MyPrivateBanking Blog
Daily Comments on the World of Wealth Management

We define as silver surfers those U/HNWIs with a relationship to a wealth manager or private bank and over the age of 55. During our panel survey across five major wealth management markets (US, UK, Switzerland, France, and Germany) we had the opportunity to interview over 150 of these individuals about their investing behavior, preferences, and attitudes towards technology in their financial operations.

One of the most important findings is that we cannot generalize about silver surfers because, contrary to common belief, this segment is neither technologically adverse nor uninformed about digital tools. In fact, we have found that at least half of silver surfers use their wealth manager or private bank’s mobile app or mobile website and over three-quarters of these investors use a desktop computer for their financial operations. Thus, based on the data we have gathered from these wealthy investors, we can conclude that silver surfers are an investor segment that is not much less digitally engaged in their financial matters compared to other age segments.

Are silver surfers left behind?

Moreover, the behavior of silver surfers that engage with banking apps or websites is similar to that of younger generations (millennials and Gen-Xers). These older investors tend to have similar levels of satisfaction with online and mobile features and tools that their younger counterparts and, moreover, they also have similar expectations of which digital tools and capabilities should their wealth manager provide as part of their digital services.

Should wealth managers have a specific strategy for silver surfers?

Nevertheless, we do not recommend advisors to get rid of age segmentation entirely and address all their clients with the same approach. Silver surfer are more digitally savvy than usually expected, but they also have distinct behaviors and expectations for their wealth managers. For instance, while silver surfers show considerable engagement with their financial institutions through electronic devices, they do not do so to the same degree as younger clients or favor the same devices in the same way younger clients do.

Actionable insights on the behavior and attitudes of this group towards technology in wealth management

The aim of the MyPrivateBanking report “Silver Surfers in Wealth Management: A Survey of Digital Attitudes and Behavior In Five Key Markets” is helping wealth managers find a balance in how they approach their silver surfer clients. We do this by offering insights on how silver surfers interact with technology in their financial operations, their attitudes towards tech trends in wealth management and how these aspects compare against investors of the millennial and Gen-X segments.

With this in-depth comparative analysis in hand, wealth managers can help their silver surfer clients navigate through innovation and changes in the financial services sector. This report includes a close-up to what technology silver surfers use for financial operations, what they do not use, and why, as well as actionable insights and recommendations on how to develop a digital strategy that can cater to silver surfer clients. As the age group of 55-year and above is for most wealth managers still the most significant client segment it is absolutely essential to understand these clients and their digital behavior.

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The need for replacing legacy systems with more agile, and often cloud-based, platforms is clear, and most of the world’s top wealth managers are currently in the process of restructuring and transforming their existing business models to a digital first, agile, and innovative plan. However, some of these top wealth managers are more successful than others, and this brand new MyPrivateBanking report showcases these “top of the top” leaders.

2018 yields clear improvements but weaknesses remain

After a full review of the mobile app strategies, websites for wealth management, and social media channels for wealth and private banking divisions, we have been able to rank the top ten leaders for digital channels. A subsequent evaluation showed that within this top ten ranking there are clear differences in how these leading wealth managers approach their digital transformations and how successful these transformations have been. Importantly, this year’s report reveals a clear weakness in the long-term planning of even the cream of the digital wealth management crop. In particular, there is a clear failure to foster digital leadership from the bottom up-something that will, in the years to come, cripple the success of a long-term digital strategy. Interestingly, this lack of bottom up leadership and a failure to secure the talent pipeline is partially mitigated by clear improvements in top down digital leadership between the 2018 report and the 2016 report.

Digital winners are solidly on board with fostering top-down leadership

In 2016 we were surprised to find a lack of top-down digital leadership in the world’s best digital wealth management firms. Only 55% of these organizations had a dedicated C-level position for digital wealth management or similar. In this year’s report, then, we were pleased to see that this clear weakness has been rapidly overcome-over 80% of 2018’s digital winners now have dedicated digital positions at the very top of the hierarchy. This shows recognition of the need for top-down guidance of digital transformations and the importance of having an ally at the top of the hierarchy for fostering innovation. This increase is one of the strongest positive findings of this year’s evaluation.

Bottom up leadership is, however, still very weak

While the finding for top down leadership is a very positive step in the right direction, this has not yet been balanced with an equally strong emphasis on bottom-up leadership. Top down leadership, and having a C-level digital ally, is undoubtedly a key factor in short term success-especially when it comes to fostering innovation, pushing through reforms, breaking down silos, and similar. However, we caution that bottom up digital leadership is equally important for long term digital success and is, critically, only present in around 55% of this year’s winning organizations.

