Digitally Savvy Consumers
Wealth Management, a market that five years ago was thought to exist beyond the reach of digital disruption, now appears ready for a shakeup. As banks race to adapt to this new paradigm, brands already trusted by tech-savvy consumers threaten once steady income streams for multinational financial firms.
In a three-year Viacom survey of Americans born between 1981 and 2000, 73 percent say they are more interested in new financial services offered by Google, Amazon, Apple, PayPal or Square than by their current national bank (1). Consumers today already trust tech companies – think, Mint and Apple Pay – with their sensitive financial data; as a result, other tech companies whose core focus isn’t financial service look to enter the market.
Tech companies’ combination of consumer trust and reach make them a significant threat to financial institutions. With over one billion members, Facebook lets one-sixth of the world’s population transfer funds through its Messenger app. Google and Apple have convinced millions to trust them as a retail payments partner through their e-wallets apps.
This nontraditional threat expands beyond payments. Chinese e-commerce giants Alibaba and Tencent offer competitive money market and wealth funds, with the latter’s wealth fund boasting 10 million users and $16B in assets under management (2,3).
Roboadvisory’s High Net Worth Glass Ceiling
With consumers increasingly reliant on digital solutions, roboadvisors seem an obvious disruptor to the human advisor wealth and asset management model. While financial advisors serve an integral role in financial planning, this traditional model faces new challenges from roboadvisors’ competitive fee structure. However, roboadvisors have yet to crack the barrier of the lucrative ultrahigh net worth client base. Though digitally savvy mass affluent consumers boost roboadvisor’s membership and AUM, most firms struggle to attract high net worth and ultrahigh net worth clients.
Uncertainty with Opportunity
Human advisors court the wealthiest clients, but a human-first relationship does not scale to clients with simpler needs and smaller portfolios. In a segment where traditional firms eschew low margin clients, roboadvisors thrive.
This segmentation offers obvious opportunities for consolidation through hybrid digital advisor operating models. Flexible hybrid models allow partnerships that benefit both roboadvisors and wealth management firms. Advisors seeking total integration can “bolt on” existing digital wealth platforms while firms confident in their technology may use existing digital wealth technologies to augment current workflows, enabling advisors with stronger tools to assist at each step of their clients’ financial lives. Hybrid models allow advisors to reach younger markets through advances in digital wealth management technology while enabling human advisors to focus on higher margin clients.
Where Capco Fits in
Continued focus on innovation, efficient operating models and client-centric design is vital to profitability and expense reduction. Traditional revenue drivers focused on incremental upselling of services and an expansion of AUM can no longer be the primary growth strategy for wealth and asset managers.
Capco has successfully delivered engagements that target each step of the wealth management customer journey. In a recent engagement, Capco guided a major North American bank with inconsistent digital offerings towards both practical short-term recommendations and longer-term omnichannel digital integration strategies. With young consumers in mind, Capco helped a large retail U.S. bank target millennials through delivery of an artificial intelligence-driven, mobile-based chat app designed to drive engagement for a variety of the bank’s services.
From acquisition and partnership execution to strategic technology and operational reorganization, Capco has implemented a variety of digital wealth solutions, guiding clients to carefully considered end-to-end digital wealth management solutions.
Tobias Henry is a Managing Principal within the Wealth Management practice at Capco, where his area of expertise lies within digital and mobile transformations to improve customer experience and boost profitability.
Mike Clarke is a Consultant at Capco and responsible for leading the New York Capco Connect team, which provides research coverage for emerging financial technologies. Mike is active in growing Capco's Digital Wealth Management practice and currently executing a Capital Markets focused engagement for a Tier-1 Global Investment Bank.
The content and opinions posted on this blog and any corresponding comments are the personal opinions of the original authors, not those of Capco.