Customer-centric digitalization of wealth management:

The impetus for the digitalization of wealth management is rooted in the rising expectations of the customers and the onset of the Fintech revolution.  Of course, other macro trends such as a rise in global wealth, the burdensome regulatory frameworks, the massive shift toward passive investments, and the compression of margins have also made digitalization of wealth management a strategic imperative.

Customers have varying levels of desire for and ability to use digital channels and capabilities. Several factors such as age, gender, wealth, education, and location have a significant influence on customers inclination and willingness to use digital capabilities – either entirely or as a part of the overall financial advice.

The following are generalizations and there always a set of people within a cohort that behave differently.

Digitalization of wealth management – Demographic Factors affecting the use of digital channels and capabilities

Age: The younger the demographic group, the higher the inclination to use digital capabilities and rely less on a human, financial advisor.  Similarly, the older the customer, the less comfortable they are seeking online financial advice and tend to count on human support for more crucial decisions.  However, at every age, almost universally, there is a desire to reduce the friction in the operational processes such as account opening or transfers of small amounts.

Gender: Women tend to rely more on human involvement than merely relying on an algorithm.

Wealth: The level of net worth is a critical determinant of use of digital advice. For example, at lower net worth, there is a lack of comfort at managing finances and taking control of financial lives.

At the middle of the pack, particularly the self-made baby boomers, there is a level of understanding and hence confidence in financial decision making, and for the most part, a customer is comfortable with digital channels for most of the everyday decisions. For critical junctures and crucial decisions, they still seem to want a personal financial advisor’s involvement and help.

The high net worth and ultra high net worth clients, while there is a desire to access information at their fingertips, the expectation is they need professional help in managing their complicated finances, and they are willing to pay for it.

Education: It seems pretty logical that the higher educated are more knowledgeable about how digital advice works (in general) and hence they are willing to rely on robo-advisors for most financial help.

Location: While not a significant factor, we have observed that financial services customers, across other demographic variables, tend to be more comfortable in using digital channels if they live in large towns and cities.

In addition to the demographic factors, there are emotional and psychological factors that drive the customer preferences about using digital financial advisory capabilities.

Past Experiences: Each of us is a product of our circumstances and customers that have had financial difficulties in the past tend to be reluctant users of digital advisory capabilities. (Of course, if the financial hardship is due to fraud by a financial institution or an advisor, then that is a different story.)

Willingness to take or cede control: Some customers are confident in their decisions and want to evaluate the advice/offerings in the digital channels and make the decision and cede control of the operations for day-to-day mechanics of money management.

Those are unsure of their financial destiny and are not the confidence of taking control of financial lives tend to do better with a personal advisor holding their hands, keeping them accountable, and helping them make decisions.

Financial Outlook:  If the customers look at the future with a lot of optimism and have confidence in their ability to accumulate wealth and retire comfortably, they also tend to use digital channels. Those who are afraid of their financial lives – now and in the future – again may not have the courage to seize control with digital financial tools.

Financial Threshold: Irrespective of both the demographic and psychographic factors influencing how customers perceive and leverage digital wealth advisory capabilities, there seems to be a cut off for wealth for which they wish to rely on digital channels. It is the not an absolute amount, but whatever the customer deems as “not the core” wealth. For example, for a millionaire, it could be up to $25,000. For a deca-millionaire, it could be fun money and may equal $100,000.  Beyond that for the “core wealth,” it seems like most customers want humans involved in decision making and digital channels and capabilities contributing to operational ease, ongoing monitoring, and on-demand progress tracking/reporting.

Lessons for Firms on Customer-centric digitalization of wealth management:

Wealth managers can use the demographic and psychographic factors that influence customer preferences to build an optimized experience across the omnichannel leveraging algorithms and humans in facilitating the clients’ financial life cycle.

Prospecting: Highly curated financial planning and advice information available to customers with varying goals, wealth levels, and channel preferences. For example, some customers may be comfortable reading about estate planning options and various trusts online. Other customers may want to fill in the necessary information in a form and get a booklet by snail mail.  Others may be willing to leverage a sandbox to do what-if analysis with retirement assumptions. And some others may prefer to attend a seminar with coffee and donuts in the local library.  Irrespective of ultimate channel preferences, prospecting that spans offline and online channels will help the wealth managers in more efficient prospecting.

Account Opening: Pre-filling as much information as possible through internal records, account aggregation (with right permissions), and using external data streams will help ease the pain of data entry and ease the journey of the customers. Reducing manual data entry will make the account opening process a welcome mat rather than a closed gate with hurdles.

Goal Planning:  Goal planning involves gathering vast amounts of data. Again reducing the burden of data collection and data entry will be a worthy goal.  Based on cohort statistics, an algorithm can enter a retirement age that is common to customers’ peer group. And similarly, the value of a house can be obtained by many real estate sites that provides reasonably accurate estimates. Similarly, for college planning, using the estimates of fee for the parents’ alma maters as an initial take will at least set a starting point. (Of course, all this information is subject to modification by the clients.)

Goal Tracking: Wealth managers tend to treat a financial plan as a static artifact and investments as a separate stream. For the customer, the financial plan is a blueprint, and the investments are a means to get there. So, without aligning goals to the investment performance results in adverse consequences for advisors and wealth managers. For example, even if the customer portfolio underperformed the benchmarks by 100 basis points, assuming the clients are on track toward their goals will mean they may overlook the underperformance. In the absence of linking wealth to goals and risk, focusing on raw portfolio performance may be detrimental to both the client and the firm’s interests.

On-Demand Reporting: Gone are the days when a printed statement with a list of holdings and transactions was sufficient to meet the regulatory requirements and client demands. Today, customers are demanding near real-time view of their portfolio and their performance. Digital capabilities such as mobile and tablet optimized customer portals that provide ready access to holdings, balances, transactions, and performance have become table stakes for portfolio performance reporting capabilities.

Account Transfers: For customers familiar with the ease of using tools like Paypal or Venmo, the financial services firms transfer process will look arcane and archaic. Wealth managers have to make payments and transfers easy through mobile apps and online tools.

Advisor-Client Collaboration: There are many ways digital to advisor and advisor to digital transition can happen seamlessly.

For example, a natural language chatbot can engage with a customer in the initial stages and then hand over to an advisor.  Or an advisor can transition a client to a bot for informational exchange.

Co-browsing and video conferencing are other digital tools that are mighty handy in fostering advisor-client collaboration.

Text messages and chat – which are compliant with internal policies and regulatory protocols – have become essential tools for ad-hoc communication.

The customer-centric digitalization of wealth management is essential to the success of financial services firms offering wealth advisory and trust services. Without factoring the customer preferences around channels and capabilities, raw capabilities will prove to be futile endeavors.