Issue 01 - 2023MAGAZINEWealth Management

How to capitalize on a growing HNWI market?

UK's HNWI increased by 6.3% to 609,400. Their combined assets increased 7.4% to $2.27 trillion

High inflation, war, unstable markets and the recent rapid growth of the UK’s high-net-worth individual (HNWI) market have presented lucrative opportunities for banks and wealth management companies.

According to Capgemini’s 2022 World Wealth Report, the number of HNWI in the UK increased 6.3% in 2021 to 609,400. The amount of money these people owned increased by 7.4% to $2.27 trillion.

Due to the recent market upheaval, clients have understood the importance of wealth management services. However, market conditions are incredibly competitive, and they are changing. Therefore, businesses with the expertise and capacity to provide excellent client experiences, build emotional connections, and target growing sectors will come out on top.

What does HNWI clientele want?

Wealth managers must meet high expectations from HNWI clients. They desire customized offerings and cutting-edge goods and services. As a result, there is a lot of interest in new asset classes like ESG, cryptocurrencies, and nonfungible tokens (NFTs). They also demand prompt advice and suggestions that can anticipate their requirements and aid in accomplishing their particular goals.

Consumers would want such capabilities to be given digitally, in a smooth, open manner similar to what they receive from Uber or Amazon. These clients are comfortable — and frequently prefer — using self-directed digital tools to manage their portfolios, even though handholding might be crucial. Additionally, they desire real-time orchestration of their digital ecosystem trips by wealth managers.

The market created fintech businesses for this era and the digital world. However, the concept is familiar to established banks and wealth management companies specializing in traditional relationship management.

While the industry has historically focused on assisting customers in achieving their goals and satisfying their lifestyle demands, today’s level of personalization requires more technology and data-driven insights than face-to-face contact can deliver.

It can be hard to adjust to these new standards. However, banks and wealth management companies can target high-growth markets and adopt the data-driven business models, delivery technologies, and personnel required to offer distinctive client experiences and fulfil client expectations by embracing these strategies.

Concentrate on upcoming growth segments

Several market segments are responsible for the majority of the growth in the HNWI market. Yet, according to surveys, only 27% of wealth management companies actively pursue these groups through tailored engagement tactics.

One of these developing client sectors is tech wealth, which has produced a rapidly expanding group of HNWI clients loaded with IPO cash. Tech-savvy HNWIs want integrated offerings, personalization, and support for active investment from wealth management companies. But, most people favour family offices over big banks or wealth management companies.

Additionally, with women expected to inherit 70% of the world’s wealth over the next two generations, they represent one of the customer sectors with the most significant growth. They are less assured than males that they can create and expand it, nevertheless. These customers place a high value on connections, purpose, and needs-specific content. By concentrating on that group, Ellevest, a fintech company with a gender-conscious investment algorithm, has quickly developed.

Similarly, millennials are the beneficiaries of a substantial generational wealth transfer and desire increased digital engagement, but many also require assistance with the fundamentals. The “Wealth Coach” and “Wealth Bootcamp” services offered by HSBC in Hong Kong are examples of how banks and financial firms may use education to attract younger customers.

LGBTQ+ people are a relatively new client sector that has arisen, and they frequently encounter difficulties with the legal and financial systems during significant life milestones. These customers value an all-encompassing strategy, from investments to legacy planning. Some 30% of global wealth managers indicated they did not understand the demands of LGBTQ+ clients, demonstrating that the sector still needs to be educated on how to best address these needs.

Finally, to attract customers early in their journey toward more fantastic wealth, the affluent masses use new technology and offer enhanced experiences. For example, the purchase of Nutmeg by JPMorgan Chase in 2021, a British robot advisor focused on the market, is seen as essential to the New York bank’s UK retail strategy and is evidence that this is a tried-and-true path to growth.

How do you get there from here?

Success in this market requires combining individualised products, talents, and services to set a company apart in customers’ eyes. This process begins with using important data sources like fintech.

Existing banks have a ton of data but frequently struggle to turn it into insights that can personalise interactions and spur growth. A company can gain a competitive advantage by investing in artificial intelligence and machine learning (AI/ML) algorithms to produce real-time actionable insights.

