Shortly before the effects of Covid-19 hit global markets, Aon’s Client Insight practice reported the results of the UK’s first ever Client Experience survey. With responses from more than 9,000 private clients, collectively representing assets under management in excess of £200bn ($263bn), the research sought to understand client feedback and loyalty in an industry that prides itself on its personal service.
Prior to the market downturn, wealth managers were justified in saying they were highly client-centric. The average 12-year relationships clients have with their primary firm resulted in a high ‘share of wallet’ of 54 per cent. Drilling down, certain demographic segments registered levels as high as 75 per cent.
This is significant because wealthy clients will typically distribute the remainder of their wealth across cash, property and other (often illiquid) asset classes, indicating limited room for firms to grow assets under management through the existing client base. This underlines the need to find new clients and raises the question of how — if it is to grow — a firm can make itself relevant to other client segments.
In recent years, firms have responded to margin pressure by trying to capture niche parts of the market with complex needs and requiring higher-value services. However, as the economic fallout mounts and margins drop further, finding such individuals and converting them into clients will become more challenging.
The average net promoter score (NPS) for UK wealth is 46 per cent, indicating that, overall, clients are loyal and there is a readiness to recommend a firm to family, friends and associates. Rather than purely looking at this metric in isolation, wealth managers must ask themselves whether they are making the most of the business opportunity indicated by their NPS score.
Senior management will need to utilise marketing to bring a more commercially oriented mindset to data management and lead generation. Before the crisis, events and hospitality were the tried and tested methods of bringing new clients through the door, but with social distancing restrictions likely to continue for some time, a digital approach may be required to support business development.
It is also important to note that as today’s high net worth clients transition from active employment to partial or full retirement, the trend will inevitably be towards asset preservation and wealth transfer. This poses a significant problem for wealth managers, who will need to substantially increase their representation of income-generating clients as a proportion of their overall base to improve net new revenues.
But this is easier said than done. Attracting and winning younger clients who look like they have serious long-term earnings and wealth potential will require a wholesale re-evaluation of strategy. Simply put, wealth managers are not well set up right now to serve the ‘high earning not yet rich’ (‘Henrys’) community.
Indeed, even the industry’s propensity to refer to itself as ‘wealth management’ may raise eyebrows among a more socially-conscious generation that may not remotely feel ‘wealthy’. Similarly, the emphasis placed on active management might look unconvincing to those already investing through low-cost, portfolio-builders that rely on passive strategies.
Firms should seriously reappraise their digital capabilities. Clients and advisers have been forced to take a crash-course in how to use their firm’s online tools during the lockdown period. Wealth managers should use this moment to experiment with launching new financial planning tools and more advanced portfolio analytics that underline the added value of working with them to Henrys who might not yet see the need for financial advice.
Still, there is no escaping demographics. Most firms will need to diversify their own client bases to secure new sources of revenue. The trend has been for brutal fee compression, with investors questioning the value of active management. Moreover, with many financial advisers also approaching retirement age, consideration will need to be given to the success profile of next generation of
revenue-generating talent.
It is a daunting set of challenges. Yet forward-thinking firms will see the opportunities afforded by having the status of a trusted adviser to today’s clients. Rather than wearing client-centricity as a badge of pride, it is time to think about how the insights from clients can be converted into actions by firms and can inform their growth strategies.
Caroline Burkart is associate partner and Tasha Vashisht is head of thought leadership development at Client Insight, Aon
