High-net-worth clients demanding transparency, choice and convenience are driving a “revolution of digital commerce and direct-distribution” in wealth management, according to a report released in August by PricewaterhouseCoopers.
PwC noted that in addition to privacy and regulatory concerns, firm culture is also sometimes a hindrance to implementing new technology. “Wealth managers should reimagine their businesses through digital technology by adopting a relentlessly experiential view of their enterprise,” the report suggested.
The need to adopt digital technology isn’t been driven only by a younger client base that is more likely to prefer digital communication. PwC found the huge numbers of retiring boomers led to the proliferation of online retirement engines to deal with their needs. Similarly, the wealth transferred from all those boomers to their heirs could be as much as $41 trillion over the next 50 years, according to PwC.
The beneficiaries of that transfer have “specific expectations about client interaction, technology and access, which may drive demand for richer, more connected experiences.” Indeed, a recent study found wealthy millennials preferred Mint.com over traditional wealth managers, and a Cogent Research study found “44% of Gen X and 70% of Gen Y investors use social media specifically for personal finance and investment purposes.”
However, PwC pointed out that younger clients weren’t the only ones interested in digital communication and called the notion that baby boomers don’t use these tools a “myth.” Their Internet usage is similar to that of millennials, according to a Pew Research Center study, and their differences are in along the lines of what they use, not how they use it: Boomers prefer tablets to millennials’ smartphones. “Thus the question is not whether or not the baby boomer generation adopts digital, but rather, how firms deliver a sophisticated multichannel experience to them,” PwC noted.
Another factor driving growth of digital communication is the changing demographics of the country. Americans are more diverse and are hitting traditional life milestones at different stages in their lives, if they’re hitting them at all.
PwC identified four technology-specific trends that were driving innovation in the way wealth managers integrate digital tech in their practice.
First, of course, is the widespread adoption of social media among clients. PwC found 70% of wealthy investors have changed their relationship with a financial institution or made changes to their portfolio based on something they read on a social media account.
Mobile media, too, is changing the way investors consume information. A paper published in the MIT Technology Review found that in three years tablets have become as widespread as televisions and mobile phones became after 10 years. The Pew Internet & American Life Project found a quarter of consumers with smartphones prefer using them to access the Internet instead of their computers.
Big Data and analytics are helping wealth managers create personalized portfolio management strategies, PwC found.
Finally, the cloud is having a significant effect on wealth management practices, especially as they focus on operational and cost efficiencies.
One of the biggest drivers of advisors need to adopt digital strategies is competition. Automated online advice and investment forums are “disruptive entrants” to the market and give consumers more choices for advice.
“The need for an advisor solely as an expert to help a client manage through an opaque market is increasingly being called into question as information proliferates,” according to PwC. “New, potentially disruptive competitors are forcing wealth managers to reconsider the role of the advisor as new channels for obtaining investment advice and selecting and evaluating advisors emerge – all with the backdrop of a rapidly changing regulatory landscape.”
So what can advisors do to meet these challenges? There are three components of a connected digital experience, PwC said: discovery, engagement and transaction. In the discovery phase, advisors can use social marketing and social intelligence and analytics to connect with clients. Social intelligence and analytics will also help engagement with clients, as will social collaboration. Finally, digital mobility will help ensure transactions happen effectively.
Social collaboration is an important part of wealth managers’ strategy because it affects how clients communicate with their advisor, as well as how the firm manages internal processes. Collaborative technologies like forums help position the advisor as an authority in clients’ eyes. More connections can also help advisors create focused market niches with little cost.
The benefits of collaboration are more pronounced when they’re the result of daily activities. PwC recommended advisors create incentives to push employees to adopt collaborative tools on a daily basis.
Enterprise co-creation is an offshoot of collaboration and engagement. As clients increasingly demand more complex planning, PwC suggested wealth management firms may find themselves partnering with third-party providers for as much as two-thirds of non-investment services like family governance, education or collectibles management.
PwC argued that as consumers become more accustomed to using mobile devices to conduct business, it reduces “the need and, we would submit, even the desire for direct interaction with their advisor.” Consequently, digital mobility is critical to ensuring continued relationships.
Check out Putnam’s Portrait of the ‘Social Advisor’: Younger, Likes LinkedIn, Gets Referrals on ThinkAdvisor.