Digital Immigrants Must Go Native - The Case For Digital In Wealth Management

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Wealth management is a relationship business, one in which trust is the essential ingredient. Money is emotional and people want to be sure their money gets into the right hands. So what self-respecting high-net-worth family is going to rely on a digital app, a cold impersonal hunk of plastic, metal and glass when it comes to managing their money? It turns out a lot of them will.

Since I launched my business eight years ago, I have been trying to convince wealth management firms that they needed to put digital offerings in place if they were going to keep pace with the wealthiest investors. It has been a hard sell.

While the promise of digital advice has been one of the hottest topics in the wealth management industry for nearly a decade now, the chorus of consensus among wealth management firms, talking heads, analysts, and other experts has mostly been that such offerings really only appeal to those on the lower wealth tiers—the mass affluent, and the younger and not-yet-really-rich millennials. Only those who couldn’t afford a real human being would actually want to work with a robot or an algorithm.

But lately that assumption is being challenged—the rich, it seems, like digital advice quite a lot. And that means that wealth management firms have a lot of soul searching and catching up to do.

In its most recent World Wealth Report, released in late June, Capgemini revealed that the percentage of high net worth investors in North America who use automated advisory services had actually doubled, up to 68 percent in 2016 from one third, or 34 percent, in 2015. That’s a huge leap. In the Asia Pacific, the percentage of HNW individuals who use automated advisory services it’s even higher at 80 percent. Globally, the percentage is up to 67 percent.

Meanwhile, almost half of high-net-worth investors in North America surveyed said they rely on peer-to-peer wealth advice forums on a weekly basis, and another 22 percent said they do on a monthly or quarterly basis.

The report also found that most wealth management firms have fallen far behind in terms of their digital offerings—perhaps in part because they were blind to this growing interest in digital advice from the wealthy, or unwilling to see, and perhaps in part because the technology just moves and evolves so quickly.

“Firms are missing the mark when it comes to preparing digital strategies, opening themselves up to a startlingly high risk of possible net income loss,” the authors of the report write. “HNWIs and wealth managers alike are demanding richer digital functionality, yet less than half of wealth managers are satisfied with the digital tools their firms provide.” Capgemini’s survey of over 800 wealth managers in 15 countries showed that only 45% of wealth managers are satisfied with their digital tools, presenting an attrition and service risk to firms, said David Wilson, the Head of the Strategic Analysis Group at Capgemini. “The silver lining is that nearly 80% of all wealth managers globally want to be engaged in pilot digital programs,” he said. This presents an opportunity for firms to deepen relationships with their advisors as well as use their feedback to refine digital programs before they are rolled-out en masse.

“One of the most surprising findings this year is the extent to which wealth managers are demanding digital tools,” emphasized Wilson. Lack of demand from these advisors was typically a rationale firms used to delay adopting digital strategies, but the research shows their interest is growing. “Firms now have a significant opportunity to woo their wealth managers, especially in the areas of highest demand—social media prospecting tools, mobile and remote access to applications, the ability to generate tailored investment recommendations, and digital client engagement and interactivity tools.”

I think a good start for every wealth management firm is to take a serious inventory of one’s entire digital presence, identify shortcomings and get help. This means partnering with a marketing firm that knows the digital space and can help you design a strong online presence, define a digital-first message, and build out a social media profile.

Capgemini recommends that firms put wealth managers themselves at the center of this transformation to digital advice, pushing them to collaborate with fintech players, and I agree. Wealth managers are the soldiers on the battle lines and they need to be empowered to help their clients the way the clients want to be helped.

The good news: Capgemini’s report also found that while the wealthy hold less than a third of their global wealth with wealth managers, they are willing to consolidate assets with these managers if the relationship is good. The survey collected responses from more than 5,200 HNWIs in 23 countries during the first quarter of 2016. While a portion of the rest of their wealth was in illiquid assets, such as real estate and businesses, almost 20 percent is in retail bank accounts and another 15 percent is in cash.

More good news: A recent report from MyPrivateBanking Research showed that while high-net-worth investors are indeed adopting automated advice more quickly than mass affluent investors, the relationship does matter to them, as well, and a lot. Over half of HNWI respondents said their biggest fear about automated advice was that their wealth managers would swing too far in that direction—relying too heavily on online tools and failing to do their own research.

It all points to both a big threat and a big opportunity for wealth management firms. While the average age of wealth managers is 55, it’s not too late for us digital immigrants to go native and thrive. If I can do it, you can too.