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Is it time wealth management organizations started investing in us?

Colin Payne
July 9, 2020

The World Wealth Report 2020 is hot off the press. It’s the industry’s leading benchmark for measuring the number of high net worth individuals (HNWIs), their wealth, and the global conditions that create change in the wealth management industry. One of its findings is, perhaps unsurprisingly, that the global population of HNWIs, people with investable assets of USD 1 million or more, continues to grow, rising from around 18 million in 2018 to 19.6 in 2019. The most marked increase is in North America, with HNWIs up by around 600,000 individuals, now representing 10.9% of HNWIs globally. Increasingly this sector is itself being split with the ultra high net worth individuals (UHNWIs) providing the most lucrative business – and those lower down the scale looking for an alternative service.

There have always been elite wealth management services to help grow the wealth of the super-rich, with personal, face-to-face guidance and management dispensed by incredibly well-compensated experts in immaculately pressed suits working for private banks.

But what about the rest of us?

There’s little doubt that a major global recession is on the way – and the report estimates a decline of 6–8% in global wealth till the end of April 2020 (vs the end of 2019) due to COVID-19. Many of us will be affected financially regardless of net worth, but most of us simply don’t have access to the elite wealth management firms of the world to help protect and grow our assets. Face-to-face advice is increasingly only available to a select few wealthy individuals, more at the UHNW end of the spectrum, as it’s an expensive cost to serve so personally. Opening the traditional Goldman Sachs account for example requires a minimum amount of 10 million dollars – exclusive indeed.

So, what can be done so more of us have access to services that can help grow our wealth? The example of Goldman’s new savings product, Marcus points the way – to begin a simple account with a market-leading interest rate, but Marcus, will soon roll out a new model for wealth, aimed squarely at the mass market and exclusively using digital tools for a seamless, and low-cost, service model. The critical thing will be to retain the magic and quality of the premium service but provide it more broadly to every customer.

It’s time to redefine wealth management

Wealth isn’t just about money.

It’s about how we feel and interact with the world and each other. It’s about wellbeing. Money can bring, not just the means to stay afloat in the world, but peace of mind, even freedom, the liquidity to truly live, rather than merely survive. It doesn’t necessarily mean you need to be a Rockefeller. It’s all about financial confidence.

However, most of us struggle to optimize our investments, savings, subscriptions and spending, and therefore it can be difficult to achieve our financial goals and aspirations.

If organizations use technology in the right way, implementing new automated tools, they can provide quicker, cheaper, and simpler wealth management to many more of their clients. AI gives the possibility to instantly access data on a client’s current situation, from a wide variety of sources available through open finance, determine where they would like to be in the future, and then deliver a level of personalized, automated advice to help them reach those aspirations. This hyper-personalization is the holy grail for mass wealth.

This means that, with AI and advanced analytics, banks can offer an individual, hybrid approach to wealth management at a much lower cost. This not only creates opportunities for many more clients to access wealth management services, but it will also greatly benefit the financial services companies themselves because their clients are more likely to then extend their lifestyle with potential borrowing, financing and positive investments. It will also open up the data. The more data banks have on their clients the more opportunity there is for them to provide broader and more valuable services.

How important is human?

Imagine if your bank had enough information on your finances to immediately start providing proactive advice to optimize your regular payments on bills and subscriptions, save you money where possible and even manage investments in the best way possible for you. Imagine a brand which helps you build financial confidence and achieve your goals….

Indeed, there’s evidence to suggest that an increasing number of us prefer to deal with digital advice models when it comes to our finances, as it reduces any sense of awkwardness – us humans tend to get embarrassed when discussing our finances with other humans, especially when it’s a particularly sensitive topic, a loan for example. With a widening choice of channels and choice of capability to execute in managing your wealth to choose from, the question is:

‘Why do you need to have any interaction with anyone at all?’

Some banks have started offering hybrid services, supplemented with AI, but they are so far quite specific and limited and many of the legacy banks are still lacking the mindset, culture and technologies to help them roll this out to their customers. Some FinTechs like Wealthify and Nutmeg are already offering simple hybrid services. Wealthify for example provides a defined wealth service of investment, and it can give much more control over your savings and long-term investments. What you don’t get with Wealthify, however, are broader services, like integrated tax services, integrated bill management, or subscriptions management. All of this is more complicated to offer in the hybrid model, and is for the moment, out of reach.

Minna Technologies is another neat FinTech solution which understands the millennial customer base and the new megatrend of the subscription economy. It helps customers with subscription management through a particularly slick digital experience, well integrated into the customer journey, and this has the potential to eventually aggregate into a mass wealth service.

FinTech has rightly been focusing on improving UX while slashing the cost to serve, but as with personal banking there hasn’t been much genuine product innovation – for now, AI infused wealth almost exclusively pertains to passive investing; the ‘set it up and leave it running’ model. It’s robot based and gives a simple interaction on investments. But there’s still some work to be done in terms of educating more people of the specific benefits. Many people just don’t think it’s worth their while exploring subscription management or savings trackers.

But continuing rapid advancement in AI will change all of this, in fact change everything in wealth management.

Let’s be frank, who will need a bank in 2030?

As things increasingly move from ‘bank’ to ‘brand’, many banks have still done little to inject their offer with fresh purpose. There is a widespread lack of differentiation in banking and there is a growing threat to this old model from Apple, Google, Facebook and Amazon, who are already positioned with the platforms in place to offer wealth services. Many of these have transactional capabilities already set up and they all have a huge client base.

One big advantage banks do have over BigTech is client trust and reputation that has solidified over many years. So, if they can gain ground on the BigTech firms in terms of platforms, data, and CX they will be well placed to offer banking and wealth management services that can complete in a digital world.  The report shows that 74% of HNWIs would consider offerings from BigTech firms, so it’s a matter of urgency for banks to transform. The report also points towards hyper-personalization through digital technologies and its power to help wealth management firms address HNWI expectations, capture key transition points, and fend off BigTech encroachment.

One BigTech money market already making incursions is Yu’e Bao. Although the current proposition is nowhere close to a full suite of wealth offerings it at least demonstrates the principle that customers are willing to put their money into BigTech, and that BigTech companies are able to handle large numbers of customers who are not HNWIs and provide some level of wealth management capabilities, including through partnerships with established FS firms.

It’s clear that banks need to invest in the future of their customers, and they need to do it now.

Now is the opportunity for them to be inventive and do things differently. Banks need to ask, ‘How can we use wealth services to protect all of our customers and their assets?’ A more conscious and focused application of expertise aimed at helping the many, not just the few. It’s possible that wealth management will become the current account of the future for banks, becoming indispensably entwined with your life, your goals, and investments.

Shareholders will start to demand that their banks look after their customers because more financially confident, better-advised customers and more democratization and distribution of wealth in the world ultimately means a healthier society.

For more information on how we develop next-generation digital banking services with our clients, visit Inventive Banking.