Wealth managers must go digital

As wealth is passed between generations, advisers must adapt to their new target group and adopt the right technology

Millennials will soon become the wealthiest generation, challenging wealth managers to adapt their services to a younger mindset. 

People born between roughly 1982 and 2002 are set to receive the biggest inheritance boom of any post-war generation. The Royal Bank of Canada (RBC) estimated the figure will be around $4 trillion in the UK, Canada and United States. 

RBC says millennials are still largely unprepared for this wealth transfer, having received inadequate financial guidance. But they know what they want and are determined to acquire the knowledge they need. 

Wealth managers can adapt their businesses to engage with millennials in many ways. These include the use of digital advice, and improvements in communication, transparency and convenience. These all address younger clients’ expectations around technology and their distrust of traditional financial institutions. 

In addition, active social media, a knowledge-sharing approach, and an ethical ethos and investment style will be important. 

James Wetherall, director of Wetherall’s, aims to attract younger wealth management clients by using tech solutions, including an investment portal and cash-flow modelling software. 

“We want to blow away the stuffy, old, ego-led advisory model,” he says. “Millennials want everything to be simple, accessible and easy to use, so user experience and gamification [making software work like a computer game] in the portal are crucial. 

“Millennials care less about how much they’ve accumulated, and more about their values and lifestyle. So cash-flow modelling provides an easy visual picture of how the money will translate into lifestyle goals.” 

Wetherall’s is not planning a digital service, also known as robo-advice, as that is for those who want scale, he says, and Wetherall’s wants to remain small. 

The key is to worry less about what the market is doing, and more about your clients’ functional and emotional needs

Robo-advice gives financial advice online with little or no human intervention, enabling a low-cost, low-entry-level service. Millions of millennials are expected to use it and robo-solutions will manage $8 trillion of assets globally by 2020, according to some predictions. 

However, the market has had a shaky start. A study by the Financial Services Consumer Panel says many robo-services are failing customers with bad communication, opaque charging and unclear explanations about compensation should things go wrong. 

Many robo-providers are also struggling to make a profit, partly due to the small sums invested. 

Online financial adviser Wealth Wizards claims it spends 30 seconds providing retirement advice that takes human advisers seven to fifteen hours. It will develop its offering further with an artificial intelligence-led service next month. 

Head of advice Martin Harris says: “Most traditional advisers are currently focused on helping millennials’ parents with their inheritances. That leaves most millennials in the ‘advice gap’. Advances in technology and robo-advice are filling this gap. If traditional advisers don’t embrace this step-change, they will find it nibbling at their ankles soon.” 

Shane Williams, co-head of UBS’s robo-offering SmartWealth, says: “As younger generations inherit wealth, we can expect a radical shift in expectations of wealth management towards online service levels matching the likes of Amazon, and on-demand advice and information.” 

Stefan Fura, managing director of Furnley House and recognised as a top young adviser, published research in this area last year and says he was surprised to find that under-35s value face-to-face advice as much as over-35s do. Also, telephone or video advice is not popular with either group. 

“People want to use technology, but it cannot substitute emotional understanding and reassurance – the value they see in personal advice,” says Mr Fura. “Most wealth managers cannot yet offer face-to-face advice that millennials can afford. So the real value of automation and artificial intelligence is in driving efficiencies to reduce costs.” 

Engaging Millennials

Many wealth managers are addicted to percentage-based fees, so have not engaged millennials because of the lower investment sums involved. 

Another acclaimed young adviser Carl Roberts, managing director of RTS Financial Planning, charges fixed fees rather than percentages to avoid this problem. 

Mr Roberts also has a lower-cost entry-level service to entice younger clients. He has no office, and uses a wide range of back-office tech to keep costs and prices down. 

“I also plan to offer a free service via our portal Moneyhub, moving up to a paid service when clients need,” says Mr Roberts. “This would encourage younger clients as it is more akin to the online models they are used to.” 

Despite large numbers of people using new robo-startups, Mr Williams says big wealth managers are not losing out. 

“Startups have captured early-adopters,” he says. “But that’s not many people. When we launched SmartWealth a year ago, we were the first big traditional wealth manager with a digital service designed for the new client mindset. The key is to worry less about what the market is doing, and more about your clients’ functional and emotional needs.” 

Robert Forbes, founder of wealth manager Stadden Forbes, believes robo-advice is a threat to wealth managers, so is setting up a digital-human hybrid offering alongside his traditional service. 

“All wealth managers need to embrace a range of front and back-office technologies to deliver a top service,” says Mr Forbes. “Robo-advisers are good at delivering up-to-date, relevant information to clients – an area for us all to improve on.” 

Timothy James & Partners advises creative professionals, including top performers and DJs. Christophe Beaupain, chartered financial planner at the firm, says: “Advancing technology is giving millennials better access to information, more savings options and reduced costs. 

“Investment portals will give them a head-start on how to allocate their inheritance and where to seek advice. Robo-advice will help explain the type of investor you are, choose suitable investments and select a target outcome. 

“But it cannot offer a considered opinion on more complex scenarios, nor liaise with your accountant and lawyers, for example. So robo and [face-to-face] advice can co-exist.” 

Insight: Ethical investment

Person sitting by a lake

Interest in sustainable investment continues to grow among millennials, according to Morgan Stanley’s Institute for Sustainable Investing. In 2017, 86 per cent of them were attracted to this area of investment, up from 84 per cent in 2015.

To engage with this group, wealth managers must embed sustainability into their investment advice and demonstrate an ethical business ethos. This could take many forms, from publishing recycling targets to demonstrating fair treatment of staff and suppliers.

Lee Coates, director of Ethical Investors, says: “I see far more interest in responsible lifestyles from millennials. One big trend is veganism and making sure money doesn’t finance animal exploitation. As a pioneer in developing vegan funds, we are getting more and more inquiries.

“We also do lots of talks for employers about auto-enrolment. Young people are genuinely interested in investing pensions ethically, particularly if you explain what happens if they don’t.”

Chris Holmes, director of Almus Wealth, says his older children drove him to include social impact and sustainability in his investment decisions.

“They would be abhorred if their money was invested in tobacco, armaments or environment-damaging industry,” he says. “They are far better informed than previous generations and motivated to invest in companies that benefit agriculture, water or climate, for example.

“I’m deeply sceptical of non-specialist wealth managers who whitewash these areas, but latterly realised they are missing out. Millennials will also want positive activism from wealth managers by demanding better governance and sustainability practices from invested companies.”