Traditional wealth managers have always attracted traditional wealth clients, meaning they are always in constant competition with each other for the same “old British money”.
It is well documented that among private investment houses, the baby boomer generation is the main client base. As such, one of the major challenges firms face within this highly competitive corner of the wealth market is the size of the pot.
Most wealth managers, despite having a handful of very sizeable accounts, are dealing with the mass affluent, tipping over into the lower bounds of high-net-worth individuals (HNWIs). In this shared competitive space, clients at the lower end of the spectrum are likely to have their entire portfolio with one wealth manager, while those in the high-net-worth category may be tempted to split their portfolio between more than one manager.
In fact, the use of multiple managers is growing. According to research by CEB Wealth Management Council, in 2011, 55% of HNWIs used one wealth management provider, whereas this shrunk to 40% in 2016. This means there is an increasing, more critical, need for firms to distinguish their proposition and stand out from the crowd.
Yet, in the face of the same regulatory, budget and technology constraints, most asset management firms are looking to leverage service levels and personal relationships to set themselves apart. If they are all doing this, then it is far from a unique selling point.
Personal and professional service
As part of our latest study, UK Wealth Management at a Crossroads, a number of senior executives have a common belief that their firm’s level of personal and professional service was an important part of standing out. There is no doubt that it certainly helps, but firms cannot rely on this alone to secure and retain assets.
Globally, 36% of HNWIs believe that the firm itself is the reason to hold assets with them, compared to 24% who believe the wealth manager is the main focus. As firms become important entities in wealth management relationships, they need to put in place business models that leverage the brand value and technological capabilities they bring to the table.
Senior executives we spoke to also recognised that the talent and expertise of a firm’s staff was also critical, since clients are looking for good quality advice and for the investment manager to act as a “trusted adviser”. In fact, trust and expertise were seen as more important differentiators than investment performance, which will be an interesting point to bear in mind as firms look to adjust their business models going forward.
Innovation as differentiator
Innovation was another important differentiator mentioned by many of the participants, but this appears to be limited among the larger or more traditional British firms, as they become stuck with cumbersome legacy technology and systems that restrict their capacity to adapt. Moreover, according to research by Capgemini, only 14.8% and 14.7% of investment firms’ budgets are going into to proposition development and business modelling, respectively.
A further study by Roubini confirms that 62% of UK investment providers say that in future their top priority is focusing on providing superior returns and advice, followed by 61% who say that building trust and brand reputation is their main focus.
It is this kind of client-centric, outcome-based thinking that will help firms to find a unique voice in the wealth management space and connect with clients. But to assist with this effectively, firms will need a well-honed strategy for engaging with customers, as well as solutions and technology that appeal to the next generation of investors.
However, innovations rarely stay unique for long in the industry, so speed to market and the constant review and evolution of solutions for clients is imperative.