Over the next 30 years, annually USD 1 trillion in wealth will be passed down to generations X and Y (those born between c.1960s-2000). This raises significant challenges for wealth management (WM) firms who need to offer attractive propositions to both older and younger clients whose interactional and transactional preferences differ widely. Statistics highlight the magnitude of the challenge:the intergenerational asset retention rate of WM firms currently lies between 51%(PWC) and a mere 5% (Aite Group).
Informed observers concur that technology innovation is key for WM firms to retain all age groups and also capture investors who have shunned personal advisers because of deficient interactional services. Also, considering that only a quarter of advisers (US and Australia data – PWC and Telstra) are satisfied with their firm’s use of technology and channels, it will help WM firms retain and empower their best human resources.
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WM firms know that clients, especially Gen X and Yers,expect a virtual user experience at least as compelling as that delivered by retail banksand travel agents. But they must not forget that their most valuable advantage over new forms of competition is the personal relationship between advisers and clients. Asvirtual and human interactions are complementary, WM firms must interweave both approaches if they wish to emerge stronger from this intergenerational wealth transfer and retain competitive advantage.
WM firms can do this by enriching their client relationships with virtually-delivered collaboration. A majority of investors often seek advice and validation from trusted WM advisers to complement self-gathered information and personal analysis before making their own investment decisions, in particular for life events and complex decisions, without paying blanket fees.An example of virtual collaboration is dynamic financial planning which integrates the fiscal context of multiple generations and which can be accessed remotely, updated and used at any time for real-time simulations by the adviser and clients.
While only a quarter of wealthy boomers like to try new technologies and devices, over 80% of Gen X and Y wealthy investors do (Fidelity research) and so expect a consistent user experience across all devices. As such, device-agnostic financial product comparison, quantitative investment tools, virtual ad-hoc collaboration with experts, educational videos, alert services, and voice-activated task assistant swill become baseline virtual services in WM.
Integrating and monitoring social media will permit WM advisers to build better awareness of their clients’ contexts and facilitate communities of interest, and will thus power more sophisticated segmentation and indirect marketing.
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By GlobalDataWhile there remains much be done to improve client-adviser interaction, investment in back-office and end-client technology by WM firms has also been modest. According to a large survey by Temenos in 2013, only 9% of WM firms consider investing in channels a top corporate priority, versus 31% of banks across all segments.
Similarly, while WM firms acknowledge the urgency of core system renovation, most of them are lagging on this front (Booz & Co research).Yet, WM firms which do not preempt or accompany front-end innovation with core renovation run the risk of offering a siloed service and inconsistent user experience, curbing the potential of front-end systems, undermining adviser productivity, and repelling high-caliber advisers.
Admittedly, technology on its own is not a panacea. WM firms also need rethink their business models to answer the younger generations’ call for more transparent products and fee structures and younger advisors, while perpetuating the traditional relationships built with older clients.Many of the best customers still are baby boomers, which has deceived too many WM firms into thinking that it is not yet time to renovate their technology.
Nonetheless, building a solid virtual collaboration platform on a modern core banking system remains the best way for WM firms to stay ahead in the game, and they should do it before it is too late.
Thomas Krommenacker is a Product Marketing Manager for Private Wealth Management and Technology at Temenos. Email tkrommenacker@temenos.com
This article is a summary of a Temenos white paper which was published in February 2014 on the Temenos Market Insight website(http://www.temenos.com/en/market-insight/latest-insight/).
Note: The detailed results of the 2013 Temenos Community Forum survey are available here: http://tem.mn/L0aYC0
