By David Finley
If there's anyone who knows about the changing needs of wealthy individuals and how advisors must respond to this transformation, it’s Sebastian (Seb) Dovey. This successful entrepreneur, thought-leader and angel investor has dedicated his entire career to studying the needs and behaviours of the high-net-worth (HNW) and ultra-high-net-worth (UHNW) investor marketplace.
From 1998 to 2017, Seb was co-founder and managing director of Scorpio Partnership, an award-winning wealth management consultancy that conducts extensive research on the global wealth industry. Based upon its successes and market share in wealth management, the company was acquired by financial services giant, AON in 2014.
Currently, Seb is involved in numerous organizations at a board level. He is focused on business with scalable technology applications to transform client experience in education, financial services, retail, media, insight, loyalty and impact. He actively supports businesses led by successful female founders, sibling founders and married couples. Seb is still a sought-after commentator in the wealth management media about the HNW/UHNW market and the wealth management industry. (Read more about Seb’s background and professional experience on LinkedIn.)
We reached out to Seb to hear his thoughts on what wealthy individuals are looking for when they choose a financial advisor and what he thinks about the current state of the global wealth management industry. Our discussion sheds light on three important takeaways the wealth industry must consider:
In the financial advice industry, it’s often assumed that the wealthier you are, the more advanced understanding of personal finance and investing you have. Do you think this is a fair assumption to make?
In my experience, this is still an overly simplistic assumption. The reality-based on insight evidence gathered by my businesses is that the wealthier you are the more you have to spend and buy and save – but that, in itself, does not necessarily correspond to the level of knowledge (and skill) in personal finance and investing. The fact you can buy, spend and save more will mean that you are exposed to more opportunities, products and services than if you did not have these funds. But I believe strongly that the industry should not simply assume that the individual is more advanced in their personal finance understanding because of their wealth.
Do advisors have a role to play in their wealthy clients’ financial education? Is this part of the advice they must provide moving forward?
For the thirty or so years I have been involved in the industry, the notion of client education has always been discussed. I believe there is an absolute responsibility of an advisor to make sure their customer is as well informed as they wish to be so they can make proper financial decisions (that they are accountable for) to achieve their life goals. The challenge advisors have in providing financial education is managing their limited time aligned to the way they are remunerated, so firms need to find ways to free up their advisors’ time and provide support for the financial education of clients. The return on investment for doing this is significant, but it is a risk as it takes time to experience that ROI.
Advisors have historically been focused on advising clients on their investments. Does their role need to adapt to also include planning and life management support?
Yes, and yes. Advisors, across the globe, have traditionally been focused on the financial side and less the ‘advising’ and planning side. Many think of this kind of support (planning and life goals) as requiring softer skills – but it’s anything but soft. In fact, these are the toughest conversations to have successfully. Conversations in which clients are talking about their overall objectives and goals are complex and to engage people effectively requires considerable skill. This skill is extremely important to help clients figure out what to do next and to align their values with their overall life goals.
I believe the wealth industry is moving in the right direction to provide life management advice, but there’s much more data they must collect to successfully integrate this into advice giving. And, while this kind of support isn’t entirely new, what is new is the question of how wealth advisory firms can provide life management support at scale and how to augment the role of the human advisor with technological solutions to make this happen.
“...what is new is the question of how to provide life management support at scale and how to augment the role of the human advisor with technological solutions to make this happen.”
How important is it to provide a frictionless digital experience in wealth management?
Find me a part of our lives that doesn’t incorporate a digital element these days. The reality is, digital is not an option – it’s mandatory.
The challenge is the industry views digital as an output-led experience. But the digital future is not just about the outputs, it’s also re-envisioning the inputs and the roles that the client and advisor will play in the advice experience. While many technological advancements have happened in the last decade, the industry is still lagging behind by using a piecemeal approach and needs to now learn how to create holistic digital wealth experiences. In fact, it really needs to think beyond digital.
Customers have wanted a more digital experience for quite some time and the global industry resisted this because they found it difficult to understand how an extremely wealthy person would engage with complex finances digitally. But they were wrong and wealth managers are changing their attitudes.
