The past year was one of tremendous wealth accumulation around the world: recovering economies boosted by stock market gains pushed the global high net-worth individual (HNWI) population up. But to capture this growth, wealth management firms will need new and improved ways of delivering personalisation to augment client experience.

However, in 2021, government stimulus packages, low-interest rates, free-flowing liquidity, stock market wins, and Covid-19 containment revved growth for the High Net Worth Individual (HNWI) population and wealth. As a result, 2021’s global HNWI population expanded by 7.8% to 22.5 million (1.7 million new HNWIs), and wealth swelled by 8% to US$86 trillion, according to Capgemini’s World Wealth Report 2022. North America retained its lead in HNWI population growth (13.2%) and wealth (13.8%) in 2021, followed by Europe, which slid ahead of Asia Pacific.

Ultra-HNWIs (UHNW) (those with >US$30 million in investible assets) mirrored the previous year’s 9.6% growth, while their 2021 wealth dipped one percentage point to 8.1%. On the other hand, ‘millionaires next door’ (those with US$1-to-5 million in investible assets) grew by 7.7% (population) and 7.8% (wealth), the lowest among HNWI wealth bands, the report found.

Shrinking gaps across bands illustrate a levelling of the wealth playing field. Why? Today’s investors can access information readily, experiment with various asset classes, and communicate with advisers quickly.

Capgemini World Wealth Report 2022 highlights:

• 48% of HNWIs are disappointed by the digital maturity of their wealth managers.
• First class digital players showed a year-on-year compound annual growth rate (CAGR) of 70%.
• The rise of several new customer segments – millennials, women, tech wealth, LGBTQ+ individuals, and the mass affluent – creates enormous growth opportunities for wealth management firms but also require new digital approaches.
• Firms that leverage the Cloud, AI/ML, and digital technologies to strengthen their core and augment capabilities will be well-positioned to personalise client experiences and engagement across channels and products.
• HNWIs demonstrated measurable interest in emerging asset classes – especially ESG and digital, in which 71% of the HNWIs expressed interest in – and vocalised their desire for better digital and personalised offerings.

Asset allocation – ESG and digital

Globally, HNWIs maintained traditional asset class allocations in 2021. However, they expressed significant interest in emerging assets – environmental, social, and governance (ESG) and crypto.

As ESG investments and profits gain momentum, future-forward wealth management firms are finding ways to measure corporate compliance and communicate results to HNWIs. Bloomberg Intelligence says global ESG assets may surpass US$41 trillion in 2022 and US$50 trillion by 2025 – one-third of the projected total assets under management globally.

The Capgemini report found that 55% of HNWIs say causes with positive ESG impact are crucial investment considerations, and 64% of HNWIs seek ESG scores to learn about fund impact and performance.

However, wealth management firms and relationship managers told Capgemini they struggle when suggesting sustainable investment (SI) options:

• 40% find it challenging to obtain accurate ESG impact data.

• 50% lack clarity regarding SI return on investment (ROI).

As more HNWIs demand ESG products, wealth firms will have to expand product selection, educational support, and capabilities to measure and communicate ESG impact.

Digital asset investments are also becoming an essential part of HNWI portfolios.

Capgemini's analysis found that globally 71% of HNWIs in general and 91% of HNWIs younger than 40 have invested in digital assets. Therefore, as cryptocurrencies, ETFs, NFTs, Metaverse-related products, and Central Bank Digital Currency (CBDC) enter the mainstream, firms will need appropriate product and education capabilities. Moreover, ecosystem partnerships will be necessary to create diversified digital portfolios.

Servicing
The report found that wealth management firms can learn from family when providing a comprehensive suite of services. Family offices are not subject to the same regulations as traditional firms and private banks. Therefore, they can offer more customisation at a lower price – an aggregated view/plan for wealth and other financial and non-financial needs.

Capgemini surveys determined that 63% of HNWIs prefer family offices to large banks/wealth management firms. And 23% of HNWIs and 33% of UHNWIs say they already use family offices to manage their wealth. Among the reasons HNWIs say they prefer family offices are one-stop-shop convenience (52%), personalised services (52%), and transparent cost structure (49%).

