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Traditional wealth providers face growing risk of obsolescence due to a failure to innovate to win the hearts and minds of a disenfranchised market-in-waiting.

Millennial and Gen Z customers remain critically underserved in wealth management. Those that are set to inherit wealth will be less likely than previous generations to feel affinity with their parents’ wealth managers; and those that are yet to accumulate wealth are not yet visible to the industry.

A sensible strategy is to engage and earn the trust of these people now, before they come into wealth, and thus be the obvious provider to service their growing assets when the time comes. But almost without exception, today’s providers are failing to connect with this audience.

There are understandable reasons for the current state of inertia in the wealth management industry. This is primarily due to the industry's strong emphasis on building and safeguarding customer relationships, a culture deeply rooted in the profession of relationship managers. This entrenched culture presents a challenging starting point when it comes to developing a next-generation customer experience that relies on digital interaction models and a nuanced data strategy.

Another factor contributing to this inertia is the prevailing business model, which is centered around the percentage of assets under management (AUM). This model does not offer a feasible revenue opportunity for customers with limited or no assets to invest, making it difficult to justify serving individuals who are not yet wealthy in the short term. However, it's worth noting that a significant portion of wealth is inherited, which underscores the importance of today's youth in ensuring the continuity of established advisory businesses.

Traditional advisory firms typically have an average client age of 59 years old, and the Advice Gap report reveals that only 6% of those seeking advice are in the 18-24 age group, while just 13% fall into the 25-34 age group. As wealth is transferred to future generations, it becomes crucial for wealth managers to adapt and address this gap. This adaptation requires them to catch up with their digital counterparts within the broader financial services industry. The question then arises: Where should wealth manager focus innovation to capture these vital but overlooked segments?

Three key areas for innovation

1. Brand modernisation
2. Experience design
3. Hybrid interaction

Brand modernisation

To overcome issues of trust and financial literacy among the younger audience, wealth providers must challenge existing perceptions and dispel stereotypes. A 2020 survey conducted by My Pension Expert revealed that 57% of individuals lack trust in financial advisers, perceiving them as more self-interested rather than service-oriented. This disconnect between advice providers and potential consumers, especially in younger generations, hinders their ability to recognize the value of financial advice, resulting in them not actively seeking it. When they do seek assistance, they often turn to friends, family, and the internet as their initial sources of information.

The growing prevalence of easily accessible and understandable content on social media platforms represents a significant call to action. While most individuals aged 18 to 25 may not be receiving their inheritance anytime soon, it is prudent to establish relationships and address their early financial concerns, positioning wealth providers favourably for when wealth eventually comes their way. This generation places their trust in different sources compared to their parents. According to the Advice Gap report, 21% of individuals in the 18-25 age group, who are unwilling to pay for financial advice, primarily rely on social media as their primary source of information. Additionally, Statista estimates that people in the UK spend an average of four hours and 14 minutes per day on their mobile devices, marking a 41% increase from 2019.

For wealth providers aiming to establish trustworthiness and brand appeal among younger generations, it's crucial to assess whether their brand effectively communicates competence and empathy in these domains. This shift in consumer behaviour carries important implications for the advice industry. As preferences for communication channels evolve, it becomes imperative for the wealth industry to adapt and engage the incoming generation on the platforms where they spend their time, offering solutions that are pertinent and appealing to them. Neo-banks serve as examples of how financial service providers can embrace multiple channels and, in doing so, gain trust and foster brand loyalty.

Experience design

Wealth managers aiming to attract the next generation must return to fundamental principles and make customer understanding the core of their business. This should not be a one-time effort but an ongoing, continuous process. Regular user research, the development of prototypes for new concepts, and the analysis of usage data from digital products are essential activities that can unveil profound insights about the audience, challenging even the most well-crafted assumptions. Moreover, they offer an invaluable opportunity to establish profound trust and build brand affinity, both of which are crucial for engaging with the future generation of investors who currently remain unnoticed by the industry.

The capacity to create an end-to-end, seamless, and channel-agnostic customer experience will increasingly become the primary factor distinguishing wealth managers and setting them apart from their competitors. Presently, there exists a disconnect between data and the customer experience in traditional wealth management. Although there is a consensus on the importance of the customer experience and the value of data, firms struggle to effectively integrate the two. Data continues to be predominantly associated with financial and regulatory aspects.

There are immediate gains to be made for those who are willing to explore data they already possess for insights that can enhance the customer experience. This data might have been collected at various stages of the customer journey, ranging from pre-onboarding social listening to transaction and spending analysis after onboarding. There is a clear opportunity to bridge the generation gap and secure future customers by offering personalized experiences that can transform today's spenders and debtors into tomorrow's savers and investors.

Hybrid interaction

As digital technology and interfaces continue to advance, a significant portion of human guidance and advisory services will be gradually taken over by Artificial Intelligence (AI) and algorithms. However, despite this trend, a substantial segment of the population remains steadfast in their preference for entirely in-person relationships, accounting for 17%, while the majority, about 68%, seek a combination of digital and personal interactions. This underscores the persistent demand for human-to-human engagement. The key question is: What is the ideal balance between human and digital components in the future's top-notch advisory experiences?

In due course, this balance will likely involve a highly personalized digital interface, with the customer's own banking and transaction data as its foundation. The digital experience will be enhanced by a human adviser, albeit in a scalable manner that optimizes human resources and is possibly augmented by AI and Machine Learning (ML). The digital and human elements will seamlessly intertwine to establish the highest levels of trust, confidence, and convenience for the customer. This equilibrium will vary from person to person, offering a flexible, modular, and highly personalized service framework.

The groundwork for this vision can be laid today. Consider an adaptable digital financial adviser, empowered by AI, accessible through platforms like WhatsApp, addressing the specific challenges faced by a young, financially constrained audience under the banner of a reputable wealth management institution. These innovative, trial-and-error initiatives represent the incremental steps toward achieving the next-generation, scalable wealth service.

This transformation won't occur overnight. However, evolving customer demographics will ultimately render the current industry-standard service model for wealth managers unsustainable. Therefore, wealth managers should direct their attention to the three foundational elements mentioned above to secure a strong position as the significant wealth transfer process commences.

Sam Beeby

Head of Wealth Management, Banking & Financial Services Consulting, Cognizant UK&I 

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