Wealthy clients with advisors still want hybrid advice: report

Wealthy clients value hybrid-advice models (that combine digital tools with some level of human interaction) as much as wealth manager-centric offerings, finds the 2017 World Wealth Report released by Capgemini.

Case in point: even after they are in a well-established wealth-management relationship, these clients are still likely to embrace hybrid advice. At the early stages of a relationship — when financial goals are being outlined and risk tolerances set — 60.2% prefer to work directly with a wealth manager, notes the report. But, by the time the relationship matures to reporting on performance and making adjustments, a client’s preference to interact with a wealth manager falls to 37.5% (compared to 42.7% for hybrid and 19.7% for automated).

Read: Investors want more from advisors: survey

“With global wealth at record highs, the findings are especially critical for wealth managers moving towards delivery of hybrid advice,” says Anirban Bose, executive VP and head of global banking and capital markets at Capgemini. “Firms can jumpstart their hybrid journey by focusing on transformation related to people, processes, and propositions.”

Specific areas that call for strategic transformation include:

• the advisory model;
• talent sourcing;
• client segmentation;
• data and analytics;
• personalization of the client journey and fee structures;
• program execution; and
• culture and marketing.

Watch out for big-tech firms

For the industry, the threat of big-tech firms is real. Think of Google and Alibaba who plan on making an entrance, notes the report. Not to mention, it adds, 56.2% of wealthy clients say they’re open to using big-tech firms for wealth management services. Why? these clients say the firms offer increased efficiency, transparency, online excellence and innovation.

Read: Pre-retirees relying on homes to fund retirement

While 78% of wealth management firms see big-tech entry as a certainty or strong possibility, their perceptions on the extent of the impact on industry vary widely.

More on hybrid advice

The move toward hybrid advice — by both firms and clients — could usher in compressed revenue margins for more commoditized offerings, for example, putting greater pressure on performance, finds the report.

In addition, the wealth manager role will likely evolve, requiring advisors to relinquish control to outside experts for input, as well as digital tools designed to aid them, such as CRM and analytics.

As the industry incorporates hybrid advice, wealth managers must keep abreast of ongoing technological developments, the report suggests. Some such developments, including voice interaction and artificial intelligence, have the ability to dramatically alter the wealth management playing field.

Read: Traditional advisory models don’t meet investor needs: Accenture

A look at recent client service and robo trends

• Advisory firms have yet to crack the code on the hybrid solution that self-directed investors want, according to a J.D. Power study on Canadian self-directed investor satisfaction that was released in September. While fewer respondents are using robo-advisors this year compared to last year, the study says, take note: more than half (55%) of millennials and 48% of older investors (defined as people born before 1982) rate their robo-advisor higher than their primary self-directed provider.
• Also consider that Canadian investors want transparency and low fees, and 40% say they don’t “get what they pay for” when using a traditional wealth advisor, finds a recent study from Accenture. This has led investors to explore other options, such as robo-advice, notes the firm.
• Want some good news? If you’ve ever wondered if you’re worth the typical 1% of AUM fee that you charge, you can rest assured. In fact, you’re worth 2.88% — almost 3x that fee, according to Russell Investments’ annual study on the value of Canadian financial advisors.

More Capgemini findings:

• Wealthy clients in Europe and Asia-Pacific (excluding Japan) are most inclined to embrace hybrid services, while those in North America are the least likely.
• Clients under 40 years old prefer a hybrid approach for all lifecycle stages.
• 71% of wealthy clients identify hybrid advice as significant in their decision to consolidate assets with their primary wealth manager.
• Firms have not been effective at implementing hybrid advisory services, with analysts giving only an average score of 2.7 out of a possible 7 to firms on this aspect.

About the report: The World Wealth Report from Capgemini is based on responses from more than 2,500 HNWs across 19 major wealth markets in North America, Latin America, Europe, and Asia-Pacific.