What’s a great client experience really worth in the wealth management business? Quite a lot, according to my firm’s new study on the subject.
Wealth management firms are engaged in a dangerous “race to the bottom” as they lower fees and default to competing on price, in the apparent absence of any other meaningful differentiators.
But might client experience be the key to avoiding this death spiral of commoditization? That was the question my firm, Watermark Consulting, sought to answer with its Wealth Management Customer Experience ROI Study.
What Is the Client Experience?
First, when evaluating the impact of client experience in wealth management, it’s important to understand that the “experience” is shaped by many interaction points (beginning even before someone is a client). Yes, fees and performance matter. However, so too does everything from the accessibility and professionalism of the advisor, to the quality and readability of the firm’s investment reports and information resources.
Every live, digital and print touchpoint helps shape client impressions to some degree. Or, to put it another way — excellence in the client experience isn’t just about investment returns.
How the Study Was Conducted
Using this holistic definition, the goal of our study was to illustrate the overarching influence of client experience on the success of wealth management providers.
To accomplish this, we looked at the cumulative total stock returns for two model portfolios of publicly traded wealth management firms: one consisting of client experience “Leaders” and the other with client experience “Laggards.”
(Firms were separated into these groupings using J.D. Power & Associates’ annual Full-Service Investor Satisfaction ratings, which are based on a broad assessment of client experience quality, consistent with the definition above.)
Ten years of investor satisfaction rankings and stock returns were included in the analysis. The results were quite compelling, as vividly illustrated by the graphic below, which shows the cumulative returns for the Client Experience (CX) Leader and Laggard portfolios.
On average, wealth management firms with highly rated client experiences far outperformed those with low ratings. Over the decade analyzed, CX Leader firms delivered an aggregate total return that was over four times greater than that of the CX Laggard firms — an astounding 110-point performance differential.
While there are obviously many factors that influence a company’s stock price, the results of this study indicate that, over the long term, a great client experience helps build business value while a poor client experience erodes it. (Notably, that’s a takeaway with relevance to any wealth management firm, whether public or private.)
Implications for Wealth Management Firms
If, as this study suggests, there is competitive advantage to be gained by delivering a superior client experience, then the next question is: How does one accomplish that?