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Wealthy and affluent self-directed investors: how wealth managers can win them back

Friday, December 15th, 2017

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

 

Bringing Human Elements Back into the Robo-advising Model

Monday, January 16th, 2017

Robo advisors launched by start-up companies were long perceived as a substantial threat to established players in the financial industry. But now established players are taking over the game. We are witnessing the launch of so-called hybrid-robo advisors by established players like Schwab and Morgan Stanley who have realized that embracing the technology and combining it with already existing assets like client base and experienced advisors will enable them to beat “pure” robo advisors in terms of the client experience.

In our opinion, those players who truly integrate technology in order to deliver better service will be the ones that stand out in the long run. Simply promising a human touch point in order to justify higher fees without a well thought out system in place to actually deliver this kind of service wont be enough.

Check out our new research on this topic.

 

Why many wealth managers are under-digitized

Thursday, November 3rd, 2016

MyPrivateBanking Research has taken a comprehensive look at the performance of the overall leaders in digital wealth management across mobile, website and social media channels.   Our assessment in this report is both highly granular, based on the underlying benchmarks by channel, but also it considers the holistic aspects of how firms have put in place strategies for digital transformation, to offer a unique perspective. The results show that only 5 of the Top 25 global wealth managers by AUM make it into our shortlist of eleven digital leaders, and just over half feature in the ranking of Top 20 cross-channel performers. This is a disappointing performance for two reasons, one is that as a sector financial services is a forerunner of digitization (especially in terms of electronic payments), and then there is the fact the 25 largest global wealth managers are responsible for over $15 trillion USD of client assets, circa 80% of the industry. That is a large proportion of clients for whom their wealth management relationship is under-digitized and the pace of change is too slow.

 

Fund Managers struggle with compelling offers for Institutionals and Advisors

Saturday, October 8th, 2016

In our latest study on “Fund Managers’ Digital Presences for Institutionals and Advisors” we have looked into the digital presences of fund and asset managers targeting institutional clients. We reviewed the websites, mobile strategies and social media efforts of the world’s biggest fund and asset managers from the perspective of “institutional investor” and “financial intermediary.” (more…)

 

What wealth managers can learn from Pokemon Go

Thursday, July 28th, 2016

Today, the city of Düsseldorf in Germany has blocked a major bridge for cars as this bridge has become a big “Pokestop” and hundreds of Pokemon-gamers have occupied the bridge to hunt Pokemons. The game was released on July 6, 2016 - just three weeks ago and was downloaded more than 30 million times (status of last week). There are more than 20 million active, daily players, it is claimed. Pokemon Go is probably the most successful game that has ever been released.

Pokemon Go is an app-based mobile game that uses augmented reality. Players hunt Pokemons of various types, train them, exchange them and have them fight against each other. The fascination of the game is to a large degree caused by the blending of virtual elements (the Pokemons) with the real surroundings of the gamer. This is what we call “augmented reality”. It is a concept that is now available to the regular smartphone owner as modern smartphones contain HD cameras, gyroscopes, GPS and various other elements.

And augmented reality is exactly one of the critical elements that will be integrated in the digital customer journey in wealth management as well. Only a few years from now it will be unimaginable NOT to use augmented reality when communicating and transacting with your wealthy clients: virtual meetings, portfolio simulations, performance reporting, educational seminars, virtual events will all contain elements of gamification and augmented reality. Together with other important trends like speech recognition or the use of artificial intelligence for investment decisions, augmented reality is one of the critical features on the way to complete digitization of the customer relationship. While the number of personal interactions in an offline-environment will shrink considerably, it will be important for every private bank to make the customer experience in the digital sphere as unique as it used to be in the “old” offline world. If you haven’t, download Pokemon Go today and get a glimpse of wealth management’s digital future. You should also read our briefing on gamification in wealth management.

 

New Report: Mobile Apps for Wealth Management

Monday, May 30th, 2016

the-question-for-wealth-managers-is-no-longer-if-they-should-have-a-mobile-app-but-how-they-can-develop-a-winning-mobile-app11

The question for wealth managers is no longer if they should have a mobile app, but how they can develop a winning mobile app to provide them with an essential competitive advantage.

Almost eight years ago, in July 2008 the Apple App store was launched and Google Play followed only a few months later. Since then the app market has grown, apps have become an essential part of our lives and the technical possibilities have developed a lot. The wealth management industry is typically not among the first movers when it comes to technical innovations but we have seen that the market of mobile apps for wealth management is slowly but surely catching up. In our latest study Mobile Apps for Wealth Management we have analyzed the mobile apps of 30 of the biggest wealth managers worldwide. We have found that in contrast to the previous years, the number of wealth managers that offer dedicated apps to their wealthy clients has increased (from 63% in 2015 to 82% in our latest 2016 study).

(more…)

 

Why UX Testing DOES Matter for Mobile Apps

Thursday, November 6th, 2014

(by L. Elsler, Analyst)

We often see that mobile apps are prematurely released into the app stores. User experience (UX) tests, if at all, have only been done once the application is fully developed. This common practice leaves little opportunity to really develop a user-friendly application. But UX testing is not something you just bolt on once the development of an app is almost finalized. Especially banking and wealth management apps, with their heavy duty transactional processing (just think of payments, brokerage or portfolio checking) UX testing must become an integral part of app processing:

  • Produce your banking app like an expensive German car. These car brands dedicate a majority of the resources during the development process into user experience. The car is being tested, crashed and judged over and over again before releasing it for sale. Developers must be proud of their end product- only then it will also satisfy the user.
  • Integrate UX tests for all the use cases during the development process. From project start to the first release a dedicated UX team should give input to the mobile app development.
  • Think about what the purpose of the application is in the first place. Is it to “kill time” or to fulfill a task? A task based approach should be held as simple as possible to efficiently support the user.
  • And last but not least, make the user part of the UX team. The most progressive banks have their own UX lab and invite clients frequently to test-drive the latest release of all their apps.
 

