Much has been written about the significant changes in the wealth management industry driven by digital innovation. Digital tools that enable financial advisors to do more in less time for clients — while also giving clients a more convenient and personalized wealth management experience — are indeed essential for helping advisory practices grow and remain competitive.
However, while cutting-edge technology can improve and streamline many aspects of financial planning and wealth management, even the fanciest features and most sophisticated capabilities can’t replicate a close advisor/client relationship based on trust and understanding. These relationships are important to clients, especially for those with high net worth.
Without a solid foundation at the heart of their relationships with advisors, high-net-worth clients will leave — even if their advisors are using the latest technology to improve investment outcomes. Capgemini’s World Wealth Report 2018 found that, among HNW investors, satisfaction with advisors and investment returns do not necessarily grow together proportionally.
Globally, HNW investors garnered investment returns of above 20% in 2016 and 2017. However, for every 1.0% of investment performance delivered during the two-year period between Q1 2016 and Q1 2018, HNW investors’ satisfaction with advisors only increased by 0.1% to 0.4%.
Capgemini’s research demonstrates that higher investment outcomes aren’t enough for advisors to increase satisfaction and retention among their HNW clients. In fact, despite two consecutive years of investment returns above 20%, wealth management firm retention among the HNW client segment is decreasing.
As of Q1 2018, HNW clients engaged the services of 2.2 wealth management firms, on average—down from 2.6 in 2014, according to Capgemini.
Digital Innovation Shouldn’t Just Check a Box
Best-in-class technology can potentially enable advisors to become more operationally efficient and enhance investment outcomes for clients, but without a trusting advisor/client relationship, HNW clients won’t be impressed. Capgemini reported that only 55.5% of HNW investors around the world feel strongly connected to their wealth managers.
This is a crucial finding. Since HNW investors are retaining fewer advisors and wealth managers, they are likely seeking to consolidate assets with those they trust and value the most. If just a little over half of HNW investors have a strong relationship with their advisors, then advisors that focus on building and enhancing personal connections with clients have a higher chance of becoming the primary wealth manager for HNW investors.
When evaluating prospective technology solutions and platforms, advisors need to keep client engagement top of mind. Digital innovations shouldn’t be implemented just because they streamline workflows and offer more reporting options — advisors should also make sure they can bolster communication and collaboration with clients. Similarly, when updating proprietary software and tools, advisors should make enhancements that can help clients feel like they are more involved, informed and in control.
For example, an advisory practice’s client portal shouldn’t just be a tool where clients can log in to view account performance or access reports and other documents. It should be a gateway where clients can communicate with their advisor to ask questions and obtain guidance in real time. Furthermore, some modern client portals include interactive presentation features that enable advisors to make comprehensive digital presentations demonstrating unlimited scenarios or educating clients about certain investment products and strategies. Some portals also enable clients to try out scenarios themselves and view the potential long-term impact of potential portfolio adjustments.
Capgemini reported that global HNW individual wealth grew by 10.6% in 2017 to exceed $70 trillion for the first time — and estimates that HNW individuals’ wealth will surpass $100 trillion by 2025. The ongoing growth of HNW investor wealth presents an ideal opportunity for independent advisors who understand the importance of forging strong personal connections with clients.
Angela Pecoraro is CEO of Advicent, the financial planning technology provider for more than 140,000 financial professionals across more than 3,000 firms worldwide.