Securing the talent and leadership pipeline is key for long term success

Long-term thinking means also developing a strategy to maintain the talent pipeline within the bank and a smooth entrance ramp for talented external hires. At the same time, established banks have to make sure that talent stays in the company rather than being lured away by better offers from FinTechs or competitors. Only half of the top ten digital leaders have a clear and comprehensive strategy in place for securing their innovation and leadership pipeline-meaning that many of these leaders risk losing traction when it comes to long-term digital leadership.

Securing the talent pipeline is about more than just hiring practices. This can be both a top-down and a bottom-up process and, realistically, it should be both. This is a strategy that ensures that new employees are provided opportunities to become innovation leaders by providing internal training and mentoring. It also means ensuring that leadership is fully on board with promoting and fostering a culture of innovation and digital focus within the firm.

Our latest report goes into greater detail about the ways in which wealth managers and private banks can successfully secure this talent and leadership pipeline in order to set up their organizations for long term digital success. We cover key aspects of a successful long term digital strategy, discuss the differences between finding a good talent pool and supporting internal development of promising leaders from day one. We also provide examples and case studies of organizations who have been successful in this area in order to derive learning points from them.

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Our panel survey profiles today’s behavior, attitudes and preferences of HNWIs towards their wealth managers’ mobile apps and outlines how wealth managers can successfully convert them into actionable concepts for their mobile strategy. For the report, MyPrivateBanking conducted a panel survey in the five key markets -the US, the UK, France, Germany, and Switzerland- addressing the mobile needs and preferences of 1,000 affluent and high-net-worth individuals. One the most interesting findings reveals that the top five most required features identified by our interviewees across age, gender, and wealth segments are all basic capabilities that any wealth management mobile app should offer. The logic behind ‘the basics’ is simple but impressive: before moving to sophisticated capabilities, make sure to deliver the basics very well.

Additionally, there is a strong demand for investment functions and analytical features to manage investment portfolios with a significant share of respondents demanding more elaborate and interactive capabilities like trading (32%), self-assessment (28%), and portfolio analysis tools (28%).

In-depth analysis

The results are segmented and analyzed overall and for specific age groups (millennials, Gen X, and baby boomers), wealth segments (mass affluent, affluent and HNWIs) and separately for each of the five markets- the US, the UK, France, Germany, and Switzerland.

Gap analysis

The goal of the gap analysis is to examine how the industry responds to the expectations of wealthy clients interviewed in the survey, identify possible gaps in their offerings, and propose brief recommendations for supporting them to re-define their mobile strategy. The focus is mainly directed at the top five capabilities that are most desired by clients (survey respondents).

The results show that as a whole, the majority of banks do not fully leverage the potential of mobile banking apps with their portfolios. Until they address the main deficiencies pointed out in the ten individual profiles, their mobile apps are missing the basic capabilities needed to attract and keep their clients.

Check out our new report How HNWIs use banks’ mobile apps and digital channels -Survey data from the US, UK, Germany, France and Switzerland

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In our most recent report Innovation for Wealth Management our analysts are looking at different - successful and less successful - approaches for innovation in the private banking industry. The relatively new trend of Agile Innovation has not yet found many  followers within wealth management but it is worth a deeper look. The main benefits of Agile Innovation techniques are the breaking down of silos within an organization and the rapid development cycles which quickly lead to a real world test of a new product or service, or just a little new feature. The risk of huge sunk costs and bad technology investments is reduced. There is some evidence that Agile Innovation can significantly improve the success rate of innovation projects. Some surveys report a success rate of more than 60% of projects. However, these numbers should be taken with some caution as every new fashionable management technique runs the risk of being overhyped.

Looking at the banking and wealth management industry we also find some examples of Agile Innovation. German Fidor Bank, Dutch ING Bank and Scandinavian Nordea are among the champions of Agile Innovation in the banking industry. All of these initiatives are focusing on retail banking or transaction banking. It is striking that we could not identify even one wealth manager or private bank that is running an Agile Innovation project. This may be due to the greater secrecy among innovation projects in the private banking space. However, we fear that it is also due to the strong anti-agility attitude we are still seeing in the wealth management industry.

While Agile Innovation may have reminded some seasoned managers of other management fads they have seen come and go, we believe that it in fact does address critical shortcomings in the innovation cycle of wealth managers:

<  Innovation is cross-functional and not boxed in somewhere deep within the organization.

<  Creating customer value is the core of innovation.

