HNIs need bespoke solutions

By Morningstar |  10-07-20 | 
 

High Net Worth Individual (HNWI) wealth and population grew by almost 9% globally in 2019 despite a global economic slowdown, international trade wars and geopolitical tensions, finds the World Wealth Report 2020 from Capgemini. North America and Europe took the lead with around 11% and 9% growth respectively, surpassing Asia-Pacific (with 8%) for the first time since 2012.

Unpredictability in 2020 is set to drive asset adjustments as well as higher client expectations and scrutiny around advisory fees. Equities became the most significant asset class in early 2020 and accounted for 30% of global HNWIs’ financial portfolios, largely due to robust equity markets and financial stimulus restoring trust. HNWIs are also becoming increasingly critical over wealth managers’ fees, with 33% uncomfortable with rates in 2019. Discomfort is expected to rise as a result of volatile markets.

According to the report, more than one in five HNWIs might switch firms in the next year with high fees being the top reason for 42% of HNWIs. HNWIs are also citing a preference for performance and service-based fees over asset-based ones, indicating higher expectations on value delivered for fees charged.

Digital capabilities have become central to business continuity for wealth management firms. Hyper-personalized offerings powered by AI, analytics and other technology can meet the evolving HNWI expectations in areas including:

  • Bespoke risk profiles – leveraging behavior sciences and sentiment analysis to interpret individual clients’ risk profiles
  • Personalized portfolio construction and tailored advice – data analytics and machine learning to create customized portfolios, assess client behavior to provide tailored advice
  • Customized client reporting – using APIs and multiple data sources to create a comprehensive view of client investments

Pre-COVID (Jan-Feb 2020), investors reported being least satisfied with touchpoints related to personalized information or services from their firm in the client journey, and more than 60% of HNWIs reported unsatisfactory experiences during their attempts to access information about new wealth management offerings or market information. HNWIs aged 50-59 were the most dissatisfied with their experience related to information access and value-added services.

The BigTech trojan horse

Less-than-stellar customer experience at touchpoints related to information access and value-added services represents a missed opportunity to ‘wow’ clients. More than 40% of the HNWIs interviewed by Capgemini say good experiences at these touchpoints profoundly impact their overall impression of a firm, and this is likely to increase as a result of COVID-19.

While only 26% of wealth managers rank BigTech competition among the top potential disruptors, HNWIs certainly believe that BigTechs can outperform incumbent firms when it comes to information access and value-added services. 74% of HNWIs report a willingness to consider wealth management offerings from BigTechs, jumping to 94% among the 22% of HNWIs who say they may switch their primary wealth management firm in the next 12 months.

HNWIs in Latin America and Asia-Pacific (excl. Japan) expressed the highest likelihood to adopt wealth management offerings from BigTechs. In Japan and North America, BigTech adoption increases dramatically for HNWIs who are likely to switch within 12 months. Unsurprisingly, HNWIs younger than 40 are most inclined, with willingness reaching nearly 90%.

As BigTechs gain financial services ground, wealth management firms have little choice but to enhance digital customer engagement – quickly. A side-by-side look at touchpoints that evoked the least HNWI satisfaction and those most vulnerable to BigTech encroachment reveals three stages of the client journey as areas of focus: acquisition, advisory, and value-added services.

For wealth management firms, a two-pronged strategy will allow wealth managers to quickly and cost-effectively enhance capabilities across the value chain. For acquisition, advisory and value-added services, firms should invest in tech to build capabilities in-house and leverage ecosystem collaboration and WealthTech partnerships to enhance capabilities.

While the immediate focus for wealth managers might be on business retention, building capabilities – both now and in anticipation of recovery – may pave the way to future opportunities and new revenue streams.  Successful firms will be those that can harmonize with their ecosystem to quickly meet high net-worth clients’ demand for easy-to-access personalized information and tailored investment strategies.

Methodology

  • The report covered 71 countries accounting for more than 98% of global gross national income and 99% of world stock market capitalization.
  • The survey covered more than 2,500 HNWIs across 21 major wealth markets in North America, Latin America, Europe, and the Asia-Pacific region.
  • The survey was conducted in January and February 2020. The survey results do not account for the impact of the COVID-19 crisis.
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