In February – back before wearing a mask to the grocery store was common in the US and working from home was, for many, a novelty – I forecast that investors’ demand for personalized and customized advice would be a key theme for wealth management this year.
If only I could forecast the weather and the lottery with that accuracy! Here we are, five months later, and the COVID-19 pandemic has only intensified the pressures that wealth managers face to meet clients’ expectations and help them navigate through these uncertain times.
As Capgemini explains in its recently released World Wealth Report 2020 and LinkedIn Live online discussion around the state of the wealth management industry, firms are in “unchartered waters” this year. This uncertainty has lowered high-net-worth investors (HNWIs) appetite for risk, while the “harsh COVID-19 environment” will probably increase their expectations that wealth managers offer greater value for the fees they charge, according to the report.
But even in unchartered waters there is some predictability. As the report shows, HNWIs were already concerned about the wealth management fees they paid in 2019. In fact, around one-third of the HNWIs surveyed for the report said they were “uncomfortable” with these fees, and 22 percent said they planned to switch their primary wealth management firm within the next year, with high fees as the top reason for the planned switch.
Reading this, some might be tempted to write these investors’ discomfort off as an effect of the pandemic. The recent global financial recession that began on February 20 has left many people shaken, worrying what will happen to their investments and, moreover, their futures in general. However, Capgemini conducted its Global High-Net-Worth Insights Survey between January and February. As Anirban Bose, CEO of Capgemini’s Financial Services Global Business Unit, and LatAm operations, astutely notes in his preface to the report, that was when “global wealth was climbing” even “despite an undercurrent of trade and geopolitical tensions.”
“Few predicted the unlikely black swan that would usher in the biggest health crisis and its severe social and economic impact,” he writes. “While there is no historical guidance for what may happen next, the virus and its impact on the global economy have materially changed the investment outlook for 2020.”
And so, no, the HWNIs surveyed who said that they were uncomfortable with the fees that their wealth managers charged in 2019 were not just retroactively looking back at the previous year, swayed by the uncertainty wrought by COVID-19. They felt that way even before the unlikely black swan.
That’s why I believe the current crisis may prove to be the crucible that forces wealth managers to confront trends in client expectations that have been brewing for years. As I’ve said many times, wealth managers that take a one-size-fits-all approach to clients’ and prospective clients’ needs risk falling behind as the popularity of robo-advice skyrockets. Worldwide, assets managed by robo-advisors is expected to grow at an annual rate of 26 percent from 2020 to 2024, resulting in a projected total of $24.872 billion by 2024, according to Statista. As we look at these projections, let’s keep in mind one of the ways that robo-advisors tend to attract investors: lower fees.
For traditional wealth managers, the solution is not a low-fees war with robo-advisors; it’s a marriage between technology and human advice. As Capgemini explains in the World Wealth Report 2020, firms can use technologies such as artificial intelligence (AI) and analytics to “hyper-personalize” clients’ experience. That involves using data analytics and machine learning to provide personalized portfolio construction and tailored advice, and using Application Programming Interface (APIs) to create a comprehensive view of a client’s investments and generate customized client reporting, according to the report. This hyper-personalization, together with providing socially responsible investment (SRI) options, “will be essential” to both retaining current clients and gaining new ones in the “uncertain COVID-19 environment,” the report says.
And so, while the COVID-19 health crisis is undoubtedly horrific and navigating the resulting social and economic impacts will be a challenge for everyone – HNWIs and wealth managers, included – it also represents an opportunity for wealth managers to do – and improve – what they do best: giving investors financial advice with a human touch. As Capgemini’s Bose writes, “Your firm’s response to the events of 2020 and the ability to effectively engage with clients whose priorities may be shifting can define the future of your business.”
By embracing technology and using it to provide investors with the hyper-personalized advice they crave, wealth managers can work to make that future a bright one – for themselves and the clients they serve.
This article originally appeared on Forbes.
