While wealth managers need to embrace huge changes taking place in the social and technological spheres, they should not forget the importance of face-to-face advice
The death of legendary musician, songwriter and arranger, Lamont Dozier, aged 81, instrumental to the success of Detroit’s Motown recording label from the 1960s onwards, is a moment during today’s turbulent period in world history, which should not be left unmarked.
Like the Lennon-McCartney and Jagger-Richards song writing duos, the Holland-Dozier-Holland connection was able to speak to several fast-moving generations simultaneously. This is a feat few of our financial institutions are yet able to accomplish.
So far, only a handful have prepared serious responses to a vibrant mass affluent market for financial advice, demanding guidance on socially impactful investments and expertise in new assets, including private markets. If they are to secure a long-lasting legacy, wealth managers must take the lead from innovators in popular culture, by speaking to a broader demographic, in clear yet nuanced voices, encompassing both social and technological transformation.
According to consultancy Accenture, affluent investors in Europe have upwards of €23tn ($23.6tn) in investable assets, more than the high and ultra-high net worth onshore markets combined. They now face competition for these spoils from a broader cast of actors, including asset managers, insurance companies and investment banks.
“All of these players want a share of the sticky, fee-based revenues, and you don’t always need a balance sheet to access this,” says Ian Woodhouse, Accenture’s boss for wealth management transformation. His recent survey of Europe’s wealth management CEOs highlights the need for urgent change in a market with a growing chasm emerging between firms well-structured to service future generations and those unprepared for the challenge.
New ventures
Successful players must adjust to shifting client priorities, broaden portfolios to include alternative and ESG assets, and most importantly of all, recruit a new class of advisers to serve younger, more demanding clients. “We’re not just talking about old-school advisers, but experts with asset management skills in new classes, such as private equity and real estate,” believes Mr Woodhouse.
Most private banks are now touting illiquid private equity strategies to their newer, entrepreneurial client base. Attractive as they seem on paper, they require more expertise among advisers to oversee than listed bond and equity portfolios.
Private equity houses, increasingly working with wealth managers, claim their approach to investing in the real economy, combined with contribution towards UN Sustainable Development Goals, is particularly appealing to younger generations. Partners Group, a $130bn Swiss-headquartered private assets specialist distributes products through UBS, claiming “transformational” investments combine thematics with an “entrepreneurial approach” to portfolio company governance. They suggest private markets should form a “a stable core” of wealthy client portfolios, with allocations approaching the 12 per cent mark held by institutions.
Skill levels
Training relationship managers to understand the benefits, risks and challenges of these investments is becoming of paramount importance, giving rise to thriving internal corporate universities established by most private banks. Advisers need to be certified internally before they are allowed to work at the coalface with clients of their own, and even then they may need to be mentored by experienced hands.
Being a relationship manager is no longer a walk in the park, asserts Mr Woodhouse, adding that 70 per cent of Europe’s wealth management C-suite believes a lack of adviser talent and skills will hamper industry growth. Today’s advisers must think well beyond balancing portfolios and understand how communication is influenced by gaming sites and social media, share moral and social concerns of clients, and understand the plethora of technological apps replacing anachronistic front-office practices.
The new cohort must be able to build networks and investor communities, as the core desire of next generation clients is meeting fellow entrepreneurs, swapping ideas and working on mutually beneficial investment projects.
“Currently, banks are competing for talent in the wealth industry, which does not fit well with the next generation, who are more socially aware,” admits Mr Woodhouse.
Silver lining
Yet the future is not as bleak as it appears. The current backwardness of the wealth industry is ironically what makes it such an attractive destination. Once graduates realise there is demand for socially conscious advisers, ready to serve a democratic, diverse, entrepreneurial mass market client base, rather than the exclusive inherited wealth of yesteryear, they will be keener to join this newly influential sphere of activity. “As an industry, we will become less elitist, inclusive rather than exclusive and better adjusted to social trends,” he says.
According to BNY Mellon, the $38tn US retail market now dwarfs the once unassailable $20tn US institutional market, and is growing at twice the rate. The increasing power of a more democratic investor base triggers huge demand for institutional asset management techniques, hand in hand with increased need for advice.
Banks such as BNY Mellon recently asked themselves whether physical advisers faced extinction in a new world dominated by robo players. Along with other leading firms, they have realised the demand for physical advice, across the wealth spectrum, has never been so strong.
In essence, the wealth industry needs to revisit these traditional strengths as a people business. Many of us remember Mr Dozier’s evocative signature tune, “Going back to my roots”, echoing around the dance halls of our youth. But his lyrics about a society “Tired of short term benefits/And being exposed to the elements” remain more pertinent today than ever.
