How is the wealth client of the future different? Is wealth management on its way to full automation? How severely will fintechs disrupt incumbents? What will be the fundamental basis of differentiation for wealth managers going forward?

I recently had the opportunity to ponder some of these big questions while representing Capco at the In|Vest West conference in San Francisco. For those of you that aren’t familiar with In|Vest, it is a relatively young conference that brings together diverse players from across the wealth and asset management industry to share ideas on all things strategy and digital – past, present and future. 

In|Vest has hosted successful gatherings in NY for the past few years and Capco has been onboard since day one. It’s been a great partnership given our shared start-up roots, challenger brands and general passion for shaking things up.

This was In|Vest’s first gathering on the West Coast, and naturally it attracted numerous fintechs who are in the process of transforming the industry, along with their erstwhile competitors (and more often partners) banks and wealth and asset managers. Several of my colleagues led interviews with industry leaders including, Phillip Klein’s conversation with Mary-Catherine Lader, COO of Digital Wealth at Blackrock; and Damon Gattison’s conversation with Mimi Chan, Founder and CEO of Littlefund.

In the consulting business, we are so busy serving our clients (and too often from the middle seat of a 737) that it is rare to have an opportunity to take a step back and think about the bigger picture. For me, In|Vest presented an opportunity to engage, listen and learn from leading players in the industry on the strategic questions they’re asking and what’s keeping them up at night.

There was so much information that after two days my head was spinning. When helping our wealth strategy clients grapple with ambiguity, I find it useful to present the information in terms of simple strategic tradeoffs of A vs. B. So, I decided to use this same construct to synthesize two days of in-depth dialogue into four major themes.

Customer of Today vs. Customer of the Future

1. It pays to take the long view. While many wealth managers are thinking about how to micro-segment and optimize customer profitability in the here and now, some very successful players are taking a much longer view and focusing more on lifetime customer value. While high-minimums still pervade the industry, many speakers challenged that practice, not just as a moral issue but as bad business. After all, today’s recent graduate mired in debt could very well become the next successful entrepreneur on the cover of Wired (or just inherit a boatload from his/her grandparents).

2. Decumulation will change the game. There was broad recognition that with the aging of the population, decumulation is fast becoming a huge issue, and one that the industry is not fully prepared. Those who come up with innovative solutions for a rapidly aging population could make a massive social impact and stand-out from the crowd.

3. The customer of the future will be different (we just don’t know exactly how). Customer preferences for interacting with financial advisors are already changing with more interest in education, various forms of self-service and digital collaboration. There were various predictions on how the customer of the future’s expectations would change, but not necessarily agreement. Some panelists predicted that customers would become increasingly self-sufficient (with the assistance of technology), while others believe that advisors would play a more holistic role in their client’s decision-making.

People vs. Robots

4. The robo-wars are over (and the winner is no-one). Five years ago, everyone was talking about who was going to come out on top of the robo-wars, but now (almost) everyone has a robo, or is in the process of renting one, and there is no clear winner. The pure-play robos have largely shifted to B2B models, and the large banks have either partnered with or acquired their own digital-advice capabilities and integrated them into their traditional financial advisor model or introduced a parallel channel for the mass-market.

5. People are here to stay (at least for a little while). There were a lot of predictions at the conference, but no one predicted the full automation of wealth management, at least not for the immediate future. Everyone agreed on the importance of human advisors and how their job will evolve to focus more on planning and serving the holistic needs of the client, while letting the robots do a lot of the other work (i.e. - portfolio construction, rebalancing, tax-loss harvesting, etc.)

6. But so are robots. While AI isn’t displacing human advisors any time soon, there is increasing recognition that it helps them do their jobs better, providing greater value to clients and greater scalability. Technology is also allowing advisors to serve the mass-market. This way, people can get the advice they need, with more human intervention as their financial lives become more complex.

