How firms are failing affluent clients

The battle for market share in wealth management is expected to intensify as fintechs and nontraditional players enter the space. How firms can successfully meet the challenge was the focus of a report released Thursday from Boston Consulting Group, entitled Global Wealth 2019: Reigniting Radical Growth. In particular, the report outlined how to better serve the affluent segment.

The affluent segment, defined in the report as those with US$250,000 to US$1 million in net worth, is expected to expand by 11.5% in Canada from 2018 to 2023, helping to fuel the country’s growth in personal financial wealth, which is projected to hit US$6.4 trillion by 2023.

In fact, Canada makes the report’s top five list of countries with the greatest projected increase in the number of millionaires during 2018-2023: Canada was number four, at 100,000 new millionaires. The top three countries were the U.S., China and the U.K.

However, clients in the affluent segment are often poorly served, the report said, with firms offering a weak track record of product innovation, a tick-the-box approach to compliance, overpriced services, limited value propositions and ill-fitting product recommendations.

To help turn the situation around, the report suggested an acceleration of product innovation customized to affluent clients, as well as employing hybrid business models that will enable personalization, convenience, efficiency and cost.

Further, firms must “deliver real performance to clients and help them meet their investment goals, instead of just selling products,” it said.

Yet, instead of letting affluent clients’ needs dictate products and services, retail banks often take a product-first sales approach, it said, and full-service brokerages often focus too much on short-term trading instead of long-term wealth creation.

Incentive structures can also contribute negatively to client service. For example, a compensation structure might reward asset growth, but affluent retirees might require more conservative resource planning, the report said.

“It’s not unusual for affluent individuals to receive recommendations for products that end up being a poor fit for their financial and investment needs, leading some to wonder why they are paying hefty advisory fees when a simple set of index funds might achieve the same or better returns,” it said.

A related factor are fee structures that prioritize sales over positive client outcomes, the report added. Instead, wealth managers should consider developing creative compensation programs that drive advisor behaviour, such as paying advisors for using new digital tools.

At the same time, affluent clients are willing to pay “slightly” higher fees if they perceive their advisors are “acting in their best interests and offering sound advice,” the report said. It also noted that firms can have success with innovative pricing models, such as monthly subscriptions for advice.

For full details, the report can be downloaded.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.