Similarly, HNWI clients anticipate being able to access their portfolios and other services online, in real-time, around the clock, and from any device. As a result, businesses must adopt new delivery technologies to guarantee a consistent customer experience across all channels.

In many circumstances, collaborating with or acquiring a fintech that has already been built is the quickest and most cost-effective method to offer new digital products, services, and delivery alternatives. In addition, because so many capabilities are required, producing them on your own is nearly impossible. As a result, working with your competitors can be pretty beneficial.

The next step is to examine your talents and areas where skills can be upgraded or learned. For example, hiring individuals with product, technical, and data capabilities may be necessary to implement new business models. Additionally, it is beneficial to have talent that reflects the variety of the markets you’re targeting and is aware of their customers’ needs.

If your personnel know the significant sector demands, it could be simpler to attract LGBTQ+ clients. The appointment of a chief client officer within the company can be helpful since many organizations believe this is a cost-effective method to meet the higher expectations of expanding consumer groups.

Finally, the desire for increased transparency is the primary motivator behind many of the wants and preferences of these developing categories. For example, in our global survey, 27% of HNWI clients expressed dissatisfaction with their prices, primarily due to a lack of pricing transparency. In addition, 64% of respondents indicated that they preferred paying fees based on factors like investment performance or service quality.

Banks and asset management companies can forge deeper emotional bonds with customers as they cautiously observe the changing economic landscape. Companies that provide clients with individualized experiences that inspire confidence will position themselves better to forge more profound, enduring relationships.

Foolproof ways to attract young HNWI

Create a consistent, pertinent, practical, worthwhile, and distinctive client experience. Wealth managers need a clear, audacious vision for developing a smooth, customised, and engaging user experience that will delight their clients better than anyone else. This experience must allow customers to access company functions efficiently and promptly whenever and wherever they choose, across mobile, social, internet, and offline channels, on any device or platform. So, for example, an interaction with a bank may start online, go to the contact centre, and then end up in the branch. Financial services must provide a shared, connected platform to assist this trip and spare users from repeatedly explaining the context. Furthermore, it must be adaptable and scalable to facilitate continual innovation as client and business demands evolve.

Drive design and innovation via interaction and data. A thorough understanding of your clients is the foundation of your user experience design. What jobs are they attempting to finish? What led them to engage with you in the first place? What results are they seeking? For instance, offer a fast access page that requires fewer clicks if consumers want a quick view of their investment positions or account transactions. Gain insights about how to make client interactions with you quicker, simpler, easier, and more meaningful by using ongoing engagement and usage data analysis.

Establish the technological prerequisites for creating a smooth customer experience. A business and technical examination of your products, platforms, apps, and services should be performed by a partner. Map them against your technological capabilities and strategic goals, then suggest a rollout of the necessary upgrades to achieve your business goals. A national bank client, for instance, sought to give consumers access to their financial data across all their personal and commercial accounts. To improve service and client satisfaction, we streamlined their provisioning and entitlement system so that advisers could access and manage customer information without IT help.

Integrate the processes of design and development into one. Work jointly on a road map for developing and optimising the customer experience across all channels with your design and development teams. Every project strategy should include user validation and intelligent testing procedures. It should employ an agile design and development methodology that enables your teams to experiment, validate, fail, and improve prototypes quickly and iteratively. Start with the mobile channel, which provides a close connection with the customer and allows for quicker feedback and more deployment options, testing, learning, and improvement options.

Modify the company’s organization and culture to place the customers’ needs and desires at the forefront of all business decisions. Establish a new culture of creativity, constant improvement, and customer focus throughout your company. In addition, everyone should regularly check social media to see what HNWIs are saying about your company, your competitors, and their goals, priorities, and issues.

Look for ways to use technology to streamline the onboarding of new business units so your company can immediately seize growth opportunities. Examples include allowing advisers to onboard new clients with various account types on mobile devices, such as tablets, laptops, or smartphones, and enabling advisers to bring on new clients with multiple account types.

