Worldwide high-net-worth individuals' trust and confidence in wealth management firms and the market as a whole are running high, but their feelings about individual wealth managers aren't so rosy.
The recently released 2016 edition of Capgemini's World Wealth Report, which surveyed 5,200 HNWIs (defined as those having investable assets of $1 million or more, excluding primary residence, collectibles, consumables and consumer durables) in 23 countries, as well as over 800 wealth managers, offers some interesting insight into HNW attitudes and where wealth managers are falling short, as well as highlighting some major opportunities for forward-thinking advisors in this space.
According to the report, in the past 12 months, high net worth trust and confidence in wealth management firms increased 17 percent, to 73.9 percent overall. Even more impressively, trust in financial markets nearly doubled, increasing from 30.8 percent to 60.8 percent. Such positive feelings towards the wealth management industry by HNW individuals should bode well for advisors, but client confidence in individual wealth managers grew a meager 1.9 percent. Overall, nearly 60 percent of HNW individuals are confident in their wealth manager, so it's not all doom and gloom, but given the spike in positivity toward the industry as a whole, one would have expected wealth managers to fare a little better.
Bill Sullivan, Capgemini's head of global financial services market intelligence, notes, "Historically, trust in wealth managers is higher than that in firms and markets, but we saw a big divergence this year." He attributes some of this shift to successful marketing and education efforts on the part of wealth management firms to more clearly elucidate the value of their services to clients, an area in which individual wealth managers haven't been quite as successful, particularly in light of the rise of automated advisor services. "There's a lot more pressure now on wealth managers to show that they're delivering that value," he notes.
But, lest we attribute everything to manipulation of perception, Tej Vakta, Capgemini's senior leader, global capital markets practice, explains this reluctance in simpler terms: "High-net-worth individuals are simply expecting wealth managers to do more."
HNW individuals' tepid attitudes toward their wealth managers are further borne out by an examination of where their investable wealth is held.
Globally, the average HNW individual has only roughly 32 percent of their total investable wealth with wealth managers, and only 20 percent of that total wealth lies with the primary wealth manager. Though many HNW individuals (particularly those under 40) have a portion of their wealth locked up in illiquid assets, like a business, there is still a great deal of money out there that HNW individuals are content to let sit in retail bank accounts (18 percent) or just hold as physical cash (14 percent), than have managed by a wealth professional.
These numbers are simultaneously an indictment of the performance of many individual wealth managers and representative of a great opportunity for those who can rise above the masses. And, according to the study, one of the primary roads to future success for such advisors is to highlight the holistic planning advantages an individual advisor can offer, while also embracing the convenience of the digital realm.
When asked how important digital offerings were to future decisions to increase or decrease the assets managed by their primary wealth managers, a whopping 73 percent of global HNW respondents answered "significant." And, contrary to what many advisors to HNW clients believe, these "digital offerings" do include robos.
The disconnect reflected in these results is jarring. Over twice as many HNW respondents would be actually willing to try an automated advisor than the surveyed wealth managers thought.
But, embracing automation doesn't necessarily have to toll the death knell for individual wealth managers. Sullivan believes that "Robos aren't an either/or proposition. Good wealth managers will incorporate automation and thrive." Vakta adds that "Digital collaboration tools are tops among client demand."
Sullivan also cautions advisors not to become too attached to today's robo advisor paradigm, "Current robo business models will be challenged going forward. Soon, having a robo-type capability will be table stakes. How to leverage that without cannibalizing your other services will be the question."
HNW individuals are increasingly accustomed to the performance and convenience that digital resources impart on their daily lives, and the study stresses that wealth managers would do well to strive to ensure that clients' wealth management experience more closely mirrors their day-to-day one.
Ultimately, Sullivan believes, "The winners will be those who can move into the digital age and meet clients where they're living."