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July 9, 2019updated 10 Jul 2019 9:36am

Personal connections make wealth managers more profitable, report finds

By Oliver Williams

Personal connections between client and advisor are increasingly important to wealth management firms’ profitability according to the ‘World Wealth Report’ by Capgemini.

Analysis by Capgemini, a consultancy, has found that firms ranking in the top 25% for strong personal connections over the past two years outperformed firms in the bottom 25%, after a “comparative analysis of several financial measures”.

The top 25% of firms received 1.9 times more net new AuM inflows and generated $1.5 million more in fees per billions of AuM, the report found.

“Our analysis also found a quantifiable correlation between solid personal connection with HNW clients and the financial performance of wealth management firms, which underscores the importance of wealth manager/client relationships – even in the digital era,” noted Anirban Bose, CEO of the financial services strategic business of Capgemini.

In a survey of 2,500 HNWIs for the World Wealth Report, 91% said they selected their wealth management firm based on the service quality of the firm.

But in ninth place, “enhanced digital capabilities” was the reason that 66% of HNWIs chose their wealth manager, the study found.

This shows that, contrary to many views in the wealth management industry, digital tools alone cannot win-over clients.

Writing in PBI last month, GlobalData said that “personal relationships between clients and advisors are the single most successful retention tool in the wealth space”.

Capgemini quoted one executive from an unnamed European bank, saying their client “needs more than just access to his portfolio through an app because an intimate client relationship will make him stay when there is a glitch in investment returns.”

Wealth manager satisfaction levels increase

Capgemini’s World Wealth Report notes that despite a decline in global wealth of 3%, trust and confidence in wealth managers remained strong in 2018. Satisfaction levels actually improved over last year (to 69% from 68%).

This is due to initiatives designed to enhance HNW client experience and a decoupling of trust and confidence from investment performance, says Capgemini.

Despite this good news, there is room for improvement, says Capgemini. Better clarity regarding fee structures is one area which could see improvement as only 62% of HNWIs said they were happy with their current fees.

More “personalised offerings that focus on value creation” is another area wealth managers can improve upon. These could include better access to alternative investments, which rose 4% in HNWI portfolios last year.

Firms failing to keep up with such service demands will quickly fall behind, however. Unsatisfactory service influenced 87% of HNWIs to switch firms.

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