Is wealth management the future of financial services?

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Millionaires move markets. Managing the money of millionaires should therefore mean that one can ride in the slipstream of their fortune-making endeavours. Or so the market wisdom goes. In this context, the global wealth management industry has been attracting a lot of attention. Its star has been in the ascendant. For the past decade, while other parts of the financial markets have stumbled, wealth management appears to have shone brightly – as a concept, if not as a successful business.

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Is wealth management the future of financial services?

  1. 1. In fact, it is often assumed that thewealth management segment ispoised to rescue many aninternational bank from terminaldecline. If one looks at any of today’stop 20 global financial franchises,more than half of them will have“wealth” as a central divisional plankfor future growth; while the otherhalf are considering the option.And why not? By variousannual estimates, there are almost 10million millionaires across the planet.Their total investable wealth isestimated at somewhere betweenUSD40 trillion and USD44 trilliondepending on which reports you readand which calculations you make.Equally, by our own calculations theindustry actually manages only 40%of this total asset base. So, theargument goes, there is plenty morewealth market share to strive for and,consequently, the future of wealthmanagement looks bright. Brighter,some might say, than ever.This brightness can, however, bedeceptive. The money may be outthere, but the question is whether itwill flow into the industry – or what isneeded make that happen?Moreover, of the 40% of the totalthat is under management today,nearly USD14 trillion is managed bythe 20 largest operators. The reality isthat the industry as a whole cannotexpect the wealth-holders’ funds tojust fall into their laps. In fact, thechallenge of winning new assets isgreater than ever.In the global economicenvironment, the millionaire andmulti-millionaire are just as influencedby uncertainty. They have seen theirportfolio values fluctuate violently– whichever institution they havebeen with.Those without the same amount ofwealth might not have too muchsympathy, but when it comes toensuring that a multi-trillion-dollarindustry can continue to thrive (andpotentially revive some of the mostimportant financial services franchisesin the industry) then these concernsare, in our view, acutely relevant.Consumer choiceThe sentiment of the millionaire isthe key to the industry’s success.Understanding and anticipating thissentiment is critical the future ofwealth management and, as theyconsider their own future path, agrowing number of firms arecatching on.24 If you would like further information on products or services access www.campden.com/fscThe FSC Report 2013Is wealth management thefuture of financial services?Millionaires move markets. Managing the money of millionaires should therefore mean that one canride in the slipstream of their fortune-making endeavours. Or so the market wisdom goes. In thiscontext, the global wealth management industry has been attracting a lot of attention. Its star hasbeen in the ascendant. For the past decade, while other parts of the financial markets have stumbled,wealth management appears to have shone brightly – as a concept, if not as a successful business.BY SEBASTIAN DOVEYOVERVIEWABOUT THE AUTHORSebastian Dovey is amanaging partner at ScorpioPartnership. Responsible fordevelopment and execution ofstrategy, he has completedassignments worldwide forbanks, asset managers, familyoffices, tech firms, serviceproviders, aggregators andstart-up wealth managementinitiatives. Sebastian is aregular commentator on thewealth management industryand speaks at industry eventsworldwide. He lectured at theSwiss Finance Institute’sexecutive MBA programme,holds a history BA fromUniversity College London andan MSc in economics from theLondon School of Economics.
  2. 2. This rising awareness is very excitingand there are three core issues thatthe industry must recognise. First, theconsumer has a choice and isexercising it. Second, consumerknowledge is rising and this mayresult in them changing their terms ofengagement or even actingindependently. Third, the consumer isinfluenced by brand to a greaterextent than the industry realises andthe private banking brand must stepup its game.Indeed, real competition in thewealth industry today is intensifying.Specifically, in relation to the firstissue (consumer choice) it is clear ­­that there are more wealthmanagers now than ever before.This breeds confusion, even forthe millionaire, and a change in theconsumption patterns for financialservices. There may, if one lookspurely at the statistics, be availablewealth to be managed but,alarmingly, the millionaire clientsare not signing up with thewealth management industry asrapidly as the industry would eitherlike or need.Fund inflows into wealthmanagement businesses have beenrelatively flat for nearly five yearsnow. For most firms a single digitpercentage inflow of new funds – asopposed to market performance – isconsidered a major result in thesemarkets. That level of inflow isinsufficient, however, to support thelong term plans of many of thesebusinesses.Industry observers typically remarkthat the discipline imposed byprofessional wealth managers onpersonal wealth trumps all otherforms of expenditure. Clients, theybelieve, will always find a place intheir wallet for the private bank. It isa nice thought. But with low inflowsof funds, it could be argued that theprivate banks and wealth managersare failing.That would be slightly unfair butthey are certainly not succeeding totheir full potential. The reason for thisunder performance is not competitionbetween banks, but rather it iscompetition for the private clientfrom outside.Consumer knowledgeThis brings us to the second issue forthe future of wealth management –consumer knowledge. For the wealthindustry