Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 165

Wealth managers need to focus on what clients really want

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.

 


 

Leave a Comment:

     

RELATED ARTICLES

Commission's darkness shows need for clarity

What are wealth industry regulators thinking about?

banner

Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Latest Updates

Strategy

$1 billion and counting: how consultants maximise fees

Despite cutbacks in public service staff, we are spending over a billion dollars a year with five consulting firms. There is little public scrutiny on the value for money. How do consultants decide what to charge?

Investment strategies

Two strong themes and companies that will benefit

There are reasons to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies should benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Financial planning

Reducing the $5,300 upfront cost of financial advice

Many financial advisers have left the industry because it costs more to produce advice than is charged as an up-front fee. Advisers are valued by those who use them while the unadvised don’t see the need to pay.

Strategy

Many people misunderstand what life expectancy means

Life expectancy numbers are often interpreted as the likely maximum age of a person but that is incorrect. Here are three reasons why the odds are in favor of people outliving life expectancy estimates.

Investment strategies

Slowing global trade not the threat investors fear

Investors ask whether global supply chains were stretched too far and too complex, and following COVID, is globalisation dead? New research suggests the impact on investment returns will not be as great as feared.

Investment strategies

Wealth doesn’t equal wisdom for 'sophisticated' investors

'Sophisticated' investors can be offered securities without the usual disclosure requirements given to everyday investors, but far more people now qualify than was ever intended. Many are far from sophisticated.

Investment strategies

Is the golden era for active fund managers ending?

Most active fund managers are the beneficiaries of a confluence of favourable events. As future strong returns look challenging, passive is rising and new investors do their own thing, a golden age may be closing.

Sponsors

Alliances

© 2021 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.