries. The demands of today’s technologically savvy and cosmopolitan customers are extremely high as a result.’
A wealth manager serving tomorrow’s generation must also look ‘outward’ in many ways and be more transparent. In response to the credit crunch many have turned ‘inward’ and intensified their focus on internal problems. As a consequence they run the risk of taking their eye of the customer.
Cocca says: 'Today, a modern wealth manager must take a more conscious look outward and focus on customers. On the technological level, banks must also systematically employ a strategy of accessibility: Digitised internal processes to which custom¬ers have been denied access for a number of reasons are now coming under pressure. Sooner or later, customers will have to be given access to them.'
Wealth management has been largely unaffected by revolutionary technological change that has occurred at the interface between the wealth manager and the customer.
‘Technology plays a role in the preparation of an investment solution and its implementation within a financial institution (the key part of the value chain in asset management), Cocca explains.
'This creates the ominous possibility that wealth management will fail to give sufficient attention to developing customer-driven technological solutions. One striking fact about today’s industry is that no exclusively online wealth manager has succeeded in gaining a substantial mar¬ket position.
‘Most banks do now provide their customers with virtual banking solutions (with transaction services). But their reasons for doing so more reflect a defensive attitude than they do conviction.
'They want to prevent their customers from moving their money to an online competitor. But if a bank’s entire management team and organization are not fully com¬mitted to a virtual business strategy, it will be unable to reach the top in this innovation-driven area.’
DeAWM’s concludes that the ultimate challenge for wealth management firms to win next generation clients will be their ability to ‘dissect ‘ their business models and to put its ‘sacred cows’ out the pasture.
'The challenge lies in call¬ing old ways of doing things into question and, under certain circumstances, offering completely new solutions,' Cocca says. 'In today’s business world, innovation cycles are becoming shorter and shorter. This means that providers must continuously be pre¬pared to adapt their business operations in terms of person¬nel, process, organization, and, above all, culture.'
'Banks that recognize or even accept the signs of the times and seize their opportunities right now will be the ones that will emerge from this period of upheaval in a strengthened position.'