Many wealth management firms are falling short in providing digital technology, which is putting them at high risk of potential net income loss due to client attrition, according to Capgemini’s 2016 World Wealth Report.

While wealth managers or advisors recognize the need for these tools and the increasing demand for them by high-net-worth individuals (HNWIs), less than half are highly satisfied with the digital technology that their firms provide, the report found.

Here’s a look at what wealth managers lack, what HNWIs want and how advisors and their firms can potentially bridge the digital technology gap. (For related reading, see: Why Technology Is Key for Ultra-Wealthy Clients.)

A Lack of Digital Maturity

While wealth managers are increasingly embracing the fact that digital tools can enhance services provided to wealthy clients, only 45.4% are highly satisfied with the capabilities provided to them by their firms. The report found that wealth management firms are underachieving on the digital front, reaching only a medium level of digital maturity.

While in the past many wealth managers stuck to traditional face-to-face interactions with clients, 80% now recognize the positive impact digital tools can have on client interactions, as well as their overall ability to do their job. In particular, social media tools are lacking. Wealth managers of all ages say that prospecting through social media is the most important digital capability but the least likely to provide satisfaction.

Wealth managers feel that digital tools are important in supporting a number of functions including increased collaboration with clients (85.9%), the ability to better leverage client data to identify growth opportunities (82.1%) as well as the time savings through reduced paperwork (82.1%). Younger wealth managers (those under 40) are more likely than their older counterparts (those over 60) to want to adopt digital because of the influence of their peers. Younger wealth managers are also more likely to be motivated by the opportunity to use digital tools to assess and manage risk for their clients.

As HNWIs continue to embrace new fintech offerings, including automated advice platforms and peer-to-peer open investment communities, the importance of digital tools will escalate. Globally, the demand by HNWIs for automated advisory services grew from 48.6% in 2015 to 66.9% in 2016 and 47.5% use online peer-to-peer platforms at least weekly to find out about investment ideas. The demand for digital tools by HNWIs has also expanded to include all age groups. Approximately 65% of all HNWIs say sophisticated digital channels are highly important and 58.4% of HNWIs older than 60 felt the same way. (For related reading, see: Why the Wealthy Will Always Need Human Advisors.)

What’s at Stake?

While digital technology is crucial to maintaining and growing profits, very few firms have built differentiated digital maturity into their business. Capgemini estimates that wealth management firms offering sub-optimal digital experiences could put as much as 56% of net income at risk, due to client attrition.

The report also found that the correlation between digital maturity and client asset acquisition/retention is only expected to increase in the coming years. Globally, 72.9% of wealthy clients feel that digital maturity is very or somewhat significant in their decision to increase assets with their wealth management firm over the next 24 months. This percentage increases to 86.5% for HNWIs under the age of 40.

Digital Leaders

How digitally mature a firm is will have a major impact on how successful it is in an environment where clients increasingly value and use digital technology to manage their wealth. Capgemini suggests that firms put wealth managers at the center of digital transformation strategies and collaborate with fintechs.

In its DigiWealth Maturity Assessment Model, Capgemini identified four levels of digital maturity and the characteristics associated with each. Digital leaders showed a firm commitment to digital transformation and scored high across three parameters: enterprise, client and advisory.

One digital leader scored a 4.4 out of 5 on overall digital maturity with high scores across enterprise maturity (4.1), advisory maturity (4.8) and client maturity (4.3). This firm sticks to a detailed, time-bound action plan. It includes: (For related reading, see: Established Wealth Managers With Robo-Advisors.)

  • Integration of services along with wealth management, including self-service banking.
  • Using social networks to facilitate advanced digital communication.
  • A video platform for clients to access information about products, services and events.
  • Apps to facilitate experience, productivity and cost management.
  • An advanced advisory platform utilizing data and analytics.

“This firm is highly cognizant of the need to innovate and is well along the path of finding the proper balance between personal attention and digital interaction,” the report stated.

The Bottom Line

Many wealth management firms are falling short in providing digital technology to their financial advisors and clients. This lack of digital maturity puts them at risk of losing significant income due to client attrition. In order to successfully compete and thrive, firms need to prioritize employing a plan to offer the digital tools that advisors and clients alike want and use. The correlation between digital maturity and client asset acquisition/retention will only increase in the coming years. (For more, see: How to Prep Your Tech for the Fiduciary Rule Compliance.)