Banks vs. Fintechs

7. Banks know their weaknesses. The wealth leaders at traditional banks largely recognize that building cool new tech is not their strength, and they should stop trying to do it. They also understand that their legacy infrastructure and complexity is a major vulnerability that not only prevents them from building their own new technology, but slows down their ability to partner and integrate effectively with fintechs (see point 6 above). Their strength on the other hand (and not surprisingly) is their access to existing customers and their data, if they can manage to use it to full-effect.

8. Fintechs know their strengths (not so much their weaknesses). Numerous fintechs presented their latest wealth applications including everything from financial planning dashboards and visualization tools, to rebalancing, to new business models for charitable donations and gifts. They all touted their unique differentiators, and bank wealth managers largely agreed with the value fintechs provide. However, they were also quick to point out that fintechs often fail to appreciate the challenges of partnering effectively with banks including integration, compliance, procurement and the like. 

9. Banks and fintechs need each other. At the end of the day, both sides now fully recognize that they are not really competitors at all. Banks no longer seem to fear that fintechs will disrupt everything, while fintechs seem to have moderated their ambitions to change wealth management (mostly) from the inside. Banks need the innovation, speed-to-market, agile culture and creativity that fintechs provide. Fintechs on the other hand need access to banks’ customers and balance-sheets. It’s a win-win.

Customer Experience (at Scale) vs. Everything Else.

10. One person = one segment. As a strategy guy, this one could be very bad for me, but my analytics colleagues are surely cheering. If you believe the hype, traditional customer segmentation is dead (or will be soon). The leading innovators are creating customized wealth management portfolios and experiences at the individual level. But this is no longer just about white-glove service for HNW clients. Technology is starting to allow the leading firms to provide the same degree of customization and personalization to a much broader customer-base at scale.

11. Customer experience is pretty important. With so many aspects of the financial advisor value chain becoming commoditized, increasingly rentable and ultimately table-stakes, customer experience (along with competitive price – see the next point on scale), will be the only game in town. Many of the newer and most successful platforms are explicitly competing based on their ability to create highly modular and proprietary customer experiences for their clients.

12. Scale is pretty important too. As discussed earlier, it is easy to provide a super customer-friendly experience with personal white glove service, but it is not very scalable, and it is not cheap. The application of technology allows you to achieve scale, which (hypothetically at least) should allow you to reduce fees, which clients expect, while maintaining margins.

13. Products don’t seem so important (or at least no one was talking about them). If customer experience is everything, what about all the traditional topics that wealth and asset managers like to talk about? It seems there is an emerging consensus that differentiating on products and performance is becoming increasingly difficult and will only become more so in the future. Differentiation today is really all about the customer (experience… at scale and therefore reasonable cost).

In summary, the first three big themes are largely false tradeoffs. Banks need to meet the needs of today’s customers and tomorrow’s simultaneously. People and machines need each other, so do banks and fintechs. The last one – customer experience vs. everything – is more debatable. A differentiated customer experience, achieved at digitally-enabled scale (and therefore lower cost), will be a winning formula with other factors becoming less important.

Even if you agree with that last statement, there are many difficult decisions that banks, wealth and asset managers need to answer to define winning strategies that delight their customers and drive growth such as:

• Should we focus on B2B, D2C or B2B2C business models?
• Should we explore new channels or entering new markets?
• Which client segments should we optimize for (and should we think about segmentation differently given new client preferences and data analytics capabilities)?
• What should the client experience look like, and how should it be different for each segment (or maybe even each client)?
• What digital solutions should we use to achieve the customer experience at scale?
• Which elements of the business and digital solution should we buy vs. build vs. rent?
• Perhaps most importantly, how does our organization, talent model and culture need to evolve to implement the growth strategy?

At Capco, our strategy practice helps clients grapple with these questions every day. In|Vest West offered me new insights and takeaways and maybe even a few potential answers to these timely questions. If you attended the conference (or even if you didn’t), I’d like to hear your thoughts.