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The changing face of Wealth Management

It is a service which used to be exclusively accessible to clients in the top tax bracket. High net worth (HNW) individuals are often not finance experts. They seek investment and financial advice to maximize returns and reduce liabilities such as taxes. Professional firms offer wealth management services to a select group of affluent clients. Conventionally these have been specialized departments of big banks. Traditionally wealth management has been an involved, interactive, and ongoing process for both clients and service providers. This has now changed.

Australia’s wealth management industry

Australia is home to vast numbers of migrant workers. They send international money transfers worth millions of dollars as remittances to their home countries every year. Migrant entrepreneurs and professionals working with multinational firms in Australia frequently earn top tier salaries. Many of them seek professional wealth management. The WM space in Australia was valued at AUD 2.9 trillion as of 2020. There has been a small decline from the previous year. The Association of Superannuation Funds of Australia (ASFA) said that the reduction was due to the effect of COVID-19 on global financial markets. The Financial Service Council provides various statistics about the industry. Wealth managers seek HNW individuals as clients. Australia’s wealth management firms include JP Klein, Stonehouse Financial Services, Greeve & Associates, Blue Finance & Accounting, and many more.

The hybrid advisory model

Recently wealth management services have become more accessible to investors in all tax brackets. This is made possible with the advent of artificial intelligence (AI) and the increasing use of robotic advisors. Robo-advisory apps such as Stockspot, Six Park, and Raiz are the new alternatives to some of the conventional WM service providers in Australia. Technology allows WM firms to give recommendations based on each client’s investment preferences and history. A big part of any AI application is incorporating data into the decision model.  WM is becoming more algorithm-based and science-based, rather than being human dependent. AI is revolutionizing trading and investing.

KPMG reported that the COVID-19 situation has speeded up these transformations. Social distancing was a big change in an industry which has been focused on highly personalized service delivery. The rapid growth of AI in WM has caused a significant market disruption. With AI and a data-centric approach WM firms need fewer personnel, yet are able to give more reliable advice to a larger customer base.

New service delivery models

AI and app-based WM is now accessible to almost anyone. The big players are losing ground to new entrants. A report from Global Data’s Senior Analyst Heike van del Hoevel estimates that 76% of Australia’s WM firms slashed their fees in 2020. Getting new clients for traditional services is becoming more difficult.

HNW clients are usually very sensitive to the way WM services are delivered. The right service model is crucial. Prompt and personalized communication is non-negotiable. Forbes says that HNW individuals have a benchmark for what good service is, and the standard is extraordinary. Unlike low net worth clients HNW clients view value in terms of expected benefit, regardless of cost and convenience. WM Firms can choose to specialize in servicing one category of clients. Alternately they can merge the benefits of both methods into a hybrid advisory model. The latter is becoming more common.

The hybrid model relies on processes and algorithms to make predictions, while relying on good old human interaction to deliver personalization. Successful WM firms establish structured and standardized communication strategies relatable for each client. It is essential to engage employees in the hybrid model. Customer-facing employees must have a good understanding of acceptable behaviors with old clients as well as new leads. Having a robust service delivery model is an effective long term strategy for WM firms.

Goal-based proposition

A Deloitte survey found that many WM advisors lack the necessary resources to help larger numbers of clients make better decisions. Business Wire said that only 10.5% of Australian WM firms specialize in HNW clients. The rest target LNW investors. The aim of LNW clients is usually to sustain their current living standards to old age. Inconsistent returns in an unpredictable economy are creating many doubts about retirement security. This is forcing large numbers of LNW individuals to seek professional WM services. While the WM sector is growing, it is also changing. More WM firms are now specializing in helping LNW clients improve their chances of success. They do so by offering algorithm-based WM advice right from the early career stage.

Specialization and unique propositions

It is an emerging mass market. New HNW clients find it difficult to differentiate one WM service from another. The value propositions, tools, products, and models seem to be all too similar. For WM managers this makes it harder to get new clients. Deloitte researcher Gauthier Vincent and his team recommended that firms specialize. WM firms can shift attention to areas in which they can differentiate them from the competition. For instance goal-based financial advisory company Vimvest chose to specialize in millennial investors. A report on Yahoo! News quoted the firm’s co-president saying, “traditional financial planning does not speak the language of millennials.” Vimvest’s decision to target this market segment has enabled the company to concentrate on services and products that meet a specific segment’s needs.

Challenges like COVID-19 will continue to force the WM industry to evolve. Significant changes and disruptions will continue to occur. Firms that remain focused on their core value propositions are more likely to succeed.

About the author:

Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.