Written by Sam Beeby, Head of Wealth & Investment Management Consulting (UK&I), Cognizant
Traditional wealth providers face growing risk of obsolescence due to a failure to innovate to win over a disenfranchised market-in-waiting.
Millennial and Gen Z customers remain underserved in wealth management. Those that are set to inherit wealth will be less likely than previous generations to feel affinity with their parents’ wealth managers; and those that are yet to accumulate wealth are not yet visible to the industry. A sensible strategy is to engage these people now, before they come into wealth, and thus be the obvious provider to service their growing assets when the time comes. But today’s providers are failing to connect with this audience.
There are understandable reasons for the inertia. This is primarily due to the wealth management industry’s strong emphasis on building and safeguarding customer relationships, a culture deeply rooted in the profession of relationship managers. This entrenched culture presents a challenging starting point when it comes to developing a next-generation customer experience that relies on digital interaction models and a nuanced data strategy.
Another factor contributing to this inertia is the prevailing business model, which is centred around the percentage of assets under management (AUM). This model does not offer a feasible revenue opportunity for customers with limited or no assets to invest, making it difficult to justify serving individuals who are not yet wealthy now but could be in future.
Given that a significant portion of wealth is inherited, addressing this new audience now is crucial. This adaptation requires them to catch up with their digital counterparts within the broader financial services industry. The question then arises: What should wealth managers focus on to address these vital but overlooked segments?
Brand modernisation – and how you communicate it
To overcome issues of trust and financial literacy among the younger audience, wealth providers must challenge existing perceptions and dispel stereotypes. A 2020 survey conducted by My Pension Expert revealed that 57% of individuals lack trust in financial advisers, perceiving them as more self-interested rather than service-oriented. This disconnect between advice providers and potential consumers, especially in younger generations, hinders their ability to recognize the value of financial advice, resulting in them not actively seeking it. When they do seek assistance, they often turn to friends, family, and the internet as their initial sources of information.
For wealth providers aiming to establish trustworthiness and brand appeal among younger generations, it’s crucial to assess whether their brand effectively communicates competence and empathy through digital and social media channels. As preferences for communication channels evolve, it becomes imperative for the wealth industry to adapt and engage the incoming generation on the platforms where they spend their time, offering solutions that are pertinent and appealing to them. Neo-banks serve as examples of how financial service providers can embrace multiple channels and, in doing so, gain trust and foster brand loyalty.
Experience design
Wealth managers aiming to attract the next generation must return to fundamental principles and make customer understanding the core of their business. This should not be a one-time effort but an ongoing, continuous process. Regular user research, the development of prototypes for new concepts, and the analysis of usage data from digital products are essential activities that can unveil profound insights about the audience.
The capacity to create an end-to-end, seamless, and channel-agnostic customer experience will increasingly become the primary factor distinguishing wealth managers and setting them apart from their competitors.
There are immediate gains to be made for those who are willing to explore data they already possess for insights that can enhance the customer experience. Data, for the large part, is still predominantly associated with financial and regulatory functions. There is a clear opportunity to bridge the generation gap and secure future customers by offering personalized experiences, shaped by customer data.
Hybrid interaction
As digital technology and interfaces continue to advance, a significant portion of human guidance and advisory services will be gradually taken over by Artificial Intelligence (AI) and algorithms. However, 17% prefer strictly in-person relationships while the majority, about 68%, seek a combination of digital and personal interactions. This underscores the persistent demand for human-to-human engagement.
In due course, this balance will likely involve a highly personalized digital interface, with the customer’s own banking and transaction data as its foundation. The digital experience will be enhanced by a human adviser, albeit in a scalable manner that optimizes human resources and is possibly augmented by AI and Machine Learning (ML). The digital and human elements will seamlessly intertwine to establish the highest levels of trust, confidence, and convenience for the customer. This equilibrium will vary from person to person, offering a flexible, modular, and highly personalized service framework.
The groundwork for this vision can be laid today. Consider an adaptable digital financial adviser, empowered by AI, accessible through platforms like WhatsApp, addressing the specific challenges faced by a young, financially constrained audience under the banner of a reputable wealth management institution. These innovative, trial-and-error initiatives represent the incremental steps toward achieving the next-generation, scalable wealth service.
The transformation required of wealth advisory businesses won’t occur overnight. However, evolving customer demographics will ultimately render the current industry-standard service model for wealth managers unsustainable. Therefore, wealth managers should direct their attention to the three foundational elements mentioned above to secure a strong position as the significant wealth transfer process commences.
