Success strategies for surviving and thriving in a new era of wealth management 

With choppy markets and changing demographics, we are firmly in the realm of wealth management 4.0. Future success depends on wealth managers adopting the right strategies, writes Ian Woodhouse, head of strategy and change at Orbium.

A turbulent end to 2018 hit most wealth managers hard. In January, St James’s Place, Brewin Dolphin and Charles Stanley all reported drops in assets and income that they blamed on challenging market conditions and ongoing macroeconomic uncertainty. Few in the sector are sounding optimistic notes about 2019.

At Orbium, we often refer to the rapid change affecting wealth management with the acronym VUCA – volatility, uncertainty, complexity and ambiguity. We can see VUCA playing out in the turbulence of the markets in the fourth quarter of 2018, in the uncertainty of Brexit and in fears for global trade. The complexity of accelerating technological change is ever-present, alongside ambiguity about forthcoming regulation and changing social attitudes to wealth – exemplified by the “gilets jaunes” movement in France.

This is wealth management 4.0, in which advisers must serve an increasingly diverse new customer base and maintain the traditional one using technology and data, all the while navigating stormy waters. So what do success strategies look like?

New clients, changing needs

The wealth managers that flourish will be those that most successfully manage a series of tensions. Cyclical trends must not distract from longer-term structural change; the needs of new client segments cannot outweigh those of traditional clients; the ability to serve clients digitally does not mean there is no place for face-to-face service.

Clients are also changing, and wealth managers now must serve five generations – from the Silent Generation to the coming-of-age Generation Z – each of which has markedly different needs. Younger generations, for example, see wealth managers as tired and stuffy and are looking for a relationship with a wealth manager that better fits their self-image and needs.

Clients of all ages perceive wealth managers as lacking differentiation. Women are now, more than ever, able to control their own fortunes but face an industry that has long been male-focused. Entrepreneurs, a growing new wealth demographic of demanding young leaders, have different needs and priorities to a young heir looking to get to grips with a newly inherited traditional fortune.

Cutting costs to sharpen focus

Making all of this more difficult is the speed of technological change. The client relationship is now a mixture of face-to-face and digital, but there is a shortage of relationship managers who are comfortable with both. The proliferation of new channels for client service will increase this challenge, making talent development a bigger priority.

Wealth managers must ensure they have a plan to address these demographics, serving them via their preferred channel and in a way that is joined up. If they don’t, they risk losing ground to new market entrants and more agile competitors.

One option is to cut costs to focus resources on innovative products. Julius Baer recently announced plans to cut as many as 140 jobs, or two per cent of its workforce, following the volatility of 2018Anchor.

The $100m savings will allow the bank to focus on innovation and invest in fee-based products. We are likely to see more cost-cutting by other banks this year, but this can be positive if done to increase focus on the most fruitful areas.

Another approach is to make use of other parts of the group. Credit Suisse, which is in the midst of its own cost-cutting, is leveraging synergies with its investment bank to deliver wealth management for entrepreneurs – a new client base – and provide them with access to corporate finance products or IPO services.

This is a strategy that naturally favours large banks, however it can be a compelling offer for certain clients.

Banks joining forces

Finally, we are seeing banks embark on strategic partnerships to expand their offering to existing clients while extending their reach to a new client base. That’s what Schroders and Lloyds Banking Group announced in October last year.

The two banks will establish a new joint venture providing financial planning for affluent customers. It allows Schroders to benefit from the distribution of Lloyds, while Lloyds can leverage the investment expertise of Schroders.

An alternative is acquisition. Morgan Stanley recently completed the acquisition of Solium Capital primarily to leverage Solium’s technology as part of a new focus on millennial clients.

Orbium itself is not immune to these changes. In February we were acquired by Accenture, which opens up some exciting possibilities.

As part of Accenture we will be able to draw on expertise in new technologies, from artificial intelligence to data security and the cloud. Meanwhile, Orbium will continue to provide our domain-leading expertise in wealth management business consulting and our Avaloq core-banking technology implementation capabilities.

The coming year will bring lots of challenges, none more important than finding ways to update our traditional business and pivot to the new.

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