Wealth management is experiencing a period of extreme innovation. Wealth managers are carrying on ‘business as usual’ in an environment where client demands are fast-changing, leading to massive asset shifts within the market. We see a growing segment of wealthy people; large assets are being transferred as the generation of heirs increases, new asset classes are coming to the fore, and the token economy is opening up new opportunities for participation.

But one of the biggest changes within wealth management comes when profitably serving affluent and mass-affluent clients becomes possible.

Why is this?
Decreasing margins in traditional private banking due to increased competition and changing client behaviour- are forcing larger institutions to develop additional sources of income. Converting savers into investors by providing access to investment products promises more commission fees for banks. It also supports their efforts to retain existing customers with their increasing demands for more service and investment opportunities.

The competitive landscape is changing just as well. Banks are faced with an increasing number of new challengers that are gaining momentum with customer-centric propositions targeting affluent and mass affluent investors. With this, the world of retail investing is changing fast, and banks are forced to respond by making comprehensive investment products accessible via sophisticated digital solutions.

The low-interest rate environment over many years has encouraged even the most loyal savings customers to look to investment-led products, offering higher returns to keep pace with rising inflation and beating conservative bank funds’ performance. Facing insufficient pensions has also led to a rethink among retail customers and forced them to make long-term investment plans instead of short-term savings.

Customers are becoming more demanding, requiring new investment products, diversity, and flexibility to tailor portfolios. In particular, there is a high demand to be aligned with ESG and ‘impact investing’ criteria. This trend of changing customer behaviour will even be escalated when Generation Z become more relevant and inherit the wealth of their parents.

These changes make it clear that the democratisation of wealth management is a result of evident customer needs. Indeed, more and more customers have the need for: access to investment products with higher returns, individualised portfolios, advice, transparency of portfolio constitution and self-service tools to customise investments based on their own priorities and risk appetite.

Addressing these emerging needs prevents not only the outflow of existing customers but also represents huge opportunities to win new ones.

Figure 1: Democratisation of Wealth Management

How can banks respond to these changes and profit from them?
The challenge financial institutions need to take on is implementing outstanding, ‘customer-centric’ digital solutions, granting access to alternative investment vehicles, and providing flexibility and highly personalised advice while having cost-income ratios under control.

The democratisation of wealth management is about balancing the digitisation of client journeys, granting access to sophisticated individualised investments, and reducing operational costs via industrialisation. Hence, this transition could be managed along the following dimensions:

Implement customer-centric technology and user journeys:
Providing responsive, personalised client journeys allowing customers to articulate and implement their own investment priorities, life goals, and risk appetites are essential to attract and retain them.

Provide investment advice considering customer specialities:
Hybrid approaches granting access to professional advice in selecting appropriate investment vehicles and applying risk management in combination with automated processes and access to an ‘online supermarket of investments’ (across the market) will be important elements of a new wealth management offering.

Learn from client data and adopt processes:
Automated analyses of client data will provide significant insights about customer behaviour and needs and support addressing them by automatically adjusting processes and offerings.

Enhance automatisation and outsourcing:
Implement cloud-based technology with a high degree of automation to ensure scalability, efficiency, and cost control.

The opportunities and chances of offering wealth management services to mass affluent segments for banks are multifaceted if the implementation and operations costs are well-managed.

• Convert saving customers to investment customers and create new revenues.
• Unlock new ‘risk-free’ customer segment with huge growth potential.
• Retain existing customers and increase their engagement.
• Increase market share.
• Improve customer satisfaction.

In this context, the companies that will survive will be those who are fast and client-oriented, use modern and reliable technology and have their cost-income ratio under control.

Digitising means enlarging the investment community and making services qualitatively accessible to everyone, regardless of invested assets. When we speak of digital revolution, we consider a fundamental, momentous shift in the sector, which is the democratisation of the service.

This article is from The Wealth Mosaic’s Swiss WealthTech Landscape Report 2022. Access the full report here.