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The Emerging Middle Ground of Wealth Management

Tom Cramer
Tom Cramer

Wealth management firms typically offer two tiers of service – the high-touch Do It for Me and fully-digital Do It Myself – but a relatively new hybrid model of adviser-client cooperation – Do It With Me – holds the promise for great efficiency and earnings for both sides of the relationship.

Thanks to new and emerging technologies, clients can take a more active role in the management of their own wealth, which is a good thing. Implemented correctly, supplemental technologies can empower the client, freeing up the adviser to expand his or her book of business without deteriorating service.

Firms just need to know which service tier is right for each client. There are times that Do It for Me and Do It Myself are still preferable, but their inherent limitations suggest that the Do It With Me model will fuel revenue growth in wealth management businesses for the foreseeable future. The key to unlocking this growth is better capture and use of customer data.

 

 

Do It With Me

Do It With Me borrows the best elements from both and leverages new technologies for hitherto unavailable possibilities. Many of our clients are exploring how to deploy customer data platforms (CDPs), artificial intelligence (AI) and machine learning scripts (ML) to improve operating models. Through better data capture, indexing and analysis, we’re seeing clients improve their understanding of their clients, become more efficient and increase client experience outcomes.

This hybrid model essentially lets machines do what they can do better than humans and lets humans do what they do better than machines. Advisers are free to dedicate more time to guiding and coaching clients.

Through increasingly sophisticated desktop and mobile applications, individual investors can access many powerful capabilities that were once reserved for professional managers. The investor uses digital technologies to make decisions, which their adviser then tweaks according to the client’s goals using their experience and expertise. If constructed well, Do It With Me empowers both clients and advisers to spend more time evaluating scenarios and less time filling out forms or handling administrative tasks.

 

 

How to advise more clients

Advisory fees, as a percentage of managed assets, are the principal source of revenue for most wealth managers following the elimination of commission by retail platforms. Although many firms have experimented with new revenue streams (e.g., fee-based products, subscriptions to content and data services, etc.), they still succeed or fail on the total value of the investment assets they manage.

There are only a few ways for wealth management companies to grow their assets under management (AUM): onboard more advisers — who in turn bring new clients, attract more clients, consolidate assets from current clients and grow asset value in client portfolios.  However, there has always been a direct relationship between the maximum number of clients and the number of advisers.

In North America, advisers typically manage a maximum book with an upward limit of approximately 100 client accounts. More than that and they lose the ability to service smaller clients well enough. Even still, we see in many investment firms we work with that adviser teams continue to drive a majority of their revenue from a few large client portfolios, as that’s where they typically spend much of their focus.

What if advisers could break out of that 100 account ceiling and spend the right amount of time and attention with every client but only when they really needed it?

The Do It With Me model leverages low-touch digital tools to expand the coverage and capacity of an individual adviser. The leverage from digital interaction enables better and more timely client engagement, and allows for meaningful impact and a better experience across 150, 200 or even 250 accounts, without massive increases in human infrastructure. That’s how a firm can grow AUM in a profitable way.

The power of data

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Streamlining data capture through low-touch, digital interface increases accuracy and speed in assessing a prospective client’s profile. Digital tools supporting financial health diagnostics, portfolio performance monitoring and wealth planning tools permit greater client participation and can expose valuable behavioral information about their goals and expectations. All of this client-level data, aggregated in a CDP, can be put to powerful use through robust client data modeling that triggers client outreach based on market events and changes to risk profile tolerances.

Building a powerful CDP would benefit clients and advisers at all tiers, but this is especially true for Do It With Me. A CDP integrates and organizes countless points of data from many disparate channels and makes them accessible throughout an organization so its employees can extract important insights about customers so that their products, services and interactions are built around their needs.

Although the high-touch Do It for Me and low-touch Do It Myself will still be preferable in certain situations, the hybrid Do It With Me is sure to grow in importance. And, unlike the others, this middle ground empowers both the adviser and the client in a wide variety of ways.

More client involvement allows advisers to expand their portfolios, breaking out of legacy scale limitations, and super-charge revenue growth. And, for investors, broader participation improves the quality of interactions with their adviser and improves their experience, while the adviser moves steadily toward their goals.

The traditional tiers

Do It for Me

Investors in the Do It for Me category are typically higher on the wealth scale. As one’s net worth grows, the ability to structure more complicated investment portfolios increases quickly. The more wealth one has corresponds to greater investment considerations, such as private markets – i.e. private equity, private debt, alternative assets, etc. – generally unavailable on common electronic trading platforms like E*TRADE.

Some people at the mass affluent level either inherited their wealth or earned it through professions unrelated to finance. In those cases, the investors know that wealth management is important but might not be particularly interested or well-versed in financial matters. This category includes heirs, musicians, artists, actors or athletes. But it also includes anyone who feels more comfortable handing the reins over to a trustworthy professional.

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Do It Myself

Investors in the Do It Myself category are typically lower on the wealth scale. They have enough wealth to manage but not enough that they cannot manage it on their own. These investors have often amassed their wealth in part because of their fiscal acumen and have a solid enough foundation in economics and finance that they can’t justify the added expense.

Although some people are fully capable of managing their own finances, this route comes with obvious hazards and pitfalls. Day traders and hobbyists are liable to err in ways that a professional adviser with the proper bonafides would not.

Tom Cramer
Tom Cramer
SVP Partner, Publicis Sapient

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