Last month we looked in some detail on the evolving role of the wealth manager. A large driver of this disruption is what I call the “second wave” of digital disruption, characterized by a general up-skilling of digital tools (mobile applications, more holistic customer views, better client and advisor social media enablement etc.) by wealth management firms and a greater awareness of the need to make investments into IT infrastructure and change management to put digital at the core of the client experience, rather than a bolt-on channel.
Many commentators (and indeed some firms) believe the rise of digital is a threat to the traditional focus on a personal experience related to planning, meetings, and performance reporting. My simple retort is that it is indeed a threat but, if handled well, the changing environment represents a positive sum game.
One only has to look at other industries to realize it is a question of “when” not “if” the wealth management industry will undergo significant digital disruption, forcing an evolution of firms’ business models. Examples span non-FS industries such as retail and healthcare, as well as all of the other verticals within FS such as retail banking, insurance, and payments. In many ways wealth management is the final frontier to undergo such change.
The disruption emanates from several places: Changing client demands and behaviors; cost pressures forcing firms to seek efficiency; and the entrance of start-up players who target niche and generally commoditized areas of the wealth management value chain.
I believe that firms need to take this threat seriously. For one, while the in-person client-wealth manager relationship will often remain the primary choice of contact for HNWIs, including in-person meetings, it is clear that HNWIs today are also demanding the ability to interact with their wealth managers digitally. It is my belief that firms who do not provide this digital capability (integrated with all the other channels that a client may wish to use), or provide it with a user experience inferior to their competitors, will see significant client asset attrition over time.
Looking into the future, the picture becomes starker still. The pressure on firms to adopt a digital mindset is expected to grow as younger HNWIs acquire greater wealth and prominence. These younger HNWIs represent even stronger risk of asset loss, given that they are accustomed to immediacy (account opening, research, servicing, etc.) and will vote with their feet if a digitally-enabled, integrated channel experience is not provided.
Ultimately, I believe that technology-enabled service delivery will be a complement to firms and the human financial advisor, and there will always be a place for the in-person meeting to truly understand a HNWIs’ holistic wealth needs. However not all firms will benefit and I anticipate technological disruption, and its related impact on business models, to re-order the competitive landscape over the coming years.