Adapt or die. This has become an all too familiar narrative for wealth managers. And with a new generation of contemporary customers, a relentless stream of fintech disruptors and ever-increasing regulatory pressure it’s no wonder 81% of banking CEOs are feeling threatened and concerned by the speed of technological change, according to PWC’s 19th annual global CEO survey.
But while evidence of declining profitability of wealth managers supports these concerns, it also shows that market potential is growing, as demonstrated in Deloitte's 2017 Innovation in Private Banking & Wealth Management report. Which means two things; firstly, that many brands and businesses are currently failing to serve customers’ needs, and secondly that there’s exciting opportunity to be gained within the industry.
It’s time to think beyond technology for technology’s sake
The rise of adaptable and nimble fintechs seeking to tap into this potential is another clear sign that there are gains to be had. Unfortunately, as with change in any industry that’s been stagnant and dominated by large, incumbent players. The urgent need to evolve has been met with trepidation and desperation rather than optimism and meaningful innovation.
Almost all of the industry rhetoric is around the imperative to build technology capabilities; whether it’s introducing digital platforms, robotic process automation, big data, block chain technology or even robo-advisors.
Deloitte’s 2017 industry analysis indicates that typically wealth managers digitise existing systems in the hope this will help them ride out the storm and keep up with the fintech competition. But while this kind of innovation will help them increase efficiencies, it won’t create the fundamental impact that’s necessary.
Some businesses go a little further, partnering and collaborating with fintechs to bring technological expertise in house. Others, like JP Morgan, have created a digital platform that taps into and enables the growing number of self-directed investors. These types of partnerships and innovations will accelerate change and will often create more seamless customer experiences, but they still don’t transform existing business models.
Technology has become the first resort. And while it is increasingly becoming a necessity, focusing on technology alone will not necessarily create meaningful value. It misses the bigger opportunity to really connect with customers.
Start with a deep understanding of customers
Wealth managers need to focus on deeply understanding and connecting with today’s customers because they vary considerably from their predecessors. Yes - they are becoming more discerning and demanding, expecting more from every single interaction or experience. But what is absolutely crucial is their perceptions of wealth and finance. Many have lived through the 2008 banking crisis, which has given them an inherent scepticism and lack of trust in traditional systems. The role finance plays in people’s lives has shifted too, people are increasingly becoming spenders rather than savers, prioritising experiences and lifestyles over slowly accumulating interest.
Today, fewer and fewer people self-identify as being wealthy in the traditional sense of the word. In fact, they tend to negatively stereotype the wealthy and their wealth managers, who many see as an exclusive club of pale, stale males, who ‘wine and dine’ and reminisce about heritage and institution. If something as fundamental as ‘wealth’ isn’t resonating, then brands and businesses need to rethink the way they talk to and serve these customers.
The winners will be the businesses who have really considered today’s customer, putting them at the heart of everything they do, giving them an experience that delivers at every single interaction.
Adapt, innovate and create with customers in mind
Killik & Co understands that investing can be hugely intimidating, and that many people are unaware of potential benefits that could be relevant to them. To overcome this, they challenged preconceptions and looked outside the financial category to create an aesthetic that’s more aligned to lifestyle brands and businesses. To reinforce and complement this, they have created products, services and content that’s relevant and engaging for today’s customers.
According to recent reports, Coutts is in the midst of a rebrand aimed at a more contemporary audience. For a brand that is perceived as being about ‘hereditary wealth and landed estates’ this is an important step to appeal to the next generation, hopefully without alienating traditional customers. Through brighter, bolder, or out of category creative, rebrands can be useful for signaling change and attracting today’s customers, but it must feed through to the service and experience otherwise it will not only fail to resonate, but also cause more damage than good.
Some businesses like Morgan Stanley are looking to create change and value for customers by creating innovation centres of excellence which explore AI and machine learning solutions. And others like ING direct have created ‘social banking spaces’ where people can have autonomy and independence, with the added benefit of socialising.
Market entrants like WealthSimple have digitised, simplified and democratised services that have previously only been available to the ultra rich. They have successfully used technology in a way that is completely relevant and offers real value to customers. And they have brought this to life through a distinctive identity that stands apart from the traditional wealth manager aesthetic.
It’s tempting when operating in a market that’s threatened by challengers and disruptors to get swept up in what everybody else is doing. To copy and follow rather than to find the path that’s right for you. But there's real opportunity to get under customer's skin, to shake off existing ‘wealth’ narratives, and to find a way to meaningfully connect with customers in a way that’s true to, and builds upon, unique strengths and knowledge.
Yes – Wealth Managers need to adapt or die. But it’s not about adapting for the sake of adapting. Or using technology for the sake of technology. It’s how businesses need to adapt that’s really interesting. If you don’t prioritise and focus on today’s customers, no amount of adaptation will save you.
Daisy Noble is a senior consultant at The Clearing.