The traditional marketing pitch of a wealth management company seeking to win the business or retain the allegiance of a wealthy U.S. client has tended to sound something like this. We’ll sit down with you and listen carefully to all your anxieties. We’ll design trusts and estate plans that will provide for generations of your family that still haven’t been born, ensuring that feckless grandchildren can’t squander their share of the wealth. We’ll customize everything; right down to the bootcamps we organize to teach your great-grandchildren about the roots of the family fortune and how to balance a checkbook.
Heck, our high-touch concierge services cover everything from financing the purchase of your new airplane to walking the family dog.
It’s too bad that all of this now seems to be increasingly irrelevant to the younger tier of America’s wealthiest citizens.
Indeed, according to Capgemini’s just-released US World Wealth Report, those ultra-high net worth individuals 40 and younger are placing an ever-higher importance not on the kind of high-touch approach on which wealth management companies like JP Morgan Private Bank have built their business, but on automated advisors.
Generally, the latter are viewed as alternatives for those who don’t have significant investible assets, or whose needs aren’t very sophisticated. Nonetheless, Capgemini’s study of wealthy Americans found that those with more than $20 million in assets, who might be assumed to be eager for face-to-face contact with the private bankers to whom they are entrusting those savings, were actually the most willing of all to turn to automated money management providers of this kind.
It isn’t just that they are willing, Capgemini found; they’re already doing it. Standalone automated advisors – as distinct from companies like Vanguard and Charles Schwab that have rolled out their own digital offerings – saw assets triple between March 2014 and September 2015, rising by $6 billion to reach $8.2 billion.
A healthy chunk of that total may well have come from ultra-high net worth Americans, Capgemini hypothesizes: the firm found that only 20% of wealth managers globally and even fewer (18.7%) in the United States believed that their clients would make the shift to automated advice providers.
Those clients, meanwhile? Their responses paint an entirely different picture. They say they’d be willing to shift as much as $1.5 trillion to automated advisors by 2017, while Capgemini calculates that the size of this market (including serving merely “affluent” clients, those with $100,000 in assets or more) could eventually be worth $4.2 trillion.
Capgemini has already documented the fact that the high net worth market is on the verge of a major transition, with wealth that today is in the hands of those in their 60s or older, about to pass into the hands of a new generation. Its analysts have identified a radically different set of attitudes on the part of those younger individuals, who are simultaneously more demanding and less trusting of the wealth management industry. These younger investors often believe, Capgemini warns, that “their wealth needs are less well-understood” and as a result, those 40 and under “show a greater propensity to break ties with their wealth managers and firms.” Those under the age of 30 — the millennials — display even more dissatisfaction – and demand even more digitization of services.
Increasingly, Capgemini suggests, it will be this demographic that drives client expectations, and companies that don’t deliver, whether in terms of providing the right mix of products and services or in ensuring that the message is on point, will find that they quickly become irrelevant. Capgemini’s survey of the wealthy under-30 group found that for 85% of them, a wealth manager’s current level of digitization was important; 89% of them said that a firm’s future level of digitization was critical, while 77% said they’d be prepared to abandon a relationship with a private bank or other firm that couldn’t deliver an online experience that blends seamlessly and effortlessly with phone and in-person relationships. Comparable responses among the over-60 respondents were (respectively) only 30%, 34% and 40%.
The classic wealth management client has been a silver-haired paterfamilias; someone who has built up a fortune over a lifetime of hard work. The industry has done a great job of serving his needs, Capgemini says, which is why satisfaction scores have been generally high. Now, the risk lies in taking those high scores at face value – in other words, in complacency.
The first step toward redefining the relationship is for the incumbent wealth management firms to make the investments in automation and digitization that their clients so clearly expect them to deliver. If they can do so – and deliver the message that they are keeping up with firms like WealthFront and Betterment in that segment of the investment management universe – then there’s a chance that they’ll be seen as something more than merely their grandfather’s private bank, complete with doddery old ancient retainers serving tea and sherry. Then those institutions will be better placed to fight to prove that they can deliver on other fronts, such as serving the increasingly global and sophisticated credit, investment and estate planning needs of those clients.
Some banks have already pushed forward with innovations. Earlier this year, JP Morgan Private Bank unseated Northern Trust in one competition for the title of US private bank of the year; one reason for the accolade was the former’s embrace of technology. The bank’s clients can access their portfolios online or via a mobile app, and receive up to date portfolio and market news as well as insights from its pundits.
The warning light is flashing, telling wealth managers it’s time to start thinking about tomorrow’s clients. Anyone that ignores the signal risks becoming as obsolete as the buggy whip.