Crisis brings welcome chance to promote technology without losing personal touch
Whether “robo-advisers” that offer a fully digital approach can take advantage of the sudden need for reassurance and advice remains to be seen
Traditional wealth management firms have long been grappling with how far and fast to develop digital services.
But now a somewhat reluctant industry, with a client base seemingly comfortable with the ways that things have always been done, has been thrown the huge challenge of the Covid-19 pandemic and associated economic shock.
There were few plans in place for a lockdown combined with a stock market upheaval. But as we emerge from months of significant disruption, clients are seeing changes in how they work with some of their most important advisers that will make their relationships more efficient and flexible. This is most welcome for investors and advisers alike.
Since February, wealth managers have been far from idle. Clients duly concerned by dramatic falls in their portfolios have needed to be reassured and reminded not to crystallise losses, if they can possibly avoid it.
Since then, most of the leading wealth managers surveyed this year have seen many clients try to take advantage of the stock market falls and buy in the dip. It has also prompted some clients to review longer term plans; with many wealth managers seeing an increase in clients adjusting their wills.
As around half of clients with $1m and more in assets are aged 60 or more, they have been the most at risk from the disease as well as usually suffering the toughest enforced isolation.
But a cohort not previously known for its internet skills is fast increasing its digital literacy. Face-to-face meetings, a default and staple of an industry that prides itself on the value of personal contact, have been postponed or replaced with phone or video calls. Relationship managers and their colleagues have been working from home for their own safety leading to significant adjustments in their working practices.
In fact, most traditional wealth managers of the type of Rothschild & Co believe they’re likely to benefit more from the current situation than low-cost digital-only providers. When markets are uncertain, traditional managers see clients value the personal relationships with their advisers more than usual. They want them to be active and available to talk things through.
This is indeed one of the big benefits of traditional wealth management. But an over-reliance on personal ties can distract from bigger, more fundamental, changes that could be adopted.
Many of these enforced changes are accelerations of long-term trends.
Almost all wealth managers in the survey we have just carried out with the FT thought the pandemic would speed up the adoption of digital communications.
And there are now big opportunities to make wealth management more efficient through digitalisation.
Fewer clients may need to be encouraged to check their positions online, as, with all the turmoil, for many it will have become the new normal.
The automation of simple processes, digital verification and online signing of documents can be rolled out more thoroughly.
And there are also old-new techniques that are being brought into the digital age. Client video calls where multiple generations are brought into conversations digitally speed up family-wide discussions.
And centralised all-client calls for CIO updates with the interactivity to answer questions instead of long written analysts’ updates have also proved popular.
Meetings across generations of wealthy families and CIO calls are nothing new; they have a lot of value. Bringing them into the digital age will be vital to providing their benefits to clients.
If and when global leaders have managed to reduce the spread of the virus successfully, we expect the industry to return to many tried and tested techniques. It is, for example, extremely hard to replace face-to-face meetings in understanding what someone is trying to achieve with their wealth.
Where digital-only providers, such as UK-based Wealthify, have an advantage is that digital is their cultural default. Their systems are also newly built for the digital age and do not require the huge investments many traditional managers are making. This typically brings a price advantage which can make returns attractive.
Whether “robo-advisers” that offer a fully digital approach can take advantage of the sudden need for reassurance and advice remains to be seen. But some clients who have less need for human contact or advice may prefer the lower costs involved, especially for the simpler elements of their portfolios.
The industry also has significant financial challenges of its own to overcome. It is far from immune from the economic turmoil. Providers, even those recording good first-quarter results, are refocusing their spending plans, especially in technology, to concentrate on client demands and cut costs.
And the pandemic has highlighted specific challenges with cyber security. While wealth management firms are constantly testing security procedures, many have recognised that the elderly, wealthy and digitally unsavvy clients, now doing more of their financial management by internet, can be rich pickings for criminals.
Overall, the industry has quite some way to go to get it right for clients. Savanta’s own MillionaireVue survey showed that in the first quarter of the year, only two in three clients were very satisfied (9 or 10/10) with their provider’s digital services. Compared to China, where the proportion is 86%, this is a terrible result.
China and other major Asian economies are not just markets with growing numbers of wealthy people but also sources of innovation. Most of their wealth managers are unencumbered by legacy systems and have many “digital native” clients. Chinese, and other firms in the Asia-Pacific region, can perhaps offer examples as to how to respond to the digital challenge post-Covid. In employing artificial intelligence for instance. Or managing big data.
But even as they lead on new technologies, Asian wealth managers remain steeped in the traditional client-first service culture. Chinese providers have not forgotten that a face and a name help interpret, advise and provide accountability to wealthy clients.
This is a period of great uncertainty in wealth management as in the world as a whole. But wealth managers have been aware of the growing challenge of digital communication and service for many years. What different firms prioritise in the next 12 months may determine the winners and losers for years to come.
This article originally featured on FT.com