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Tech enablement across the wealth management value chain

Market conditions are forcing financial institutions to find new models for growth

Karine Marechal, Partner, e*finance consulting Reply
|Jul 26|magazine11 min read

Market conditions are forcing financial institutions to find new models for growth.

Currently, one of the largest identified gaps for growth is the underserved and overlooked mass affluent segment.

Rich but poorly served

Despite showing enormous promise as a potential market, the mass affluent opportunity remains largely untapped. Traditionally, financial institutions have served either the retail market with a simple range of offerings or the high net worth market with a highly personalised, fee-based approach.

The mass affluent requires more than a cookie-cutter approach to reach their financial goals but do not have the wealth to justify the time and expertise required by a personal one-to-one and face-to-face approach.

This has resulted in perhaps hundreds of millions of euros/pounds in missed opportunities for the mass affluent wealth management sector. Early attempts have fallen flat due to a lack of innovation in both product/service and approach. We have witnessed a number of financial institutions rush to market with a weak product offering and product-led marketing approach.

This approach has worked for retail consumers but falls way short of the wealth management needs of the mass affluent. What’s required instead is an approach that aligns the business model with the needs of the customer, leveraging tech and data to digitise processes that make offering a personalised approach cost-effective, useful to the customer, and profitable.

The real winners

At the upper end of the scale, some private banks begin new relationships with mass affluent customers enthusiastically offering a personal service, with a long-term view of recouping costs and profiting over time. However, this doesn’t always happen and, when this does not materialise, they sometimes pull back, leaving both parties disappointed.

At the opposite end of the scale, retail banks usually fail to meet mass-affluent needs altogether through basic product offerings that disconnect with the mass affluent customer’s personal goals.

Fintech companies might have an advantage in tech and innovation, giving them a real chance at capturing this market first, however, to date, they have struggled to infiltrate and build trust with the mass affluent market. One reason for this is because, to enable massive growth in consumer numbers, they began by targeting the millennial market and now need to move towards the mass affluent who are predominantly Baby Boomers and Generation X.

Redrawing the competitive map

As leaders adopt better, more financially viable ways to explore the mass affluent territory, disrupting the business of laggards, we’ll see a new competitive landscape.

Those that grow will successfully address these three key issues:

How and when to replace face-to-face with a digitally-enabled offering (including via video-based advisory services, self-service centres, etc.);

How to attract and onboard new clients through digital channels, transitioning from ‘push’ to ‘pull’ marketing; and

How to create a new organisational culture that thrives around the new digital-based model, relinquishing the comfort of legacy business models that hold them back.

Of those three issues, how and when to use digital services is the keystone upon which the other issues rest.

Replacing personal service with digital offerings

The goal here is to achieve a business model with a quasi-zero-marginal cost equation that will let the financial institution scale up to maximise the opportunity with minimal impact on operating expenses.

The opportunity for technology enablement across the customer value chain (client life cycle) differs at each stage, but there are clearly identifiable areas in which the industry has matured enough to find a new model palatable.

Offering a personalised user experience with outstanding service quality at scale using a quasi-zero-marginal cost model is now not only possible but highly desirable. What’s more, it has already proven successful.

One example we might point to is Valore Insieme; the first fee-based service for a large incumbent bank in Europe to be deployed in over 5,000 physical branches.

With tens of billions of euros already under management, the project has been a resounding success. The advisory service takes a holistic view of every mass affluent individual client’s wealth, assessing every financial asset to provide personalised wealth protection, growth, and succession plan. The staff that service the clients requires deep understanding of real estate, inheritance, protection, investments, and insurance. They are trained via a state-of-the-art advisory platform that supports the relationship manager in delivering personalised advisory service to every client. Using technology, this provided an industrialised approach at scale and the success of the program has been immediate and emphatic.

Early results make it clear; those that succeed in capturing the lion’s share of the mass affluent market are the financial institutions that leverage technology to create scalable, personalised wealth management solutions that provide cost-effective value to customers without the need for expensive face-to-face relationships.

This article was contributed by Karine Marechal, Partner at e*finance consulting Reply 

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