it is no longer sufficient tounderstand why wealthy clients arechoosing one provider over another,they must also recognise that thesesame consumers – particularly thosenot currently using the services of thewealth industry – are not only judgingtheir merits against their peers butalso against deploying (sorry,investing) their funds elsewhere.For example, instead of buying aninvestment portfolio a wealthy clientmight choose to purchase art worth amillion dollars; or invest directly in abusiness; or acquire a new home; oreven buy a bar of gold and bury it.Anything, in fact, rather than put itback into a financial system that, intheir view, has already done enoughdamage to their wealth.This issue of consumer knowledgeis underestimated by many wealthmanagers and with catastrophicconsequences. Today’s clients havethe ability to access much moreinformation than was previously thecase. The perception of the financialadvisor as the supreme oracle on allwealth matters is one that is in needof a major re-adjustment. Clients areactively investigating their optionsand some are even considering takingmore independent control ofmanaging their wealth.The challenge is therefore toemphasise to today’s potential clientthat the private bank and wealthmanager is in touch with theirrequirements and is not an expensiveluxury that they could afford to bewithout. Here, the industry does itselfno favours.In a recent examination of severalthousand HNWs across the globe wediscovered that private clientsconsidered the services offered bywealth managers to be overlyexpensive relative to results and thecustomer service experience – whichis a core part of how they determinevalue – of financial services to be theworst across a basket of industriesthat includes men’s fashion. In otherwords, private banking’s customerexperience is deemed worse thanbuying designer underpants. That is atruly sobering thought.From the findings it appears thatexecutive leadership in the wealthindustry generally continues tobelieve that the best value – andhence brand demonstration – isachieved by having more salesmen onthe streets. It does not consider thattheir brand identity could perhapshelp them do their job better and,with clever messaging, could actuallyreach out to entirely new audiences.25To receive your FREE copy of The FSC Report 2013 register now at www.campden.com/fscThe FSC Report 2013 Is wealth management the future of financial services? | Overview“The reality is thatthe industry as awhole cannot expectthe wealth-holders’funds to just fall intotheir laps. In fact,the challenge ofwinning new assetsis greater than ever.”“In other words, private banking’s customerexperience is deemed worse than buying designerunderpants. That is a truly sobering thought.”
  3. 3. BrandingCertainly sales points are critical buthere we move on to the third point ofrelevance to the future of the wealthmanagement industry – brand.Salespeople are important but, as weoften point out, it does not explainwhy the industry’s top 20 institutions– all major global brands – control80% of the world’s wealth today. Sobrand must have an influence.Indeed, the top issue for manyclients in selecting an institution iswhat the brand communicates tothem. This communication mightcome via a salesman but,interestingly, the research shows thatincreasingly it does not. Clients areinfluenced by what they see of thebank on the web, on television, onthe airport billboard, in the hotelmagazine, on twitter and so on …Moving forward, this issue is going tobecome even more important andthe winners in the industry will bethose that seize on this.Generally speaking, financialservices providers (and particularlyprivate banks) have been shy aboutpromoting themselves at a corporatelevel. This is an oversight. In fact, it isthe smaller institutions – and by thiswe mean firms managing less thanUSD100 billion – that must adjusttheir thinking the most. If theycontinue to believe that their winningformula is simply to be the low profileantidote to the mega banks, thenthey will continue to limit themselves.Time and again when we look atinvestor feedback on the industry,they state that they were largelyunaware of the range of offeringsavailable until the internet camealong. Indeed, based on customerinsight, it is very likely that theseinstitutions are in effect limiting theircapacity to grow relative to theirmore visible peers. This in turn hasconsequences. These firms may startto find they are less able to attractthe better talent and as a result theircompetency strengths will dip relativeto their peers and, ultimately, this willhave a knock on effect on their clientbusiness too.ConclusionsSo, the clock is ticking on the worldof wealth management. The figuresshow a clear clustering of businessamong large operators. This does notmean the end of the boutique. Onthe contrary, they will continue tothrive but they must adapt and adjustto their changing landscape.Meanwhile, we are now beginningto uncover the consumer patterns ofthe HNW individual worldwide and itis highlighting new points ofemphasis that wealth managers willneed to consider if they are to winand retain their custom. The brand isan important element.Finally, it is not that the industry islacking in good brand attributes –some of it is actually brilliant andmany other industries would die for aheritage that stretches back forcenturies. But the reality is that sellinglegacy only goes so far. And intoday’s age of wealth, modernity is asmuch of an attraction as history, ifnot more.26 If you would like further information on products or services access www.campden.com/fscThe FSC Report 2013Overview | Is wealth management the future of financial services?“But the reality is thatselling legacy onlygoes so far. And intoday’s age of wealth,modernity is as muchof an attraction ashistory, if not more.”QWhat words do you want to associate withyour wealth management experience?Source: Scorpio PartnershipNote: This is based on insight from over 3,500 high net worth investors globally

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