This Citywire Switzerland article was written by the CIO of Geneva-based Capitalium Advisors, Sébastien Leutwyler.
The race for all-digital offerings is on. And that includes the world of investment management. So much so that digitalisation has become the marketing pitch of wealth managers and their favourite vector of promotion. This appears to be a broad-based trend, but can its benefits in making the industry more attractive be measured?
The natural temptation is to say yes but, as usual, the reality is more complicated. A recent report by Deloitte on new consumer behaviour trends found that finance is the sector with the greatest gap between efforts deployed to implement digital practices and its actual impact on customers.
This shows that the 'hyper-connected' generation did not wait on financial institutions to learn and to interact, including in the fields of finance and money management, which until now had been the domain of specialists. This also shows that, when it comes to strategy, there is a real difference between what consumers regard as a 'must have' with limited added value and a 'nice to have' which is a springboard to a value proposition.
Financial digitalisation’s failure to inspire new clients illustrates this gap perfectly. 'Tech' is not a cure-all and the reasons behind the disenchantment between financial advisors and their clients are to be found in the 'fin' component (i.e. the offering).
A culpable lack of responsiveness
The last decade has brought with it major and costly structural and external changes for investment managers, including in digitalisation, regulation and taxation. But there is another factor involved too, for which financial institutions have only themselves to blame. This is the failure to recognise the importance of properly segmenting clients, and this has gradually exacerbated the lack of offerings.
'Segmentation' is a dirty word in a universe where 'customisation' and 'personalisation' rule the day – or, at least, it seems that way. And yet, segmentation, or the art of understanding and anticipating clients’ needs, is essential. Segmentation is often hindered by regulations requiring the standardisation of client profiles, but financial institutions themselves have merely pretended it exists within their efficiency requirements or have been held back by unsuited governance models.
As a matter of fact, geographical domiciles and past relationships have remained common practice in segmentation, and that has made it impossible to derive a coherent stance on the issue.
The consequences of this are disastrous, including one-size-fits-all offerings and even strategic decisions that do not fit the organisation. Yes, dynamic and adjustable segmentation does cost a lot of money. At least for those who have not understood this expense as a real investment for the long term!
The winds of change
And yet, this is a huge opportunity for financial institutions to show off their know-how. What’s more, this is precisely what clients expect of them, in the hope of seeing a closer link between the promised financial experience and the solutions proposed. For example, what good is it for clients to have online access anytime and anywhere if the underlying investment management offering is so far off their real needs?
With the advent of a new generation in control of the family wealth and with keener competition between financial actors, it is the core of the offering – the 'fin' – that is focusing demand for innovation. So much the better, as that means acknowledging that clients’ needs have evolved faster than most believe and that the financial advisors’ role has also changed.
They must climb down from their sometimes haughty perch of being 'the brains' and begin to act as a real partner. Nowadays, trust and loyalty are built on the notion of commitment.
As for portfolio management, which is the ultimate task of the client-advisor mandate, it must be completely rethought. It can no longer be perceived as an end in itself, but, rather, as a means to achieve the client’s many goals.
Far more than a domicile and a theoretical propensity for risk tolerance, clients are, most of all, individuals with many time horizons, with their own values, experiences and unique and changing references.
While delivering financial returns is obviously the core objective, investments must justify themselves above and beyond the conventional risk-reward criteria. The impact and consequences of each instrument matter to the client’s evaluation of the finished product. And for the advisor, the risk inherent in managing money is no longer underperforming a benchmark, but failing to meet the client’s objective, whether that's financial or otherwise.
As guidance has once again become a key concept, clients now play a bigger role in managing their assets. In light of that, it’s hard to imagine that an investment management offering that fails to reflect the changing dynamics of client expectations can lead to the right financial solutions. All in all, the issue of entrusted assets is no longer just a matter of 'how much', but also of 'why'. And 'technology', regardless of how attractive it may look, cannot meet this demand for substance by itself.
After all, while Amazon has replaced neighbourhood bookshops, a book’s sales depend on the story it tells and not on who actually sells it.