Wealth management for the masses? Wealth management started off as a financial service for wealthy families. Over time, it became available to high net worth individuals and business owners. Today, asset managers and advisors work together with professional tools for real-time calculation of financial planning, tax optimisation, the defining of investment strategies, and portfolio rebalancing. Over the last few years, we’ve seen several first attempts to unleash the power of these tools directly to clients. However, to address a bigger audience, there's still a long way to go. Some steps in the right direction would be:
- Creating future simulations, percentages, charts with multiple variables, legal texts, and calculations. These are examples of what one can encounter in such tools today (see figure 1).
- This limits relevance to clients with a solid background in finance and who are willing to put effort into interpreting the information. Other people are likely to feel overwhelmed and disregard these tools.
- Making the aim of such tools primarily at "self-directed" clients and do little to comfort "avoiders" or "delegators" (as described by Forrester ). Existing solutions do little to take away the fear of investing which risk-averse people often have.
- Understanding that digital investing solutions are booming but far from mature. For example at the moment, they don't offer accessible elaborate financial planning and tax optimisation features.
- Understanding that none of the offerings is fully integrated with retail banking services.
Figure 1: this is what you run into if you try to use tools today.
Retail banking for the rich? Transactional retail banking services are highly data driven. Because of this, the first iterations of them have become nearly fully automated. Payments and savings have been made extremely simple and are generating lots of traffic to the apps and sites of retail banks. Whilst execution only investing has been around for over 10 years, it is still suffering from many of the issues described above. Cross channel support for questions (chat) and advice (video) is already gradually being introduced into online banking environments. It's no secret that wealth management clients expect the same ease of use that daily financial services and retail customers do. They're really not that different from retail clients when it comes to understanding financial services. Typically, private banks don't offer these services and when they do, they don't manage to invest the same effort into a compelling offering in the way that retail banks do simply because it's not their core business and they operate at a smaller scale. This leads to many wealth management clients consuming retail banking services elsewhere which means that they lack a single point of contact and overview of their financial position. Retail clients on the other hand have something in common with wealth management clients – they often have money to spare, with investment horizons. They do have goals like buying property or retiring for which they certainly could do with some financial advice, despite the fact that they are often unaware of it. They also want to be alerted if a change in their lives affects their financial situation or vice versa. It's simply that the services they need are not being offered to clients with the income of John Doe.
Don't just meet in the middle
The gap has not been crossed, let alone bridged. The first step is to integrate retail banking services with wealth management environments into a single financial platform. This requires strategic partnerships between non-competing banks and white labels or API's to seamlessly offer the federated services. Thus, wealthy clients can experience the ease of retail banking at their bank of choice and retail clients can get access to services previously only available to the wealthy. Clients benefit from a one-stop-shop whilst banks get the benefit of new possibilities with business models.
The second – tougher – opportunity that we're facing is extending the simplicity of retail banking services to wealth management tools. This nut has not been cracked yet but many parties are well underway. The benefit for both clients and banks is access to a broader audience which also means that solutions become more scalable and cost effective.
What would that look like?
This new integrated banking platform presents a comprehensive overview of the financial position of a client – available on desktop, tablet, mobile, or even watch. The main changes to the position are visualised in easy-to-understand indicators. The platform proactively triggers notifications to both the client and the advisor when the financial situation of the client requires attention. Whether the asset distribution doesn't match the risk profile anymore, a portfolio’s performance brings goals out of reach, or simply when overspending a short-term budget affects longer term goals, most of these notifications can be automated.
The platform supports robo-advice for goal-based investing, benchmarking performance, and wealth accumulation for retirement. This covers the major part of the advice need, and enables scalability without losing value. Additional value added services are the role of the advisor who can be more relevant than ever before to a much broader audience. Price and channel differentiation per customer segment are fully in the control of the bank.
How do we get there? Simplifying wealth management tools requires a thorough understanding of the goals of clients which include things like accumulating wealth, protecting their wealth for retirement, succession, specific investment, and spending goals. It also requires an understanding of which parameters describe the progress of these goals and which affect the feasibility of them. Finally, understanding the differences between mass market wealth management and a more complex financial situation is a prerequisite. The difference can be made by presenting the information that clients need and the choices they have to make in such a way that they are clear and simple. Since every client situation and experience is different, it is vital to offer well integrated contact options for quick questions or for additional advice.
I believe that we all agree that technology is going to have a significant impact on wealth management and the daily work of advisors and relationship managers. This transformation process is not a threat but a great opportunity. It is an opportunity for advisors and relationship managers to focus on delivering value added services by leaving the routine jobs for the robos and notifying us of the not-so-routine issues that require the attention of a human expert. It also gives financial institutions the opportunity to make their services accessible to the mass affluent and below whilst increasing profitability and relevance.