The world's most affluent people are unhappy with the fees that they are charged by wealth management firms as well as the information and value-added services that they provide, according to a new report from French consulting firm Capgemini.
The Covid-19 investment environment is only likely to increase client expectations on value delivered for fees charged, and most wealthy respondents said they were open to competing services from technology companies.
In short, the report offers a wake-up call to an industry that appears in danger of failing to react to its clients' shifting preferences.
According to the World Wealth Report 2020, around a third of high net worth individuals (HNWIs) – those defined in the report as having investable assets of $1 million or more – said they were uncomfortable with the fees that their firms charged last year. This figure, Capgemini said, is expected to increase further this year.
More to the point, more than a third (35%) of HNWI respondents said that they wanted a fee structure based on investment performance compared with just over a quarter (26%) whose fees are already structured around performance.
Only 13% of HNWIs said they were happy with an asset-based fee structure.
A FAILURE TO WOW
What also leaps out from the report is the way that wealth management firms have been dropping the ball on opportunities to, what the report calls, “wow” HNWIs with personalised offerings driven by AI, analytics and other technology.
“In the face of today’s extraordinary uncertainty, wealth managers and firms are finding themselves in uncharted waters,” said Anirban Bose, financial services chief executive at Capgemini.
“This unpredictable period may also present opportunities for firms to reassess and reinvent their business and operating models to be more agile and resilient. Analytics and automation as well as emerging technologies like artificial intelligence, can enable firms to enhance revenues through better client experiences while reducing costs by streamlining processes,” he added.
Elias Ghanem, global head of market intelligence for financial services at Capgemini and one of the authors of the report, spoke to AsianInvestor by telephone from Paris about the disconnect between what HNWIs expect and what they are receiving.
“Wealth management firms are aware [that they are missing an opportunity] and they have an understanding of it, but being able to able to act on it is something else. Their biggest struggle today is to have the right tools to operate on that,” he said.
With big tech firms like Alibaba, Tencent, Google and Apple nibbling at the heels of traditional wealth managers, the differences of opinion between HNWIs and wealth managers becomes even clearer.
While only 26% of wealth managers rank big tech competition among the top potential disruptors, HNWIs certainly believe that these companies can outperform incumbent firms when it comes to information access and value-added services.
Just under three-quarters (74%) of HNWIs reported a willingness to consider wealth management offerings from big tech firms, jumping to 94% among the 22% of HNWIs who say they may switch their primary wealth management firm in the next 12 months.
In the survey, which was conducted between January and February this year, the trend was particularly marked in Asia Pacific.
Across the region as a whole, 98% of customers said that they were likely to switch to wealth management services from 'big tech' firms rising to 100% in Japan.
“The interesting part is not the trend but the reason of the trend. What makes a big tech powerful today is the extensive use of data, the mobility and the personalisation,” said Ghanem.
He explained that the younger generation are more digital per se and that many of the ultra high net worth individuals in the region have themselves come from the tech sector. “Big tech is not is not a fashion that will elapse. It’s here to stay and will take on more and more importance."
WEALTH DECLINES IN ASIA
The other surprising find of the report is that for the first time since 2012, the US and Europe surpassed Asia Pacific in terms of the increase in the number of HNWIs. They grew at 10.9% and 8.7%, respectively versus growth of 7.6% in Asia Pacific.
It was a similar story too for the regional growth in wealth; Asia Pacific grew only 7.9% versus growth of 11% and 8.8% in the other regions.
“I would say that it’s not that Asia is going down, it’s the US and Europe that are going up,” said Ghanem.
He added that the stimulus package of US president Donald Trump and the tech economy boom have “beefed up” the US, while European Central Bank measures have helped Europe.
A boost for private wealth investment in Asia-Pacific region has come from the recent launch of Wealth Management Connect, a cross-boundary wealth management connect pilot in the Guangdong-Hong Kong-Macao Greater Bay Area.
Following in the footsteps of the Stock Connect and Bond Connect schemes already in existence, the Hong Kong Monetary Authority (HKMA), the People’s Bank of China, and the Monetary Authority of Macau launched the scheme at the end of June.
“The two-way cross-boundary Wealth Management Connect marks another important milestone for the mainland’s capital account liberalisation,” said HKMA chief executive Eddie Yue in a statement.
Although implementation details have not yet been announced, regulators are expected to adopt an incremental approach as they roll out the scheme, noted law firm King & Wood Mallesons in an article earlier this week.