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Practice Management > Building Your Business

The Coming Fight for the Loyalty of the Millennial Mass Affluent

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What You Need to Know

  • Digital disruption is coming for the wealth management industry in expected and unexpected ways.
  • Tomorrow’s high-net-worth clients are today’s tech-savvy, mass affluent millennial and Gen Z investors.
  • Even the biggest and best-established firms must pivot to reach growth goals in a tech-first future.

Nikhil Sharma and Robert Norris are both senior leaders at Capco, a global technology and management consultancy supporting digital transformation in the financial services industry.

In a recent interview with ThinkAdvisor, the duo highlighted some of the work their firm is doing to help U.S. financial advisors and wealth managers respond to a bevy of challenges and opportunities.

Among these are the great forthcoming transfer of wealth from core baby boomer clients, who carry a well-defined set of product and service expectations, to millennials and members of Gen Z, who carry their own outlook on financial services. Perhaps the biggest obstacle to grapple with is what Sharma and Norris call the complete digital disruption of the financial services industry, which is only now in its early phases, according to the duo.

Similar challenges face leaders in manufacturing, automotive, health care and other industries, Sharma and Norris suggest, noting that the asset and wealth management industries are clear laggards in the digital disruption lifecycle that has profoundly affected other segments of the U.S. and global economies.

Change is here, Sharma and Norris warn, and the advisory marketplace is set to be one of the next big industries to be rebooted. Those firms that get their competitive thesis and technology transformation right, the Capco leaders argue, will be frontrunners in a promising landscape defined by evolving client expectations and new competitive pressures.

A Time to Pivot

Historically, Sharma and Norris say, the financial services industry has sold customers a limited range of offerings that have served well-defined, particular purposes. These have included portfolio management solutions, insurance planning, retirement savings or, as is increasingly common, generic financial literacy education.

In the wealth management segment, there has been a clear emphasis on winning a key set of highly affluent clients, those with millions and billions of dollars to save and invest. The biggest national wirehouse firms and regional players alike have traditionally targeted this segment, Sharma and Norris explain, using premium brokerage, advisory, banking and insurance products and services.

At the same time, mass affluent customers have been relatively underserved by the advisory industry. According to Sharma and Norris, it took the arrival of a new generation of fintech companies to demonstrate how agile business models and engaging user-focused designs could appeal to the mass affluent segment in a cost-effective manner.

At this moment, Sharma and Norris say, established national wealth management firms are coming to the realization that the emerging mass affluent segment must be a focus of outreach and attention. This segment, according to the pair, cannot necessarily be expected to pivot away from their current service providers just because they inherit and earn substantial wealth in the future.

In other words, Sharma and Norris say, firms that aren’t competing “down market” and seeking to build scale in the emerging mass affluent marketplace will not be able to meet their growth goals in the future.

In such an environment, the Capco leaders say, the vexing problem for established financial institutions looking to capture a slice of this market is understanding the motivations and values of millennials, who sit at its center.

“Raised as digital natives, they have much higher expectations from their financial institutions than their parents,” Sharma warns.

A More Holistic and Tech-Enabled Future

According to the Capco leaders, to ensure success in the future, financial institutions must be more than just “trusted advisors selling products.” They must also help customers achieve holistic financial wellness through an experience that is personalized, engaging, motivating and reflective of client goals beyond just their finances.

According to Sharma and Norris, these offerings must be wrapped into a seamless one-stop shop, and client experiences must be delivered directly to the customer on digital devices. They even go so far as to suggest the successful digital delivery of services is the “ultimate key” that unlocks access to the mass affluent segment of tomorrow.

In the experience of Capco’s experts, the financial services industry’s ability to make user-friendly tools is nascent and facing significant challenges. It is hampered, they say, by the inherent difficulty in creating true digital transformation of long-established, legacy systems. Adding to the difficulty is the complexity of products, pricing and operating models — all surrounded by tightening regulations on consumer privacy and data.

Capco’s operating premise is that these significant challenges also portend significant opportunities for firms and leaders willing to do things differently. Those firms that get the digital transformation right, Sharma and Norris argue, will win access to a substantial new market segment and enjoy burgeoning customer loyalty. They will also be able to control operating costs and reinvest in their approach.

“Firms that successfully create the right balance of digital tools and face-to-face financial wellness advice will be in prime position to lead the industry as it evolves this decade,” Norris concludes. “Only firms that make the required investments in technology, capabilities, partner finding and organizational efficiencies will survive and thrive.”

The Growing Need to Partner

Sharma and Norris say this outlook might seem daunting for firms and firm leaders that are not inherently tech-savvy, but the good news is that success for such firms is still very much possible, via the power of partnerships and collaboration.

According to Sharma and Norris, clients in this emerging mass affluent group are used to navigating marketplaces where many service capabilities have simply been commoditized, and they are comfortable with the fact that service providers often both compete and collaborate closely in the delivery of a given product or service.

“This state of affairs gives you a lot of freedom to rethink your operating model and your client services platform,” Sharma suggests. “If you need a new capability, you will have the opportunity to buy it, build it or contract a partner. Frankly, in the emerging environment, many smaller entities will have to partner with other groups to deliver expected capabilities, and that is OK.”

In fact, the Capco experts say, many firms, regardless of their size, will probably be better off utilizing third-party technology solutions to solve key client service problems. The alternative is to try to compete with — or more accurately, catch up to — digitally empowered organizations that are better skilled and better resourced.

“Our general suggestion is that, if a service deliverable is not a key part of your firm’s unique and well-understood value proposition for your clients, you are probably better off outsourcing it,” Norris says. “In many cases, your clients won’t even know, or care, that a partnership is happening.”

(Illustration by Carlos Zamora)


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