2020 was marked with large market swings and big opportunities for investors. Investor trading volume that ballooned in 2020 is on pace to exceed even that breakneck pace in 2021. According to a report from CNBC, “The average daily volume of the largest e-brokers in December [2020] was 6.6 million shares, a record. In January [2021], average daily trades are at 8.1 million, a 23% increase.”
These new investors are younger and more digitally savvy than older generations. In a survey conducted by the FINRA Foundation, the data found that “New Investors during 2020 tended to be younger, earned lower incomes, and were more racially/ethnically diverse than Experienced Entrants and Holdover Account Owners.” Nearly half of the group are:
New investors have some significant differences from other generations in how they invest, and those preferences are flowing into other age groups. The same FINRA Foundation report found that New Investors preferred to do their research independently. To build their portfolios, they rely on:
Even more striking, 54% of new investors reported never letting financial professionals choose their investments for them, compared to 32 percent of holdover account owners.
For younger, less wealthy investors, personal advice from a wealth manager or other advisor feels out of reach. New Investors report possessing low levels of investment knowledge, and survey questions designed to assess investment knowledge also bore that finding out. This means that these investors and others in similar situations may be less prepared to make good investment decisions. Even with the vast quantity of data available to all investors, new and experienced investors need guidance to interpret it.
The traditional dynamics of wealth management will not stay in place for long. Younger generations are more educated than older generations; women control 32 percent of the world’s wealth, and that number is growing. And on the horizon is the Great Wealth Transfer — $68 trillion will be passed down from boomers. These investors have different expectations, priorities, and needs, and they want financial advisors who understand those differences.
Newer investors have created a digital imperative for wealth management firms.
While younger investors have expected rich digital experiences for years, this attitude has now crossed the generational divide.
A recent survey from Oracle found that customers’ top expectations include products and services that are enabled digitally in a retail-style experience. Among the highest-ranking expectations were:
Customer expectations are here, and it’s now up to wealth management firms to rise to those expectations. While many fintech startups implement one or more of these capabilities in their products and services, wealth management firms have an opportunity to provide these benefits and more.
For firms that can integrate technology into their offerings, meeting those customer expectations can pay off big time. In the same Oracle survey, the top value adds for wealth managers from digitization include:
Digitization enhances the client and advisor relationship and experience. It allows wealth advisors to be more efficient, understand their customers better, and provide a level of customization and insight that previously was not available. It also enables this experience at a scale that wasn’t achievable. What was previously only accessible to high net worth clients is now possible for all investors. This democratization will only grow as more firms come online with their digitization efforts.
One of the most significant shifts for retail investors because of digitization is an emphasis on the experience that wealth management firms offer. Rather than evaluating firms based on products, investors want an advisor that gives them the type of rich, customized experience they’ve come to expect from other retail establishments.
Deloitte’s Future of Wealth Management Revisited report outlines three key points that guide the types of digital initiatives firms should invest in for the future:
Since budgets aren’t limitless, every firm has to choose its technology investment wisely. Without a proper roadmap, advisors might be drawn to solutions that don’t necessarily further the goal of creating a more client-centric experience.
Oracle’s study found that one of the most differentiating factors for digital leaders is a strategic digital roadmap and a methodical approach.
Cory Gunderson, head of global financial services at Protiviti says about digital leaders, “They start with an assessment of where they are and where they want to be, and then sequence their plans accordingly. But they also recognize that digital leadership is not a destination but an ongoing journey.”
The challenge for firms that want to keep ahead of the competition, adopt new technology early, and continue to innovate is to find solutions that integrate and build into their core systems. Siloing technology or building a piecemeal solution with too many tools and tasks will slow down advisors and not give customers the holistic experience they desire.
While past innovation has largely been influenced by what the competition is doing, what makes this
digital transformation in wealth management unique is the necessity to anticipate the future needs of investors and to provide the solutions they don’t even know they want yet. Keeping up with this pace of innovation is cost-prohibitive and even risky from a security standpoint. It’s simply out of reach for many wealth management firms. Instead, many opt to integrate fintech solutions into their business without rebuilding their own solutions from scratch.
