To say the world has changed over the last 25 years would be an understatement. The fourth industrial revolution exploded with the birth of a truly global marketplace.
In the borderless world of businesses, technology has disrupted the way we live, work, consume and even think; bringing unmatched dynamics and a completely new level playing field for companies across all sizes and sectors.
Well-established businesses and entire sectors are facing existential challenges and the wealth management industry is no different.
The private banking and wealth management industry at large is struggling to contend with increasing regulation, higher operating costs, intensifying competition, and significant geopolitical changes, all the while trying to improve profitability and respond to an evolving client base with rapidly changing investment demands and requirements.
This is partly due to the fact that these organisations have largely focused on solving existing business challenges and not embracing opportunities to create value and revenue in new ways.
Wealth management approaches are often informed by traditional assumptions that are not necessarily appropriate or effective in developing solutions for today’s realities and clients’ needs.
For instance, Accenture points out that by 2020, 35% of the global wealth management market will be at risk, with competitors ranging from new entrants using digitally disruptive technology to retail banks entering the wealth management space – these companies see the opportunity behind offering financial services digitally to an increasingly digital savvy customer base.
Although the underlying needs of the wealthy are timeless, the way they consume advice and solutions is evolving rapidly. Nowadays, for many clients, while human interaction is important, they are seeking ‘hybrid advice’, requiring different channels of communications with their banker.
Around 70% of high net worth and ultra-high net worth clients are already using digital financial services, with 85% of them using at least three mobile devices.
The wealth management sector must embrace this trend and position digital offerings as a core element of their value proposition. This must be in addition to the banker’s effort to build trust and expand client relationships.
The industry does not need to look very far for inspiration and a way forward; the successful experience of the retail financial services industry is already formidable proof of this mindset and the ‘disruptive innovation’ that is redefining the world we live in.
Goldman Sachs, for example, has succeeded in launching a new digital retail bank in the UK – called Marcus - offering one of the highest saving rates in the market. Goldman’s has also partnered with MasterCard and Apple, to launch Apple’s foray into financial services called Apple Card.
With no card verification value (CVV) number or physical card unless the client asks for one, it perfectly matches today’s digital behaviors, offering even greater security and cash back which is credited to the user’s account daily.
There are high expectations which should revolutionize the payments industry, with investors, analysts and consumers all looking forward to the launch with great interest. Will this agile move into financial services replace much needed revenues from the slowdown in their iPhone sales? Only time will tell.
Google has also moved into the wealth management arena. Its new Google Pay app offers investors in India the ability to purchase gold in a virtual, digital way – a timeless commodity traded for millennia now brought into the 21st century.
While one could also argue that the wealth management industry’s giants are simply too big to change, integrating an agile mindset and culture will serve the sector well. They must adapt company structures and thinking to meet the changing needs of individuals, providing new sustainable investment options and greater flexibility.
From a forward-thinking culture, to investing in digital interfaces to new routes to market, private banks must alter business models to look for more opportunities and offer more innovative solutions than the traditional set of tools available.
Not doing so will not only result in the industry struggling to remain relevant but will miss the future opportunity of their core market booming, as net investable assets of wealthy individuals are set to rise from approximately $55 trillion today to $70 trillion by 2021.
Axel Hörger (pictured above) is chief executive officer of Lombard International Assurance