Increased competition, technological changes, and an increasing desire for niche investment opportunities are changing the way that family offices work with advisors. Whether they go by the moniker of financial advisers, wealth managers. private banks or multi-family offices – these are the firms entrusted with managing the outsourced components of the family investments.
Oftentimes, there are several wealth managers or advice firms used by a family for specific reasons. Of course, their investment competencies are a key consideration for the family, yet there are a number of emerging factors of increasing importance. In Boston Consulting Group’s recently published whitepaper titled “At the Crossroads – Wealth Management in North America”, they highlight two of the most pressing issues being access to a world-class digital solution and a customised investment experience.
According to the report, wealth managers targeting the UHNW baby boomer generation are going to be left behind in the 2020s and those that target just Gen X will be left behind by 2030. This also means old-school ties will not last past the current client. If the firm is putting the engagement of the kids and the grandkids in a too-hard basket, the relationship will end.
Beyond the cookie-cutter approach
The cookie-cutter approach to investments is coming under increasing pressure. In a world where a wealth owner can invest in a world-class strategic asset allocation fund at a swipe of a screen, how do wealth managers stay competitive for single-digit basis points?
This increase in novel revenue structures continues to gain speed in those firms that are making a point of difference in their offering. The ability for clients to access niche solutions and test the firm’s ability will potentially open –or close – the rest of their wallet.
The firm of the future may not even have a dedicated investment management team. Could the wealth manager of the future look more like an independent advocate for the client, rather than a consultant just selling an in-house product?
Firms in Australia are increasingly engaging with the next wave of institutional-level asset consultants in their need for deep-dive strategic analysis. Players such as Corinella Capital, Peninsular Capital Asia, and Context Capital are leveraging decades of asset owner knowledge and parlaying that into an outsourced CIO function.
Advocacy as a point of difference also impacts the philanthropic component of the firm. In Australia, we see a lot of firms outsource the complex components of managing a Private Ancillary Fund (PAF) to firms such as Australian Philanthropic Services. The choice then is on the way in which the assets are managed and to what extent this is made to be a bespoke offering or as part of a larger pool. For the advocate wealth manager, this decision can be flexible, and client-driven rather than about clipping basis points.
The digital experience for clients
As BCG has aptly noted in their most recent report, digitalization is a major market theme with more technologically sophisticated advisors luring specific market segments through delivering tailored products and advice. In reaction to this, more established players are doubling down on their traditional competitive position.
Despite this conservative approach, the wealth manager who doesn’t provide a technology point of difference will likely struggle to engage past the baby boomer generation. Firms right now are competing in two ways – to build or to rent. But with the way the world is moving, the latter feels like the promising option. Renting the components that are heavy on resources, costs and having multiple options available in the market, means that capacity and scale of solutions can be stress tested.
By being an advocate of this approach, firms are able to be agnostic on client suppliers. In the US, there is a big move from companies such as Riskalyze and AssetMark to allow adviser firms to build their own tech stack. In turn, this allows adviser firms to become due diligence advocates for clients looking for specific reporting, analytics, or transactional pieces. It also allows the firm to gain a larger share of the client’s wallet as they are actively assisting them in building a solution that fits them, as opposed to shoehorning the technology that suits the firm.
Globally recognised technology players such as Masttro, Addepar, Private Wealth Systems, and Eton Solutions are increasingly being introduced to family offices and advisory firms in Australia. This is often on the back of big four accounting firms KPMG and PWC actively advising on the technology challenges for clients looking to access these solutions.
We are also seeing the rise of the technology intermediary in other forms also. Firms such as New York-based Mirador LLC, Europe/Asia offering IQ–EQ and Australian firm Onda Group provide an ‘outsourced CTO’ model. This intermediary model can mean lower risk whilst retaining the overall agency of the client experience and ownership. It can further allow greater flexibility to move tech providers and often includes improved pricing power due to the scale of the relationships.
The most powerful component of these firms is to be the adviser’s advocate, asking the right questions of the technology suppliers and becoming a trusted component of the advice chain.
If we think about the most successful firms in this space, there is one thing they all have in common – client selection criteria. It may seem odd to some that a firm that is providing a wealth service may choose not to engage with a high net worth individual or family. These firms make it clear to potential clients that there needs to be agreement on how the relationship will be and if they can’t buy into the strategy then maybe they need to look elsewhere.
Another aspect is being honest with the clients on where your firm provides best-in-class service and where it doesn’t. Most clients will have multiple relationships and use different suppliers for different aspects of their wealth, with the wallet of clients seeming to open more as they become comfortable with the firm’s specialist, best of breed components first. Deep history and knowledge of tax and estate planning? Great, that is your bailiwick – but get that client experience right first.
What will the future wealth management firm look like? In Australia, there is an increasing number of UHNW and private office style firms getting traction with the UHNW client type. But what will the children of the current clients look for?
According to a Charles Schwab survey in the US, 59% of Millennials trust machines more than humans when investments are involved, with 75% of them stating that technology had afforded them peace of mind. If your firm is looking to survive the 2020/2030 client transition, then engaging this next generation through a digital strategy must surely be front of mind. Let’s explore four key considerations for success.
A real-time digital experience
Clients want to see assets, and performance. Catering to that intrinsic curiosity and finding out why certain components are performing well or not so well is crucial. Seeing this information in real-time rather than relying on a financial advisor in the future. The old version of your platform may not cut it.
An advocacy mindset
An advice firm’s primary mindset is to be in the client’s corner, looking after the assets in a highly ethical and governance-oriented way. It’s also fundamental to be curious and always on the lookout for new strategies and better ways of doing things. As BCG has noted, firms of the future will include new strategies such as direct indexing, private market investments, and access to specialised services. Without technology, this will remain the domain of a few –despite the mass affluent expectations.
A concierge experience
Life today is increasingly more complicated and chaotic. Concierge and life-admin services were once the domain of the white glove offerings. But with the ability to digitize and manage multiple aspects of a client’s life admin, wealth managers can now provide data and guidance on things as mundane as booking car services to due diligence on a new law firm.
A next-gen growth mindset
Take the interest in ESG/impact and digital assets seriously, because the next wave of clients will not be attracted to a firm otherwise. They will increasingly seek the guidance of experts in this space, so get exploring who you should be allied with.
Firms are not taking advantage of data and analytics as much as they should right now. But it’s a data arms race amongst the most sophisticated asset managers globally as they try to get in front of trends and investor behaviour. Advice firms should follow this same principle where analytical capabilities can be used to improve effective interactions.
Towards more holistic wealth management
More and more advice firms are moving ahead of even the most storied global wealth managers. Through either good luck or good design, they have managed to tap into the current, COVID-driven needs of the UHNW clients. We continue to see innovation in pricing and service structures, unique and hard to access investments, and proper, long-term engagement across family members.
Ultimately there is a tradeoff between the ability to provide a customised strategy for each client and maintaining a profitable business. However, as BCG has noted, the model of relying on a product rather than financial guidance is soon over.