The wealth management industry is undergoing unprecedented change and, depending where you stand, this can feel like a big opportunity or a big threat. Shifting client demographics and preferences have changed the landscape, with fintech entrants starting to commoditise the traditional asset allocation advice model. This has eroded pricing power while simultaneously raising the bar for better and faster service.
Wealth managers face both significant opportunities to acquire new clients and assets, as well as daunting challenges in retaining clients in the face of competitive threats and digital disruption. What can Australian wealth managers do now to weather the storm and grow their businesses?
Invest in the client experience
For starters, they need to adopt more client-centric strategies and make better use of technology to capture a bigger share of the sector’s US$200 billion global revenue opportunity. Ernst & Young’s latest global wealth management report, The experience factor: the new growth engine in wealth management, found firms that don’t make strategic investments in client experiences risk losing a substantial portion of their business. In fact, 28% of all Australian clients said they were open to switching wealth managers under the right circumstances.
The majority (73%) of both Australian and global clients have relationships with multiple wealth managers, and while those Australians are less likely than the global average to consolidate their assets (38% compared to 57%), there are still over a third who would. This figure should make the local industry sit up and take notice.
The report found that Australian clients want greater fee transparency and more focus on goals-based planning. One in four was open to investing via automated advice services, such as robo-advisors. In this environment, wealth managers need to offer a superior customer experience to maintain and increase market share.
Regulatory compliance a huge burden for APAC managers
With client assets in play, 50% of global wealth managers said revenue growth is their major strategic business priority over the next two to three years, with specific initiatives focusing on enhancing client experiences. Within the Asia-Pacific (APAC) region, however, only 31% of wealth managers saw revenue growth as their top focus.
APAC wealth managers are instead bogged down by regulatory compliance. Regional managers expect to spend 42% on average of their strategic budgets on compliance, highlighting the sheer size of the regulatory burden in the region.
While passporting schemes can facilitate cross-border marketing of managed funds in participating economies, their immediate impact is to ramp up compliance costs. This, when combined with increasing competition, is having a big impact on margins regionally. Some 62% of APAC firms reported declining margins, citing competitive fee pressure and regulatory compliance costs as the key causes, compared with just 18% in North America.
Improving the client experience
The client experience in the wealth management sector is unique and complex, as it spans an individual’s life journey, often into the investment unknown. As a result, wealth managers have lacked a common definition or standard by which firms can measure themselves. Yet, the report identifies a common view of client experience – respondents value performance, engagement and trust the most in their wealth managers.
While clients and firms are aligned on most of these values, there were three key areas where firms appear to be out of step with their client’s expectations. They were:
- Transparency — clients want far greater transparency that includes rating their advisors and connecting with similar clients in public forums
- Advice channels — clients are significantly more open than firms are to adopting digital channels for wealth advice, not only service
- Role of the adviser — the financial adviser may become more like a financial therapist in the future, helping clients with spending habits or reaching life goals instead of strictly providing standard asset allocation advice or other activities that could be automated.
How should wealth managers prioritise their client strategies? A firm’s reputation is no longer a barrier to entry. Newcomers can build trust with transparency and steal current and potential clients from existing players. Digital services are already here, and digital advice is inevitable for certain client segments. The wealth advisor’s value goes well beyond assigning clients to asset allocation models, but clients need to become believers too. Firms need to evaluate their strategies and align them with the key elements of what clients want – performance, engagement and trust.
The rules of the game have changed. To continue to grow, managers must learn to compete with man, machine, and hybrid-based firms to retain and attract assets.
In an industry where advances in technology, new types of competition and client expectations will be changing rapidly, firms that challenge traditional norms while remaining true to their core value proposition are in the best position to succeed. Delivering a comprehensive client experience is more essential than ever in this new wealth management landscape.
Antoinette Elias is Wealth and Asset Management Leader for Oceania at Ernst & Young.
The views expressed in this article are the views of the author, not Ernst & Young. The article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.