With the demands of regulation and downward pressure on fees dominating wealth managers’ concerns, it is easy to miss the wood for the trees and overlook that, ultimately, the customer is always king.
Accountancy firm EY’s 2019 Global Wealth Management Research Report, published earlier this month, found that a third of clients in 26 countries around the world had switched their managers in the past three years, while another third planned to do so in the next three.
‘Wealth management is in high demand, yet clients are not fully engaged or loyal,’ report author and EY partner Nalika Nanayakkara said. ‘An increasing number of clients are willing to pay for financial advice, but what they value is evolving rapidly.’
Although data for the UK was consolidated into the continent, clients across Europe were the second most likely to have recently switched providers, with 43% having done so, compared with 50% in the Middle East and 40% in North America.
These are stark figures – but what is behind them? The report segmented its 2,000 respondents according to age, net worth, investment knowledge and other attributes in order to find out.
Unsurprisingly, in an era of sharper fee competition, pricing was the leading factor cited by clients as a reason for their move, and as a reason for selecting an alternative provider. But, critically, even where price was cited as a factor, it was not the only one.
Private client managers are not immune to a wave of behavioural and tech factors eroding former incumbent business advantages, added Nanayakkara, as people accessed services, formed trusted relationships and purchased products in new ways.
‘The wealth management industry is acutely experiencing these trends, presenting many challenges – and opportunities,’ she said.
‘Clients are switching providers to capture better value. They see the highest overall value for financial advice during major life events and as their wealth and level of investment knowledge increases.’
By age group, millennials were most likely to move their business, with 43% having done so and 36% planning to. Gen X – those aged from 38 to 53 years’ old – were most loyal, with only 28% switching.
Ultra-high net worth (UHNW) clients – defined as those having $5 million to $29.9 million (£3.8 million to £22 million) in assets – were the wealth cohort most willing to switch, while high net worth (HNW) clients holding between $1 million to $4.9 million were the least likely.
Tilney managing director of business development and communications Jason Hollands said that the industry remained a relationship business and the biggest risk to a client book was people who felt their custom was undervalued.
The need to maintain ‘deep, meaningful relationships where established trust is paramount’ and ‘build relationships at the family level’ is not always a priority at board level, however.
What are clients switching for?
Pricing was followed by personal attention and advisory capabilities as core reasons for moving, with over 50% placing a ‘very high value’ or ‘high value’ on all three factors.
Four fifths said the financial advice and planning was a significant factor – though only half currently have this demand catered to.
Financial education and training are an area of particular interest, with 56% saying they would consider it or are planning to take this up.
Other services that could present business opportunities include personal financing and budgeting, with only 28% of clients currently discussing this with their wealth manager, as well as market insights and broader advice focused on attaining life goals.
More than 60% of those clients preparing to start a business or buy a house plan to turn to wealth managers for advice.
David Pegler, principal of Brighton Capital and former head of Brewin Dolphin’s Brighton office, said that this is increasingly being integrated by mass-affluent advisers, with sophisticated cash flowing modelling tools once limited to pension investors now widely available.
‘Nowadays we build a client profile leading with the individual’s lifestyle, rather than simply what they have to invest,’ he noted.
‘This has built further trust, albeit our role is as much coach/consultant than investment manager/financial planner – maybe all these skills really do define a trusted adviser, which helps to create healthy and long-lasting relationships.’
Where clients are headed
Of the business types which were punching above their weight in winning clients, planners and advisers appeared to be taking market share.
Unaffiliated independent financial advisers (IFAs) were forecast to increase their slice of the pie from 40% to 47% in the next three years, with this increased popularity not confined to the mass affluent.
More than two fifths (42%) of that group and 40% of HNW clients are expected to make use of their services in the next three years, compared with the 34% of each group who do so currently.
The use of both retail and private banks is expected to decline, from 54% of clients to 48% in the case of the former and 37% to 35% in the case of the latter. Fintech firms, such as robo-advisers, are set to be used by 45% of clients – up from 38% today.
Hollands said: ‘Banks have vacillated somewhat in their involvement in the wealth management space in recent years – withdrawing and re-entering the market.
‘Secondly, there is a consolidation amongst wealth management firms, a trend that Tilney has been involved in, as the increased regulatory burden make the case for scale more compelling.
‘Thirdly, there are a plethora of new digital disruptors entering the market, and while the asset gathered so far are low, this will build over time.’