Private banks have frequently got it wrong in their approaches to expanding their client base. Improving the diversity of their workforces would be a good first step to putting things right
Many leaders have made the fatal mistake of misjudging the identity of a nation, ethnic or gender group, or consumer segment.
Russia’s brutal invasion of Ukraine, ordered by president Vladimir Putin, presents a prominent example of identity miscalculation. His fantasy of Ukrainians sharing a tight historical legacy with their Russian overlords and lacking any sense of national belonging, has led his troops to massacre civilians resisting occupation. The Russian autocrat has made only minor territorial gains and failed to subdue the patriotic populace of Kyiv, Kharkiv or Kherson, while leading his own economy into global pariah status.
Following former UK prime minister Boris Johnson’s failed attempt to impose a post-Brexit “global Britain” identity, his Conservative party now struggles to redefine what it stands for and who it can appeal to.
Across China’s cities, protestors have rallied against president Xi Xinping’s signature policies. They no longer unquestioningly embrace Mr Xi’s “Chinese dream” of relentless growth and dominance over Western rivals, now that his strongarm solution to the Covid-19 pandemic has been found wanting.
Floundering approaches
In finance, the stakes may not be as high in human terms, but the long-term effects of miscalculating identity can lead to poorer populations.
Wealth managers are being forced to reassess floundering approaches to a changing client base, which they have taken for granted. Talk about “death of the adviser” has been vastly exaggerated, with next gen clients preferring people over robots, the same way their parents did.
“Pink products” for increasingly economically powerful female investors have hit wide of the mark, while the changing ethnic make-up and identity of the population has sneaked up on the almost homogenous wealth management workforce, mired in 20th century attitudes and practices.
Data from the Office of National Statistics shows England and Wales are officially Christian minority countries. Despite rising numbers of Muslim worshippers, huge swathes of territory are inhabited by secular societies, while laws, the state and constitution remain shaped around religion. UK society’s ethnic make-up has changed profoundly, with Birmingham, Leicester and Luton all classified as “minority-majority” cities.
Although the UK boasts a minority of rabble-rousers, keen to make political capital from changing demographics, its openness to change has fuelled progress, recently slowed by the doomed bid of Mr Johnson and colleagues to play the divisive identity card. While politicians have become keenly conscious of their changing voter base, wealth managers have been caught napping.
Most have prominent “D&I” policies, yet few reflect their diverse customer base. At Edinburgh-based M&G Wealth, this soul-searching around identity has proved a key preoccupation of management. The firm predicted an army of foot soldiers would still be needed to bridge the “advice gap” in an era of fast-paced technological advancement, while other firms steered millennials to a digital-only experience.
Chief executive David Montgomery has been both vocal and self-critical in admitting wealth firms often fail to grasp the nuances of diversity, subjecting clients to glib generalisations. “We need to think about this beyond the way businesses would normally ‘segment’ their current and prospective customers,” he says.
The M&G Wealth Academy aims to address these challenges, but the path ahead will be a rocky one, even if this core realisation is not necessarily shared by M&G’s peers. “The current demographic of advisers doesn’t match that of customers or clients, specifically related to age and gender split,” he says, calling for recruitment of advisers from more diverse backgrounds, to prevent wealth firms suffering economically.
“From a client’s perspective, selecting an adviser is as much about whether they have similar beliefs and values as it is who they work for or the solutions they offer.”
Fixing the problem
Only a handful of wealth managers strive to redress this balance, believes April Rudin, founder of the Rudin Group consultancy. While the US boasts a hugely diverse investor base, the profile of the average adviser is, astonishingly, a 62-year-old white male. Less than 30 per cent are women and around 23 per cent are black or Latino.
“This makes the issue of ‘understanding’ a client who may be nothing like you a challenge,” agrees Ms Rudin. “The already giant gap between financial advisers and their client bias is growing all the time.”
The problem is a lack of will or effort to recruit the number of advisers needed to be trained. Wealth advisory firms must follow the example of some banks and wirehouses by going onto college campuses to recruit young people and persuade them to enter what should be a noble profession.
“There are a few industry efforts like Envestnet Institute on Campus,” she says. “While good, it is not sufficient in effort or scope to make up the expected shortfall.”
Getting things wrong
Also worrying is a misconception among the banking community regarding the identity and priorities of the fabled Next Generation. While many from this cohort “have the propensity to want to save the planet”, they are typically more conservative and retirement-minded than expected, particularly concerned by prolonged market volatility.
A major disconnect is appearing between an emerging reality and the way these clients are perceived by wealth managers. “Next genners are thinking more about keeping their jobs, staying conservative in the market to try and hold onto their savings and accumulating assets for purchases like homes,” says Ms Rudin.
The identities of actors in global society may often be developing faster than we realise. But there are also many who still behave like their parents. The resemblance can be closer than both parties would like to believe.
Yuri Bender was named Journalist of the Year 2022 for Business Market Commentary in the State Street Press Awards