<  Real customer feedback is the measuring stick for any new feature, product or service, rather than endlessly debating risks and opportunities.

<  Innovation is rapid, feedback is rapid and success will come quickly.

Agile Innovation is not the silver bullet for all innovation projects. And of course, there are constraints in banking, like regulation, that make some things impossible or slow them down. But it is a promising path that brings tangible results instead of lofty dreams. Linking Agile Innovation to a sound strategic process where goals and overall directions are clearly prescribed is therefore a good prescription for successful innovation.

Check out our new report on Innovation for Wealth Management.

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The popularity of the self-directed investment mandate has been growing rapidly since the 2008 financial crisis and shows no signs of slowing down. We estimate that, in 2017, self-directed investors (SDIs) made up just under a third of HNW AuMs-or around USD 20 trillion.This continuing development poses a clear threat for private banks and wealth managers and, unless established institutions change their strategies, will represent one of the largest disruptive trends of the next five years.

This MyPrivateBanking report analyzes how the HNW self-directed market has developed and how it will continue to do so. The analysis includes comprehensive profiling of the HNW self-directed investor based on a panel survey of around 240 HNW investors from five countries. We draw on behavioral economic research and current quantitative data to forecast the most likely development of the SDI market under different scenarios. The report also examines the supply side of the SDI market, including detailed case studies and competitor analysis of the most notable players in the online brokerage sector.

Forecasting

This report estimates the rates of growth of AuM in the SDI mandate among HNWIs for the next five years under four different scenarios using current and past data on HNW SDIs: Conservative Baseline Scenario, Continued Bull Market Scenario, Market Volatility Scenario, and Bear Market Scenario. These estimations allow for a concrete assessment of how much of a threat the SDI mandate is for established banks and wealth managers under different market circumstances and ideas on how to plan accordingly for each outcome.

Competitor Analysis

This report describes the digital products and tools that are table stakes for self-directed investors, as well as those tools that, although not yet a “must have”, represent a way to get a foot up in the current market. Four detailed case studies on the leading standalone discount brokers with dedicated offers for HNW SDIs provide an inside look at how these actors are taking aim at a client segment that has been, until recently, loyal to traditional wealth management firms. Three further case studies examine three universal banks who have developed specific SDI strategies for HNW clients.

Strategic Recommendations

Based on the quantitative data obtained from a pool of these investors, findings on these investors’ behavior derived from behavioral economics, a five-year forecast for the SDI mandate, and the case studies detailing the most outstanding practices of leading institutions in SDI services, this report arrives to a list of concise, straight-to-the-point, and actionable recommendations. Our report provides wealth professionals with the necessary tools to devise a strategy to counter the threat from online brokers

The report includes cases studies on the following banks and brokers: Capital One Investing, Investec, Westpac Australia Private Banking, Consorsbank, E*Trade, Interactive Brokers, and Swissquote

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In our panel survey on Investors’ Attitudes Towards Robo-Advisors we asked 1,000 respondents from five key wealth management markets about their openness towards robo-advisors and about their preferences with regard to investment tasks, technical features and the level of human interaction when managing their assets with such an online platform.

The data shows that affluent and high-net-worth investors are very open towards robos yet have high expectations for them, too. The most remarkable finding is that there is a very clear demand for the involvement of a human advisor. The respondents are very interested in robo features such as financial planning, retirement planning and also asset selection but they do not look for a platform-only solution. While the share of people demanding regular meetings or calls is very low at 8%, 17% state that there should be a human advisor contacting them to give regular updates on their investments. The great majority, however, expects to have the opportunity to reach out to a human advisor if they have questions relating to their investments (66%). Actually, only 9% said that they would expect no human interaction at all. 9% makes a very small target market for pure robo-advisors. So, what should robos like Hedgeable, Scalable Capital or Wealthfront do?

One possibility certainly is to switch their model to a hybrid one, like Nutmeg did last year. Or, they could expand their services and offer B2B services, too, such as Vaamo. No matter which way to go, it is essential for pure robos to know their target market in detail.

Providers of pure robo advice services must make sure to address the right people but also cater for an online presence that helps clients becoming more self-confident regarding their own finances. In our Global Robo-Advisor Benchmarking 2017 report, we found that the leading pure robos indeed perform better in explaining important investment terms such as ETFs (93% of the maximum points compared to 88% achieved by the hybrid robos included). However, in the overall area of coaching, which includes the breadth of topics provided by the educational content websites, multimedia material, and personalization features, pure robos fall behind: only 51% of the maximum points are achieved compared with 54% achieved by the hybrid platforms. Other supportive features such as FAQs or explanation tools and info buttons reveal the same picture.

