Learnings from over 3 years of studying the digital wealth advice category

The real war for customer assets is only just beginning……

By Josh Book

As we close out our 2018 digital wealth advising and self directed online brokerage analysis and evolve our data products for 2019 to answer new questions and identify new areas of opportunity for wealth management executives, we can’t help but to step back from the data and reflect on what we’ve seen, what we’ve learned, and where this consumer category is headed.

Wealth Management is a highly regulated and slow-moving category with over one hundred years history (and one basic way) of delivering wealth advice to a very small percentage of “qualified” consumers. There are currently many complex governance systems in place that will need to change, requiring vast effort and leadership to make significant inroads to the average consumer. When considered against the backdrop of risk (e.g. alienating a perceived “key” client base, career mobility, etc) bold changes to governance structures and business models are unlikely to occur ahead of major consumer demand for “something different” from wealth managers. The resulting situation is a “chicken and egg” scenario. So, what do we do now?

To date, no firm has cracked the code and unlocked a truly meaningful movement of assets. Many firms are, however, doing some of the right things, and a roadmap to the future of the wealth management business is beginning to emerge. Progress is generally occurring along two tracks. One track comprises a small number of firms developing truly innovative ideas about how wealth management services can be delivered to all types of customer segments. Their strategies are not for the faint-of-heart and require a longer-term view that has typically gone unsupported within big public incumbent firm structures.

The other track, being largely executed by established financial services firms, seeks to modernize some existing business components, like distribution, by using “digital” technology and that ticks a product or service box and helps to avoid the perception of falling behind. Though progress of any kind is certainly a positive thing, we’ll focus on the former for a moment.

Truly “disruptive” businesses are breaking down barriers among traditional wealth management delivery options to meaningfully understand and serve consumers. Moreover, these firms are educating consumers, helping them to make better financial decisions, and doing so in ways that work best for the consumer. There is still a long way to go but firms like Acorns, Betterment, Stash, and SoFi to name a few have all taken some great steps forward. Among the upstarts, the lack of legacy governance structure reduces execution friction, but incumbents still hold the advantages of healthy consumer bases and a good understanding of the regulatory regimes at play in financial services.

We think that to win over the long run business models need to change. Executives need to look in the mirror and be clear about what they are trying to accomplish. If the objective is to use digital technology to modernize the delivery of traditional wealth management service, the goal is admirable but not "innovative". If full-service financial institutions wish to truly change the game, they must change everything. Business models, incentive structures, delivery models, data and analytics strategies, the ways they understand and engage with customers, and so on. All in order to deliver a cohesive and seamless wealth management experience to customers when they want it, in ways they want it, and without them having to ask. This is no easy task! It requires leaders who are uncomfortable with the status quo and are willing to "sell" the idea that breaking down barriers across the delivery of wealth management will serve the greater interests of the firm.

Customers are gravitating more and more toward digitally led delivery models. We have reams of data to support this and can show you what matters and what does not – click here for some samples. The movement will not stop and will meaningfully enter the retail banking and wealth management arena.

What approach is your firm taking to be a leader in 10 years?