Author: Wealth Dynamix – wealth-dynamix.com
Ask any number of wealth managers what is the most important aspect of their work and the vast majority will point to sales. Sales is the ultimate aim of any commercial organisation, but with traditional methods of sales activity failing to increase AuM or reduce churn, servitisation is emerging as a much more effective alternative to the “sell, sell, sell” product strategy of old.
A practice that originated in the manufacturing sector, servitisation uses services as a driver for growth. Servitisation generates additional revenue streams by providing services and solutions that supplement traditional product offerings. At a basic level, manufacturers have been supplementing product revenues with spare parts sales for generations. The next step in the servitisation model is to offer intermediate services such as a helpdesk, periodic maintenance, repair and overhaul – all focused on fostering customer wellbeing, rather than purely selling product.
Increasingly, wealth management clients have goals and aspirations centred around financial wellbeing rather than simply amassing wealth for wealth’s sake, and forward-thinking wealth managers are beginning to adopt a servitisation mindset to support this. I raised this topic on an NMD+ webinar panel I participated in recently: Demystifying the challenges and opportunities for Wealth Management with hyper-personalisation (watch the replay here).
Client service has always been at the core of wealth management value propositions, and the desire to deliver “white glove” services has never waned. Traditionally, relationship managers have placed significant value on face-to-face meetings, but with the emergence of an increasingly broad and diverse client base it has become apparent that white glove service means different things to different people. Wealth managers who make sweeping assumptions based on basic demographic segmentations – age, sex and location, for example – are using an outdated approach to sales and marketing.
Providing digital portals offering one-stop-shops to support both clients and advisors is a typical response, and a big step forward. However, the switch to digital has continued to focus on selling more product to clients, rather than supporting clients in their efforts to improve their financial wellbeing, and it has become very clear that successful servitisation strategies require data analytics and hyper-personalisation on a totally different scale.
In making the shift from product sales to servitisation, wealth managers must pay special attention to four key factors that will influence their future success.
The impact of an increasingly diverse client base
In years gone by advisors served just two generations, the baby boomers and their silent parents. Today, advisors are serving the needs of five generations – often within the same family – with the addition of the Gen X, Gen Y and Gen Z. This raises two major challenges:
First, failure to nurture relationships with spouses, children and grandchildren, in addition to the typically male patriarch, will inevitably increase churn when wealth transfers from one generation to the next. Emerging, tech-savvy generations favour digital-only providers for highly personalised, everyday financial services like banking and mortgages. Although they don’t necessarily hold significant funds with these providers today, those who are experiencing fast, efficient and trustworthy client service will have no reason not to switch funds away from their parents’ or grandparents’ advisors when they inherit the family wealth.
Second, generational differences in interests, expectations, peer groups and perspectives are dramatically increasing the need for hyper-personalisation. Advisors must communicate with each individual via their channels of choice, which increasingly includes social chat and mobile devices. They must provide highly personalised insights on-demand, and begin investing in the responsible ESG funds favoured by upcoming generations.
The changing dynamics of client churn
Wealth managers should be rightly alarmed by the results of an EY survey indicating that 33% of clients have switched providers or moved assets in the past three years, and 33% intend to do so in the next three years.
Why? Because clients seek greater value as the complexity of their financial situation evolves, on average working with five different wealth management service providers to fill specific needs, often switching at critical life moments, for example leaving a job, upon marriage, divorce or bereavement, the birth of a child, inheritance or retirement.
Mike Lee, Global Wealth and Asset Management Leader at EY, said: “Wealth managers need to be agents of change – they need to have the emotional intelligence to understand how life changes are affecting their clients and offer their best ideas for dealing with these changes.”
To reduce churn advisors must remain as close as possible to every client. They must know when these life changes will happen, their anticipated impact and their client’s most likely response. They must engage effectively with every client and stakeholder, in each generation, gathering data along the way that can be monitored and analysed to support proactive financial planning.
Differing perceptions of value versus fees
According to the Capgemini 2020 World Wealth Report, 33% of HNWIs are “uncomfortable” with fees, and 22% intend to switch wealth managers within the coming year, stating high fees as the primary reason for the swap. Fee-sensitive Gen X, Y and Z clients are more likely to have a preference for self-service, presenting a major challenge for wealth managers whose high fee structures have historically been justified by the cost and time needed for in-person meetings, rounds of golf and wining and dining.
Examining fee pressure and service value, the 2021 EY Global Wealth Research Report found that more than half of clients said they are willing to pay for more personalised services. Wealth managers must work hard to scrutinise what “value” and “white glove service” means for each generation of clients and stakeholders, and formulate innovative strategies that add value for each individual.
The immense value of client data
Wealth management firms capture a vast quantity of client data. From initial engagement, through onboarding and ongoing throughout the client lifecycle, data is captured for many different purposes, from routine administration and fact-finds through to compliance. Digital-only providers have proved to be masters of hyper-personalisation and servitisation, leveraging this data to make super-specific, relevant recommendations to clients in the right way, at the right time.
Gone are the days when wealth managers can rely on a cursory “Dear John” at the start of a communication to convey personal service. Data-driven hyper-personalisation must be used intelligently, to avoid inaccurate assumptions and boost relevance. Just because you’re passionate about ESG investing doesn’t mean you’re an animal lover, and it is certainly a mistake to assume that all women prefer fashion over fast cars. Hyper-personalisation must be interwoven throughout all communications and strategies, to increase client engagement, increase trust, boost loyalty and grow AuM.
In the end, the role of the wealth manager has transitioned away from helping clients select the right investment products to ensuring their financial wellbeing. Clients want to enjoy a particular lifestyle, be prepared for upcoming life events and be assured that their interests will be safeguarded in the future. Servitisation, backed by data-driven hyper-personalisation, is the most effective way forward. Advisors who continue to bang the “sell, sell, sell” drum – or are insufficiently supported by technology and data analytics to place wellbeing over sales – have a tough and unproductive journey ahead of them, because selling without servitisation is increasingly difficult to achieve.
By Lucy Heavens, Marketing Director, Wealth Dynamix