In Oracle’s survey, 44 percent of respondents identified as digital leaders said that they integrated fintech into core processes and products, 27 percent operate fintech as a standalone business, and 17 percent partner with fintechs. Charles Schwab’s chief digital officer, Neesha Hathi, explains that Charles Schwab, like many incumbent providers, creates strategic partnerships to leverage technology that already exists. This allows them to bring online new capabilities without losing time and resources recreating them in-house.
Digital leaders in wealth management understand that their clients today are evolving. The clients that will be their core customer base in the future are already looking for digital solutions. While younger, more novice investors may not have amassed the wealth that their parents and grandparents have, they’ll be inheriting and building their own portfolios very soon.
In the next 10-30 years, trillions of dollars will be transferred from the Baby Boomers to their Gen-X, Millennial, and Gen-Z children. As these younger investors come into this inherited wealth, they’ll be looking for solutions that allow them digital simplicity, transparency, security, and human interaction to help guide them into understanding their goals and desired outcomes.
The in-person experience of wealth management will never completely go away. Digital tools supplement and enhance the advisor experience; they do not supplant it. Investors, especially during times of uncertainty, look for individuals they can trust for advice and guidance that simply isn’t available through digital-only experiences.
A hybrid service model facilitates client contact and services through many channels — digital and traditional. Clients access information on their own time and at their own pace. A customer may not need to walk into a branch, but they want the option to reach out to a human when they need assistance or advice.
To enable advisors to do what they do best and maximize their expertise, firms should invest in platforms and tools that manage day-to-day operations and streamline key processes. Automation can assist advisors in a few key areas that will allow firms to scale, stay lean, and be flexible. It also eliminates some of the tedious work that gets in the way of more strategic initiatives. Some of these capabilities include:
Digitizing workflows and leveraging automation allows advisors to spend less time on these tasks and more time with the client. For firms that also gather data about clients, their investment preferences, goals, and needs, they can also use fintech and digital systems to inform their advice. Advisors still lean on their knowledge and understanding, but client data informs their needs so that advice can be tailored and personalized.
Since the beginning of the COVID-19 epidemic, many firms that didn’t have these digital tools in place weren’t prepared to interact with clients virtually. They had to quickly implement systems to manage documents and even meet with clients. All this while the markets were in a period of serious upheaval and uncertainty and worry were at their peak.
Now that we’re entering the new normal, firms should be past the point of quick fixes and thinking very seriously about their medium- and long-term goals for digitization. The pandemic was a warning signal for what may lie ahead. From the C-Suite to the back office, digitization focusing on the client experience should be a top priority. Tools and partnerships should be carefully vetted against the long-term strategy. Digital technologies will help advisors give more relevant, personal, and targeted advice when the next crisis hits.
Digitization and technology in wealth management are already here. Firms that are unable or unwilling to embrace and integrate technology into their core processes and see it as a fundamental part of their business will be left behind.
To differentiate themselves from the competition, firms need to build systems that build a customer-centric culture. Understanding their changing client base and their needs is essential to providing the targeted advice and deep understanding that investors expect. Integrating fintech technology while keeping their advisors personable, relevant, and empathetic will distinguish leaders.
As firms shift their focus back toward their clients and build more efficient, streamlined systems, they’ll have more time and resources to devote to the things customers want: their advice and expertise.
This future-proofs firms against the squeeze on fees and diminishing profits on products that threaten to shutter many smaller firms. They’ll be able to offer more than just investments and provide value. Advisors who treat their clients as their top priorities, offer many different ways to interact that match their needs, and help solve their problems quickly will have an experience unmatched by any digital-only service.
Contributed by Docupace
To differentiate themselves from the competition, firms need to build systems that build a customer-centric culture. Understanding their changing client base and their needs is essential to providing the targeted advice and deep understanding that investors expect.