Banks’ Big Data - potential goldmine and reputation threat

Friday, October 31st, 2014

The finance industry is positioned to benefit very strongly from Big Data. With the rise of highly performant commodity hardware, big data solutions such as Google`s Hadoop, H-Base, Pig, Hive, Mahout or Couchbase, the question of overcoming the technical barriers of big data storage and processing seems to be solved.

Customer profiling and targeted offer improvement requires careful analysis of each customer`s journey from being a prospect to becoming a customer. Understanding where the customer comes from before visiting a bank’s homepage, Facebook presence or downloading its banking app (e.g. previous visited URLs) means identifying the touch points of her journey and indirectly understanding how customers` preferences and needs are being shaped. Social media channels, forums, Q&A platforms, comparison sites have become highly relevant touch points throughout the customer`s journey, since this is where the single customer journey within the web starts.

All this means that significant investments have to be made in the technical infrastructure in order to cope with huge amounts of unstructured data. Yet, the biggest barriers to success are not related to high costs of data management but how to address privacy in Big Data systems while complying with regulatory requirements. Today there is probably no other industry under more public scrutiny than the banking industry. Big Data poses a lot of questions with regard to privacy and regulatory issues. For instance, Germany and other EU countries enforce strict privacy laws that require corporations to inform any individual about all the data which is on record about her and delete the data if this individual wishes so. On top of it, personal data can only be stored with the explicit prior consent of individuals.

However, a merely legal and regulatory perspective is not sufficient. The biggest challenge is the potential threat to a bank’s reputation when clients and the public in general perceive it as secretly spying on their lives.

Above and beyond complying with existing regulation, there is one important thing that banks need to do: being transparent about Big Data. Clients and users of the digital and social platforms of a bank should be informed in no uncertain words what the Big Data strategy of a bank is all about, how this benefits clients and users, how privacy is addressed, and how risks are monitored and managed (just think hacker attacks!). Only openness and full transparency will bring acceptance to banks’ Big Data. Big Data should not be perceived as a bad black box. It can be a win-win-game for both, financial firms and their clients. Get this message out.

 

Google Securities?

Friday, October 10th, 2014

(by Francis Groves, Senior Analyst)

A week and a half ago the Financial Times reported that Google was believed to have intentions to enter the asset management industry and that as long ago as 2012 it hired a research firm to look into the possibilities.

Not surprisingly, news of a possible move into the investment industry by a company as successful and powerful as Google has sent shivers through the world’s huge fund management industry and existing industry players and commentators are speculating about the likely effect of a ‘Google Investments’ landing meteor-style on their territory.

Some have forecast that Google will aim to leverage its analytics capabilities to predict macro-economic and company trends. This could be dangerous in a number of ways. An institution with a reputation for enormous predictive power could have enormous effect on financial markets. It could also be very dangerous for Google if they used their Big Data to make big gambles and got them wrong. And it could also bring down on them a whole new wave of anti-trust activity.

Maybe Google is more likely to head down the road of providing value-for-money opportunities for small investors, possibly by becoming the world’s largest (and first global) robo-advisor. The Chinese company Alipay, an Alibaba subsidiary, acquired fund manager Tianhong earlier this year, raising expectations that Internet giants could soon move into the investment industry in other parts of the world. However, the Chinese public have a justifiable reputation as savers rather than consumers that is not found in the majority of western countries. The question arises as to whether, say, an Amazon or Facebook investment fund would be able to persuade enough clients to save.

But Google occupies a different space, rather more Internet nuts and bolts than (short term) experience or pleasure though, with Google Play, they cater for that, too. The point is that an Internet giant that makes its money through services that are free at the point of use (like Google Search and YouTube) is better placed to encourage a savings habit than companies that make money by selling ‘stuff’.

That said, the kind of people needed to staff an online investment manager are unlikely to be Eric Schmidt’s ‘smart creatives’, (“impatient, outspoken risk-takers who are easily bored and change jobs frequently.” ) The staff (and the robo if there is one) had better be measured, consistent, risk aware and more concerned with investor motivation than their own great ideas.

 

How wearable technology invades everyday life

Thursday, September 11th, 2014

(by Roxana Palade, analyst)

A good indicator of how digitalization impacts our life is the use of technology in designing tech-enabled clothes (one important part of what we call the “wearable technology revolution”).

Every traveler has probably at some point made the dreadful experience of forgetting her smartphone charger. The fashion designer Pauline van Dongen has found a practical solution: the solar dress. Part of a truly innovative collection, the Dutch designer has created ‘intelligent clothes’ like the dress with integrated solar cells that can fully recharge a smartphone.

No solar dress-fan? Then you might want to purchase the GPS-enabled blazer that functions with the help of an app and directs you by means of vibrations and LED lights integrated into the jacket.

As these examples show, the smart phone and tablet may become a lot less important as the device of choice for consumers in their everyday lives. Financial institutions should start thinking hard about the implications of the next wave of mobile technology development. When, where and on what occasions will their clients need mobile services and support and how should these be delivered? Are there ways, for instance, to provide account information and transaction capabilities to the client without the requirement to use a smartphone or tablet? How, when and where should content get delivered to client? Wouldn’t the communication with the advisor work much better via video chat on a smart watch rather than a clunky phone screen?

Some may think that there is no urgency to answer these questions today. They may be very wrong.


 
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