In addition, a changing socio-economic environment calls for a genuine understanding of diverse client segments.

The rise of new investor segments – millennials, women, the mass affluent (those with investable assets typically between US$100,000 and US$1 million), LGBTQ+, and others – create significant opportunities for wealth management firms. However, firms need inclusive business models to attract these diverse segments.

Female investors do not always trust traditional wealth management firms to support their unique needs and perspectives. Women across all wealth brackets are expected to inherit 70% of global wealth over the next two generations and will likely manage two-thirds of household wealth by 2030, the report found. However, women trust their primary wealth firm less than male investors. Firms can offer women investment education to improve their conviction and boost trust and confidence.

Millennials and next-gen HNWIs seek digital interaction, education, value, transparency, and convenience. Millennials are tech-savvy digital natives who prefer self-directed investments with minimal guidance – opting instead for roboadvisers and new-age tech companies.

The World Wealth Report 2022 found that youthful investors switch advisers frequently, prefer hybrid advice, are cost-sensitive, and demand transparent pricing. More than half (53%) of the millennials surveyed in January 2022 said they had changed primary wealth management firms in the past year. Additionally, 57% of those who switched opted for a familiar firm they had worked with for a year or more, and 43% took the leap to a new provider. Millennials become restless due to high fees (46%), ambiguity (39%), and slow service (33%).

Mass-affluent investors captured during their early life stages can grow within the wealth management ecosystem. The segment comprises 11% of the global population, including digitally engaged young professionals requiring personalised offerings. Yet only 27% of the wealth firms Capgemini polled said they targeted a mass-affluent niche, and only 36% of firms said they plan to add mass-affluent services in the future.

HNWIs are interested in digital tools and platforms, with 37% saying that a lack of digital maturity can push them to leave their firm. However, a deep dive into trends across age and wealth bands indicates that 43% of HNWIs between ages 40 and 49 are the most interested in digital maturity, with the UHNWI segment coming in next at 42%. Again, a lack of digital expertise and wide-ranging product offerings are the leading reasons HNWIs are unhappy –with 49% planning to divide their assets across wealth service providers within 12 months.

Well-prepared relationship managers are essential to maintaining client engagement and capturing fast-growing segments. However, firms must first empower their advisers. As an example, only 59% upskill advisers, 55% hire a diverse talent pool, and 46% invest in leading-edge digital tools for personalised engagement.

Data and digital power
Firms that unleash data and digital power across the organisation will meet client demands proactively. Harnessing data ecosystems and sharing them across the firm is crucial to developing a clientcentric organisation. Gartner says that by 2023, organisations that promote data sharing will outperform their peers on most business-value metrics. Yet only one of three wealth management firms shares data about clients’ channel preferences, segmentation, and financial transactions across the organisation.

Firms that leverage data ecosystems understand and anticipate customer needs. They offer personalised engagements through digital touchpoints to deliver next-level client experience (CX). One of two relationship managers surveyed told Capgemini that end-to-end digital service, innovative and customised fee options and omnichannel engagement are critical to CX.

Figure 1: Firms need to unleash the power of data and digital across the organisation to proactively meet customer demands. Source: Capgemini Research Institute for Financial Services; 2022.

Personalisation
Personalising experiences across the client journey enables firms to win investor mindshare. Wealth management firms that earn and retain client mindshare gain a leg up on competitors. The most successful firms meet each client’s unique financial and non-financial needs and offer transparency, privacy, and a comprehensive product portfolio delivered with superior CX. A strong technology core – leveraging data, artificial intelligence/machine learning, Cloud, and digitisation – is the foundation of a scalable customer-centric engagement model.

Figure 2: Personalised experience across the customer journey will enable firms to win the customer mindshare. Source: Capgemini Research Institute for Financial Services; 2022.

Adopt advanced data management to develop 360-degree client profiles, including sentiments and life-stage data.

Migrate to the cloud to improve cost-effectiveness, increase scalability, and enhance accessibility.

Leverage AI and machine learning solutions to mine actionable insights and identify next-best client actions to enable proactive and intuitive service and advice.

Augment digital capabilities to enhance relationship manager/client communication and intimacy.

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