This article was initialy published in FT Adviser . Read the original article here.
Innovation is an inescapable term in the wealth management industry.
This focus on innovation is a response from firms faced with criticism that they were adapting too slowly to the wave of disruptive technology that was redefining so many other areas of financial services. Wealth managers have invested heavily in their ability to offer the latest and most newsworthy technologies.
However, the bid to stay ahead has distracted many from the underlying reason for investing in innovation: to better serve clients in a rapidly evolving environment. Today, the mosaic of modern wealth is shifting rapidly, and the issues and challenges that impact wealthy individuals have been changing even more dramatically than our industry has.
Meaningful innovation then, requires a deep understanding of how this mosaic is shifting and what this means for our clients in terms of the challenges and opportunities they face, and what they expect from their advisers.
First and foremost, the HNW individual has changed.
There have never been so many millennials, women, or people from emerging markets in the HNW and UHNW brackets; a trend that is set to continue.
By 2020, women are expected to control US$72 trillion - roughly 32 per cent of all wealth – up from US$51 trillion in 2015. Millennials are going to inherit US$30 trillion in the coming decade. China is set to have a million more millionaires by 2023.
These newly wealthy individuals have very different expectations, different ambitions, and different investment goals than historically wealthy demographics. Millennial HNWIs, for example, are more likely to demand digital services.
However a survey by MyPrivateBanking reported 73 per cent of millennial HNWIs stated that they are unimpressed with their wealth manager’s digital app. Clearly, the industry still has a long way to come in developing technology that allows us to communicate with digital natives in a way that meets their expectations.
While personal relationships and trust still matter immensely to this group, they also expect – and demand – a seamless digital offering, from being able to check their portfolio on an app, to communicating with their adviser via a chat function. Wealth managers must invest in these types of technological innovations in order to provide the level of service that this demographic expects from any service provider.
And the benefits of this type of investment aren’t limited to a millennial audience.
The rising clientele from emerging markets will also demand a digital experience that gives them peace of mind that their advisers are always close at hand, no matter where they are in the world. However, technology innovation alone is not enough to ensure we are meeting the needs of individuals that care as much about protecting and preserving their wealth, as the sustainability of their investment choices.
HNW millennials and women are renowned for their focus on sustainable investment and investing towards a purpose-led goal. According to the Economist Intelligence Unit, 56 per cent of HNW women in the UK think the ability to create change through impact investing is becoming more important in defining wealth. This is compared to just 38 per cent of HNW men.
To keep pace with the changing demands of this growing demographic, wealth advisers will need to be able to offer the full array of options and opportunities that ESG (Environmental, Social and Governance) and impact investing represent. Failing to meet their needs risks losing the next generation of wealthy individuals to competitors or other investment channels.
Another dramatic change in the mosaic of modern wealth is the rise of globally mobile citizens.
The much-venerated Knight Frank Wealth Report this year told us that 26 per cent of UHNWIs are planning on emigrating in the next year, while 36 per cent already hold a second passport.
It is now common for wealthy individuals to hold business interests in one region, while they live in another and their children go to school in a third country. For advisers, managing their clients’ wealth across multiple jurisdictions is highly complicated from a tax and regulatory perspective, and this is just one element of the challenges facing globally mobile clients.
Ensuring that family members, no matter where they are in the world, are given the highest standards of assurance and protection is also an essential component of what wealthy individuals expect from their advisers. Further, as the global political and financial framework continues to be rewired, advisers will also need the expertise to advise how the regulatory landscape might be shifting and how their globally mobile clients might be affected.
In order to maintain trust and to offer the most efficient solutions, wealth managers must invest in regional expertise on a global scale. Innovation in this context is investing in the right types of expertise, language skills and cultural understanding; it is innovation in client services. This investment is crucial to fully understanding the factors that are encouraging wealthy individuals to emigrate, and in order to advise clients on the most appropriate wealth solutions available to them.
Innovation must be a continuous process.
The clients we serve will continue to change, as will their needs and aspirations.
As Generation Z starts to build their entrepreneurial legacy, we will need to ask ourselves, what will their investment priorities be? What services and advisory experience will the new wave of HNWI women expect? How will the opportunities and challenges represented by globalisation and political uncertainty motivate our international clients in years to come? These are central questions that wealth advisers must answer in order to best respond to the constantly changing mosaic of modern wealth.
Innovation in technology, in expertise, and in client servicing are all crucial for wealth advisers to stay competitive. But innovation for innovation’s sake can distract managers from finding the best solutions for their clients. We must invest in understanding the new, more diverse, younger and more globally mobile face of HNWI, and invest in the innovations required to help them define and build their legacies.
Executive Director, Sales and Wealth Structuring Solutions
Lombard International Assurance