This is an alarming result and providers of pure robo-advisors are well-advised to not only close the gaps to the hybrid platforms but even do better than them, making human support obsolete. This is the only chance to ultimately defend their market position.

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As the robo-advisor market matures, there is an increasing number of platforms that offer little minimum investment amounts and low fees to attract novice investors across all wealth segments. To provide adequate investment services to unexperienced investors, however, robo platforms must make sure to inform properly about the risk of investing. Even more important, however, is it to provide a thorough client assessment process that covers clients’ financial literacy, their risk tolerance, and their capacity to take risk.

If at all, the average robo-advisor simply asks if a prospect already has some investment experience. Most of these platforms, however, do not take the chance of providing basic educational material for those without any investment knowledge. Only 26% of the robo-advisors do take responsibility and require prospects to first build at least some basic financial knowledge before starting to invest. Interestingly, only 18% of the hybrid platforms (those who provide personal consultation) do so while 36% of the pure robos cater for their clients’ financial literacy during the assessment process. It is likely that the availability of a certain level of human interaction in the case of hybrid platforms make the providers believe that the digital knowledge check is not necessary. However, we are convinced that each robo-advisor must be very clear about the suitability of their investment products and investors’ understanding is an integral part of this.

Most players check their prospects’ risk tolerance and the approaches differ substantially. Some questionnaires use a very scientific assessment of risk tolerance, including psychological and behavioral questions while others rely too much on prospects’ self-perception. One tool even compared the prospect’s self-evaluation of their risk type with the outcome of the risk assessment, which is a very interesting approach to show investors how their perception differs from their actual limits of tolerance. In any case, it is crucial to thoroughly explain the result of the evaluation and make sure that prospects understand the impact of their risk tolerance on their investments.

The third major element is the check for risk capacity. Displaying a highly risk-affine attitude has no meaning without the context of the capacity to take investment risk. It must be clarified whether the investor has any debts and sufficient investable assets before making suitable investment proposals. While this seems very straightforward, it is surprising to see that there are players who simply ignore that. Robo-advisors achieved the point for an adequate risk assessment only if both, the risk tolerance and the risk capacity are checked for. It is alarming that only 78% achieve that point and again, the pure robos give a substantially better performance. While only 65% of the hybrid platforms fulfill this requirement, 93% of the pure tools do so. This result supports the impression that hybrid robo platforms rely too much on the availability of a human advisor clients can turn to instead of implementing these things into their digital onboarding.

Therefore, before caring about financial planning features, portfolio analytics and reporting or the provision of valuable content, robo-advisors are strongly advised to accurately identify prospects’ risk profiles to ensure suitability. Only seven out of the 31 robo platforms included into our benchmarking fulfilled all three criteria, which is disturbing result.

Get more information about the world’s leading robo-advisors and their performances, strengths, weaknesses and best practices in our new Global Robo-Advisor Benchmarking Report 2017.

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It has been 10 years since the Apple released its first smartphone, a technology that has become a part of everyday life and facilitated the growth of apps. Since then, consumers have been exposed to innovative and well-designed  apps - as well as online security breaches and fraud. Their experience with apps in their daily life has made them savvier when it comes to what they expect from their private banking and wealth management apps.

While other digital industries have taken agility - the ability to evolve and adapt their digital products to customers’ need quickly - to heart and in practice,  private banks and wealth management firms are still struggling with this important concept. This is especially clear from their digital offerings, particularly in their mobile apps for U/HNW clients.

Based on our new benchmarking report, Mobile Apps for Wealth Management,  75% of the 34 companies we profiled that provide apps for wealthy clients lack innovative features that are helpful to their clients’ financial lives. Many wealth managers consistently underperform in the provision of advanced portfolio features, interactive portfolio tools, top-notch security, and contact features to their wealth clients.

This is alarming because in an age where technology is moving fast - dragging  clients’ expectations with it -  not having an app strategy is the biggest competitive disadvantage facing wealth managers and private banks. Private banks and wealth management firms with weak apps risks irrelevance and losing their clients to other banks or FinTech startups that offer more user-friendly and innovative features as well as value-added services.

One area where private banks and wealth managers have to step up is security.  This is a concern because wealthy clients will not tolerate data breaches and unauthorized use of their data. Banks must employ top-notch security and anti-fraud measures in their apps and constantly evaluate it in order to keep up with malwares and other attacks.  One private bank client who spoke with MPB expressed incredulity at the lack of two-factor authentication in his/her app, which is already standard for credit card companies and retail banks. “I work with are far better and more trustworthy than the ones from my wealth manager, who is handling my entire net worth. They have to change this if they want to keep me as a client,” the client said.

