COMPEER FRONT OFFICE 2019 : DELIVERING HIGH QUALITY SERVICE IN WEALTH MANAGEMENT

The discontinuity emerging within wealth management, the forces underpinning and driving upheaval and transition within the industry, and the shape of things to come were the focus of a presentation by Capco Managing Principal Niral Parekh at the Compeer Front Office 2019 seminar, held this week in London.

Drawing upon forthcoming research undertaken by Capco in association with Compeer and the wealth management industry, Niral opened by focusing on quality of client service, in particular how it has been traditionally valued by clients, and how – and why - that may now be changing. What does excellent quality of service look like - or, more precisely, what factors influence how an individual provider’s service is perceived by its clients?

What quickly becomes clear, Niral told delegates, is that relationships and trust are absolutely central. "That answer is consistent across respondents,“ he added. “Clients are trusting significant parts of their wealth to one or more third-parties, and they need to feel sure that wealth is going to be well looked after. Hence the critical role played by client-facing teams - it is their training, experience, personality and dedication that engenders trust.”

By contrast, “the next generation of controllers and owners of wealth is proving much trickier to engage with, and it is harder to see what they will value in service”, he notes. The future will be shaped by a number of distinct factors and trends.

Drivers of change

One is that the assets firms are managing will be different assets: “Firms recognise they are experiencing a period of slow transition to a new client base,” says Niral. “Slow, because many existing clients fall within the 65+ age group, which means they will live on average for another 15 to 25 years. However, assets will erode during that period - partly because they will fund retirement, partly because they will be heavily eroded as they are transferred, whether through inheritance tax or via pay-down mortgages and school fees, or both.”

Secondly, the coming generations have different values. Firms need to engage with a new set of wealth owners, and in the first instance that means engaging with potential clients in their late 30s and 40s. This cohort is either already in the accumulation phase or in the 'high incomes but not yet rich' group. It is a group that is very much up for grabs, because the banks still have not yet cracked the code on transitioning clients from mass retail and mass affluent accounts and services, to being wealth management customers,” says Niral.

Moreover, this group is much harder to pin down, he adds: “As a generation they are less ‘brand loyal’, and much more inclined to voice – and indeed act upon – any dissatisfaction with poor quality service. They have also learned to self-research via the internet, so are far more aware of the options and choices open to them.” 

Evolving expectations require new strategies

Linked to that is the emergence of new expectations around service delivery: “They are fully onboard with the digital revolution. It means that firms will increasingly be providing services to clients who have a very different idea about what good service looks like. There is nothing to suggest that future clients will not value relationship, integrity and professionalism - but they are much more likely to switch if they don’t see the returns they expect. And of course, they will want to interact digitally and freely at all points in the lifecycle.”

On the other side of the equation, investment among large wealth managers in quality of service has increased. Given the number of wealth management firms in the UK, ranging from the very small to the extremely large, it is no surprise that differences emerge in how firms develop their strategies for maintaining differentiation.  

The largest firms have recently started to overtake smaller firms in the amount that is being invested in core capabilities, Niral adds. “Firms are improving their ability to manage more complex capital markets products, automate core processes and particularly compliance processes ,and ensure the client lifecycle is faster, less error-prone, less resource intensive and more digital. As a result, the services available to clients are gradually starting to look and feel different.”

Shaping the future

Niral concluded with an overview of the factors most likely to influence and accelerate the pace of change within the wealth space. As noted, while the post-Boomer generations have similar goals to today’s 55 to 70-year olds in terms of growth and security, they have fundamentally different values and expectations. In addition, the complexity required to build a full-sized, full-service wealth management firm means new entrants have established value propositions that target a narrower set of services, with a knock-on impact on the design of future service models.

An acceleration in big investments among larger banks is another driver: “Large banks have all come back to play in this sector and they are looking for scale,” says Niral. “Goldman Sachs’s recent acquisition of US investment advisory firm United Capital, with a view to having a stable wealth management platform to deliver services to investors, is an interesting example.”

Needless to say, the advent of MiFID II also means that the related costs and charges are now all laid bare to clients, he adds: “clients here in the UK are questioning the ‘premium’ that wealth managers are now charging. This might get explained away where relationships are strong and in the general glow of benign markets, but how long will this persist?”

Ultimately, Niral suggests, “we will likely see leading firms really harnessing the relationships and trust they have built up with existing clients, while simultaneously upgrading the quality of client service to meet the needs and expectations of new asset owners.”