Notably, the evidence accumulated by the teams at our core business demonstrated the demand for digital as early as 2004 but the industry struggled to come to terms with this. For a very long time, they disputed the evidence and they resisted change. This left the door open for disruptors and it also eroded some of the client confidence in the industry which now needs to be recovered.
Nowadays all wealth businesses have heads of digital and heads of CX that are at the executive committee level and all claim to be engaged with this. While this is great finally see, I wish some would stop proclaiming they were the first to enter the digital space! As for the digital experience going forward, I do wonder if many are truly thinking about how to address this issue of a two-part world, digital and non-digital. We all have digital identities now and they are entwined, so the question is how we combine the digital and the human elements of wealth advice into one unified customer experience. A few have caught my attention, but just a few. Most are just doing workarounds to keep pace with the pack.
We feel that the wealth industry needs to see itself as a luxury business. What do you think the wealth management industry can learn from luxury brands?
If luxury is defined as high quality at a high price, then yes, there is a definite link. In many ways, luxury is a descriptor for products produced by highly skilled technicians, like artisan specialists, that are typically only available on a limited edition basis – this sounds a lot like wealth management.
The luxury part of wealth management is the capacity to have an engagement between a client and client advisor that combines both highly sophisticated digital engagement with human engagement, and both at a very personalized level. What is quite significant with major luxury brands is they’ve scaled this engagement and personalization into a global industry demanded by a much larger population (think LWMH and Gucci, as examples). This is where the wealth management industry is currently sub-optimal.
Notably, the luxury industry recognized the commercial value of their brand and understand their IP, distribution, sales conditions and needs of differing clients with varying spending powers. They’re also not afraid to venture into new territories and embrace digital much more aggressively. These important factors help them provide deep engagement and personalization at scale which is the core lesson the wealth management industry can learn from the luxury business.
One word of warning about the connection to luxury is that a lot of wealth managers get lost in the glamour of the luxury world and forget about the commercial elements. Luxury is, ultimately, very much part of the consumer retail industry. Those that lead the large enterprises recognize the need to always maintain a sharp commercial focus.
“Deep engagement and personalization at scale are the core lessons wealth management can learn from the luxury business.”
Why is loyalty so important in the wealth advisory setting and what are the key drivers of loyalty in this context?
The industry needs to recognize that it is a consumer business first and sells financial products second. When compared to other consumer-based industries like retail, you can see how wealth management is severely behind on building customer loyalty. The retail industry is fighting every day for the continued loyalty of their customers as they know at any moment their customer could choose another place to shop. As such, many in the retail world have developed deeply engaged loyalty-based programs that truly understand the needs and experiences that their customers want.
What is different in the wealth management context, is that typically the relationships with their customers are longer than in most consumer retail arenas. On average, for wealth management firms (firms with a pure asset management and/or planning component), their typical client relationship is around 8 years and for private banks (which include deposits, capital markets and potentially fiduciary services) it’s around 12 years.
Due to the length of the relationship with clients, the industry feels they already have loyal customers and don’t need to work to keep them. This is an oversight. Clients are fully aware of the value of their relationship and often question why this is not being fully recognized. In all other parts of their lives, their loyalty has a value and they leverage this to their advantage. A loyal customer is a tremendous resource to the wealth industry as they can help engage new clients and drive growth.
Moving forward the industry must embed the value of loyalty in everything they do. They need to consider all of the factors of their consumers’ wants and needs to build proper loyalty strategies. For example, wealthy individuals are likely more aware of their personal finances and investments so engagement, education and networking are all points that must be considered in their personalized loyalty package.
One trap all wealth managers fall into with the concept of loyalty is that all they need to do is invite their clients to golf, opera or a gallery and that is all that matters. Loyalty is far more complex and sophisticated than that. I am alarmed by how little the industry thinks about this. They are leaving opportunity on the table and they are, in fact, losing business. This business will be difficult to recover.
“The industry needs to recognize that it's a consumer business first and sells financial products second.”