It is an understatement to say that the financial market is changing. Where financial institutions were once regarded as the crux of business, they now face challenges that could never have been thought of decades ago. The introduction of neo-banks, cryptocurrencies and Robo-advisors has changed the game. Amidst this, there is a demand for transparency, as well as demands beyond what’s purely financial. These developments have been evident with private clientele, and many are forming independent family offices.
‘Kodak Moments’ on the Rise
Although Kodak was once known as a reputable brand, its failure to capitalize on the digital age that arose in the 1980s is now infamous. A ‘Kodak Moment’ has now come to embody when a business loses its market relevance because of its failure to identify changing consumer behaviour. As family offices continue to grow, many of them are hiring private equity dealmakers and former bankers to take back control of their investments and wealth. Investment bankers and wealth managers are at risk of experiencing a ‘Kodak Moment’ because of these new ways of operating.
“First family offices call their friends, then venture capital, and the third call is to an investment bank,” said Joe Stadler, Head of Ultra-wealthy Clients at UBS.
Around 18 percent of wealthy individuals identify investment deals through financial advisors according to UBS Global Family Office 2020 survey. Similarly, Bloomberg reported that some of the biggest family offices were trying to hire institutional expertise in-house. More in-house advisors and independent sponsors are assisting family offices in structuring private investments through routes that are less traditional. Traditional investment banks are under threat, especially as technology platforms help private client investors access hard-to-enter asset classes.
The trend towards DIY-style direct investing may also reflect some clients’ frustration at the “product-push” business model associated with large, integrated banks,” said Tom Burroughes, Group Editor of Wealth Briefing Asia.
Although the banking sector is often thought to be free from disruption, it is as vulnerable as any other sector. The new trend of hiring in-house expertise and trying to avoid traditional routes shows that change is afoot. For many families, their main goal is to have ultimate control over their investments because they can then build their portfolio based on their needs. However, this puts private banks in a predicament to compete with this emerging trend.
Moving to Customer-centric Strategies
Financial institutions’ reactions to these new developments have been to create more financial products and services as means of finding rapid methods of monetization. While this is a logical response, different approaches are taken in the industry where the customer is placed at the centre of their strategies. Financial institutions need to keep in mind that family offices have cut them out because they no longer require financial services from intermediaries because they have procured them in-house.
So what can institutions do to adapt and thrive in a changing landscape? They need to focus on a customer-centric approach by focusing on the client’s soft assets.
While monetization is essential for a business, it cannot be the end goal. Financial institutions need to find more strategic ways to provide value to their HNW and UHNW clients. Customer-centric strategies might just be the answer they’re looking for.
“Customer-centric companies don’t make or sell the products they think customers will want; they make and sell products they know their customers will want,” Peter Fader, author of Customer Centricity: Focus on the Right Customers for Strategic Advantage.
Private banks and other financial institutions need to develop their research to create pull products instead of push products. It is crucial to interact with customers through every stage of the process as it boosts transparency and creates strong and honest relationships with clients and their next-generation heirs. A critical mistake that financial institutions might make is overlooking the next generation because they not only bring new expectations to wealth management, but also influence the consumption and purchase decisions of the previous generation. The next generation also inherits the wealth from their parents and not being actively involved with the family suppliers, increases the chances of replacing them entirely.
Knowing Your Client
In the age of transparency, it is vital to know your client as well as they know you. Being customer-centric means recognising that clients have access to broad insights into investments and the industry, and understanding how to provide value to them. Customers need to be at the core of every decision a company makes, understanding their needs and acting on them. Receiving inputs from clients can help identify new products and services, with the goal of providing value first and monetization second.
However, in order to be truly customer-centric, companies need to be able to identify immediate and future needs. For example, the next generation’s interests and commitments to making the world a better place bring about purpose-driven investments. Financial advisors can create solutions to these problems by paying attention to these ‘soft assets’ and values amongst UHNWIs and family offices.
There is plenty of research that indicates that the next generation values professional advice but comes to their own conclusions. Creating offerings that utilizes the need for networked knowledge is a promising avenue. Evidence Lab, launched by UBS, is a team of experts that create data sets that are ready for insight that can help investors make better decisions during their investment analysis. Adapting this model and creating a similar panel of experts that clients can utilize to get multiple opinions and draw their own conclusions can also prove to be valuable.
Another ‘soft-asset’ that is on the rise amongst family offices is agility. How can financial institutions offer services on-demand or through different channels? There is also the question of how technology can be used to achieve results quickly when they’re required.
Although it’s to stick to models that have worked over time in crises, this approach guarantees extinction when it comes to family offices. To remain relevant and provide value, banks and financial institutions need to focus on their customers and build products that align with their customers’ needs. By seeing a customer as an entity and applying customer-centric attitudes, along with focus on ‘soft-assets’ and next generation values, they can turn their Kodak Moment into a win.