By David Finley
Consumers of luxury brands like Rolex, Holt Renfrew or BMW know what to expect when it comes to the quality of jewelry, clothing or vehicle they are buying. They feel special, you might even say understood, because of the personalized, exclusive experience the brand gives them.
Though it is the product that attracts attention initially, over time it’s more about the feeling and meaning the product adds to their lives. Luxury companies spend millions to ensure consumers feel as if owning their product is a natural extension of their innermost selves, a lifestyle choice.
While many in the wealth management industry don’t realize it, they are also in the luxury brand business. Many are still selling their clients financial products and investment services, rather than the lifestyle choices that the investment management services afford them.
A growing body of research provides insight and guidance as to how the wealth management industry must adapt to new market realities. I’ve assembled several key findings that will help wealth professionals to understand why it’s critical to adapt their business models to meet modern consumer expectations and rebuild their brands to enable the clients to achieve the lifestyles they are seeking, rather than just sell the investment services needed to get there.
Fact #1: Clients want more from their wealth advisors than simply better returns
According the World Wealth Report, high-net-worth (HNW) investor satisfaction does not correlate with strong investment returns. This suggests wealthy clients are seeking something more from their advisory relationship than merely returns. Personal connections between wealth managers and clients can improve satisfaction scores. That personal connection can spring from a wide variety of behaviours and factors:
“Robust investment returns are not increasing HNWI satisfaction to the same degree. Strong investment returns in 2016 and 2017 did not yield an overall 70% HNWI satisfaction level globally - arguably the “passing grade” for the industry. North American HNWIs appeared the most satisfied (75.2%), while no other region passed the 70% threshold.”
“Better personal connections between wealth managers and their HNW clients may lead to better HNWI satisfaction scores. In 2018, only 55.5% of HNWIs said they connected “very well” with their wealth managers. The majority of HNWIs globally would use an improved system for locating a wealth manager - whether this is a firm-specific initiative or provided by a third-party or parties.”
Fact # 2: Innovation associated with luxury brands can be leveraged by wealth advisors
HNW clients lead innovative lifestyles. They like unique experiences, cutting-edge products and many have become wealthy due to innovative ideas. Since wealthy people connect to brands that highlight their lifestyle choices, wealth advisors need to communicate how their services offer the unique experience the wealthy desire, and align their brand accordingly. These quotes from Scorpio Partnership research illustrate this concept:
“Coming back to the subject of luxury goods, we believe much can be learned from these brands and taken into the wealth industry. The wealthy like innovation, they like to be at the cutting edge. More and more HNWs are wealthy because they have been innovators themselves. They have seen opportunities and have added value by identifying niches in the market and have delivered exceptional solutions.”
“Wealth managers identify opportunities and add value through their proposition by offering a unique experience to their chosen clients. This is what makes up brand value and must be communicated to the outside world so that wealth managers can rightfully take their place alongside the array of luxury services on offer to the world’s wealthy.”
Fact # 3: Clients increasingly expect advisors to be advising them in ways that are aligned with their social values
Currently, advisors will ask clients for companies they’d like excluded from their portfolio for various personal or professional reasons. However, as discussed by F2 Strategy in the quotes below, clients increasingly want more personalization and purpose behind their portfolios. They are looking for portfolios that are the perfect extension of their social values and beliefs. Ultimately, people want their investment assets to reflect their vision of the world that will stick around to support future generations.
“Conversations with clients have historically been focused on helping them to achieve their life goals like college savings, retirement and wealth transition. From this information, advisors could construct and manage portfolios which would achieve their client’s goals. Clients sent their kids to college. They retired. They transitioned their wealth and most everyone was happy.”
“However, wealthy clients are increasingly asking for more: They want to achieve their life goals, but they want more transparency into how those goals are achieved. Specifically, part of ‘sleeping through the night’ for many comes with the reassurance that their beliefs and values are reflected within their portfolios.”
Fact # 4: Wealth advisors need to stop promising to make clients rich, when their real goal is to lead rich lives
United Capital is an excellent example of a company that is leading a fundamental shift in how financial advisors interact with their clients. After hiring Riedel Strategy, they discovered that people’s investment decisions had little to do with money itself, and more with using their money to lead their best lives. Using this as their guiding philosophy, they rebranded as a ‘financial life management company’ and are now one of the fastest-growing firms in the United States.
“The traditional model says a financial life is about saving and investing, but when people talk about their financial lives they talk about working and spending,” he said. “It accounted for 90 percent of what we heard. Working and spending provide the drama of our lives.”
“The big ‘aha!’ moment for us was that a financial life really isn’t about money,” Mr. Riedel said. “It’s about people struggling to be the best version of themselves, to live a life they can feel proud to have led. Sometimes that involves making a hard decision to make less money.”
“When we ask our clients about what they’re thinking, the financial stuff is at the bottom, they’re thinking about their family and their legacy.”
Fact # 5: There is a need for a new category of wealth management—one that helps people achieve more meaningful financial lives based on what actually matters to them
The wealth management industry assumes that the meaning of someone’s financial life is primarily about making money, investing, saving and achieving financial independence. However, these assumptions are not helping clients with the aspects of their lives that truly matter to them. Below are three facts uncovered by Riedel Strategy suggesting that clients do not care about the money, they care about the financial decisions that help them live a fulfilling life:
“People’s financial life is not about money. It’s about balancing the pursuit of money with other limited and competing resources. When I asked people to tell me the story of their financial life, 93 percent told me about their entire life. By often focusing exclusively on money, the wealth management industry addresses only a fraction of what our financial lives (and financial problems) are about.”
“People’s financial life is not about saving and investing. It’s about working and spending. In fact, the bulk of people’s financial lives (around 90 percent of the high points and low points) revolved around working and spending—promotions at work, family vacations, tyrannical bosses, etc. By focusing on saving and investing, the wealth management industry often encourages us to do better in the areas that matter least to how we will evaluate our lives.”
“Financial independence will not ensure your clients happiness. Many of the people interviewed did not feel good about their financial lives (regardless of the amount of money they had). Instead, 83 percent found the meaning of their financial lives were determined by the sum of their life choices and whether they’d made decisions about them that reflected their values. While the wealth management industry offers us guidance on how to protect and grow our assets, it offers no guidance on how to make these most important of financial decisions.”
Wealthy clients are not simply looking to their advisors for financial services, they are seeking help to enjoy their wealth, live meaningful lives and achieve their goals – objectives that are often informed by luxury brands themselves. As technology creates more ways for clients to self-serve and firms to automate financial services, there has never more opportunity for advisors to move beyond wealth accumulation and preservation and help clients live better lives with their wealth.