Another area for improvement is the core app features for wealth management. While there has been a slight rise in this category since 2016, the apps that we evaluate this year lack around 40% of the core features we expect to find in wealth management apps.  As technology improves, some advanced portfolio tools such as virtual portfolios and automated, risk re-assessment tools have become standard and average features. Wealth managers who are slow in applying emerging technologies to core features risk an ineffective and boring app and, consequently, losing their clients.

Despite these shortcomings, we do see some  signs that a select few private banks and wealth managers are innovating to anticipate clients’ needs-and running away from the competition in this regard. We find some banks that integrate gamification and virtual reality in their apps, for instance. Content for marketing and client retention by way of thought leadership, market news and insights, also improved from 2016 to 2017.

Overall, we urge wealth managers to develop agile mobile strategies and integrate new technology quickly in their mobile offerings to U/HNW clients.  As agile development is also based on  feedback, banks and wealth managers should also be proactive in getting their clients’ feedback early in the development process and collaborate with other stakeholders to improve their mobile services for the wealthy.

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Ultra-wealthy clients have exclusive demands and expect to be the first to obtain the best. Providers catering to this sophisticated client segment have to be prepared to meet these needs. While the retail segment might have real-time access to social media, tech tools and, increasingly, financial advice earlier reserved for the higher-end of the wealth bands, this does not make them superrich. Wealth managers are well-advised to address the UHNWIs’, particularly the ultra-wealthy millennials, demand for more accessible exclusive online services and an increased adoption of innovative technology.

uhnw3

Our new report Digital Offerings for Ultra-High-Net-Worth Clients 2017 shows how wealth managers can win and engage the ultra-wealthy online. The study is based on a unique analysis of current digital capabilities offered by twelve of the leading global financial providers to the UHNW sector: UHNW wealth managers, independent private banking businesses, as well as global institutions with a distinctive private banking division serving UHNWIs.

One of the most striking findings in our analysis shows major gaps in the area of social media and exclusive features for the ultra-wealthy client base. Comparing the digital capbailities of banks to those of UHNW luxury brands, we have found that luxury firms are already accustomed to leveraging digital to raise awareness about the brand. By having taken the risk to innovate and test new digital touch points, including social media and co-creation campaigns to generate a highly personalized experience, these digital champions show a good understanding of how to engender loyalty and trust.

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Today, China is home to the second highest number of HNWIs in the APAC region and its economy is expected to overtake that of the U.S. in the coming years - some even expect this to happen as early as in 2018. The huge growth of China’s FinTech industry, a major source of new wealth it is, too, is the third pillar of China becoming one of the most attractive and promising wealth management markets in the world.

asia-wealth

This is why we focus on the Chinese wealth management market in our new report on Digital Wealth Management in Asia 2017. The second emerging market that we look at in detail in this report, is India with similar growth patterns and opportunities for private banks.

Besides presenting comprehensive research findings on the Chinese wealth market and FinTech space, our report provides an in-depth view on existing digital offerings of the ten largest wealth managers in China. Our key finding is that WeChat is essential for wealth managers’ digital strategy if they want to succeed in this unique digital ecosystem. WeChat is reported to occupy 35 percent of the time spent on mobile phones in China, which makes the social messenger an inevitable platform not only for retailers. Digital financial services are deeply rooted into Chinese people’s daily lives - thanks to tech giants Alibaba and Tencent who laid the foundation for a financial market that is unique and highly digitized.

While we could observe some international wealth managers making the mistake to link their corporate Facebook and YouTube channels on their Chinese websites, we also came across some best practices in how to engage with HNW clients on WeChat. For example, Noah Holdings Limited, a domestic private bank, sets itself apart through a broad range of WeChat features such as the possibility to check account balances, book an appointment with an advisor or read speeches from well-known investors. Additionally, Noah’s clients are provided with articles and information about recent events.

This is only one facet of the level of digital service Chinese HNWIs expect from their wealth manager. Hence, private banks wo aim at entering the Chinese market, or want to strengthening their market position, inevitably need to roll out a digital strategy that is tailored to these unique requirements.

Grab your copy of our latest research report to get a detailed picture of the wealth markets in China and India. Additionally, you will be offered an overview of current dynamics in the APAC region as a whole plus insightful glimpses into cultural differences between the Asian regions and FinTech developments in Thailand and Indonesia.

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