Is digitization the road ahead?

Product director of Temenos, Alexandre Duret, while interacting with Private Banker International, talked about digitisation, the new trend in the wealth management sector.

“First and foremost, digitisation underwent a considerable push since the first times of the pandemic, when a traditionally high-touch industry had to cope with 100% remote client interactions. While most firms now provide omnichannel capabilities to their clients, the next step will be to combine the best of both worlds into a hybrid advisory approach that enables clients to balance automated self-service and human interactions,” he said.

“Whereas the rise of robo-advisers may have been overstated in recent years, the advent of hybrid-advisory could be the industry’s response to empower a new generation. A cohort of clients who expect the same level of experience they get from Big Tech, together with an exclusive relationship with their financial institution,” he added.

Firms are seeking tailored, hyper-personalised relationships with their HNWI clientele, based on their knowledge of such individuals.

Their current strategies include investment planning built from the ground up for the client or next-best-product recommendations based on their situation, preferences, past choices, or peer group comparison.

In order to provide hyper-personalisation, these companies require a lot of data which can be time-consuming as well, so they are investing in analytics platforms and AI technologies as well, in order to augment their advisors and get an edge over the competitors.

“Another way to differentiate is to offer investment opportunities that others don’t. In this respect, digital assets have been receiving much attention lately, including the most traditional private banks. On the one hand, regulators worldwide are progressively setting up frameworks to overcome legal uncertainties,” advocated Duret.

Overpriced stocks and low-rate bonds are prompting investors to diversify their assets. These digital assets have opportunities and risks, and these are far bigger in scope than Bitcoin or cryptocurrencies in general.

“There are hundreds of cryptocurrencies to choose from, such as tokenised securities and now non-fungible tokens (NFTs) that enable investors to own a fraction of real-world assets like art or vintage cars. The good news for private banks is that there is an ecosystem of fintech they can leverage to build their own offering,” Duret said.

According to his opinion, in contrast with the volatility and speculative nature of certain cryptocurrencies, sustainable investing or ESG investing (Environmental, Social and Governmental Investing) represents another prominent trend among these new-age HNWI individuals. ESG Investing, which started as a European regulation, is now seen globally as a great opportunity to retain and attract customers as it reconciles the client’s financial interest with the values they believe in.

“By screening the companies they invest in based on ethical, social and governance criteria, firms help protect their clients’ investment from future adverse events such as tougher regulations or fines on these companies. Furthermore, by selecting investment instruments according to their sustainability goals, clients are empowered to place their assets where they can make a difference. This is why we believe that 2022 will see the concepts of value-based investing and impact reporting spread across the industry,” Duret remarked while explaining the phenomenon in detail.

He also said that Cloud adoption will be another trend to look out for in this field, as this disruptive tech and its scope will continue to grow in the next few years. The firms which cater to the HNWI individuals will adapt to Cloud as well, since it’s a cost-effective solution and protect the latter’s profit margins as well. The Cloud solution is also providing other competitive advantages, from quicker time to market to better scalability and higher security.

With digitization and AI coming into play, the playing field has reached another level altogether. It will be interesting to see how these wealth management companies adapt to these changes.

As per a Capgemini report, while COVID-battered economies continued their recovery path in 2022, boosted by stock market gains, the global high net-worth individual (HNWI) population also went up by 7.8% and 8%, respectively. Now, wealth management companies will require new and improved ways of delivering personalization to augment client experience, as the HNWI category keeps growing bigger.

While equities remained the go-to asset class, along with healthy stock market returns, the United States maintained its dominant position in HNWI wealth and population. These particular individuals showed measurable interest in emerging asset classes, especially in ESG and digital, and vocalized their desire for better digital and personalized offerings.

The rise of several new customer segments, millennials, women, Tech-Wealth, LGBTQ+ individuals, and the mass affluent has created creates enormous growth opportunities for wealth management firms.

As per the report, firms that leverage cloud, Artificial Intelligence/Machine Learning, and digital technologies to strengthen their core and augment capabilities will be well-positioned to personalize client experiences and engagement across channels and products.

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