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How middle-market wealth management firms can use digital transformation to drive growth

Jay Kaduson Principal, PwC’s Financial Services practice, PwC US September 21, 2020

COVID-19 has forced many companies to ask themselves, “are we able to compete in a digital world?” Many middle-market wealth managers are discovering that the answer is: “not really.”

Middle-market firms built very successful businesses based on in-person relationships. Often, digital offerings were a “good enough” afterthought. They could reassure themselves that their clients didn’t care and would sooner have a conversation than use an app. Not any more.

The pandemic has made everyone more comfortable with digital tools for everything from buying groceries to “visiting” grandchildren. Suddenly, even your clients that value in-person relationships now expect a customer experience (CX) that includes the best elements of online and in-person service at a low cost. “Good enough” is no longer good enough: quick responsiveness, interactive dashboards and true transactional systems are the new table stakes. Meanwhile, larger competitors have already built robust digital suites, and they’re adding “high touch” capabilities to provide what your clients value.

If you’re going to stay competitive, it’s time to start thinking digital-first. It’s a mind shift, but you can learn from mega-managers who have been there already — and find solutions that won't break the bank. Digital investment can also help boost your firm’s operational resilience so that you’re better prepared for the next market disruption. To start, focus on three areas:

1. Find the digital platform that is right for you and your clients

To deliver what your clients expect now, you’ll need platforms that are easy to use and able to add functionality as client needs and demands change. You’ll want to be able to:

  • Reach your clients and prospects with relevant digital marketing and acquisition options
  • Add new digital offerings that anticipate your client’s needs and wants
  • Personalize client and advisory experiences that are distinct and consistent
  • Use data-driven analytics to produce insights you can actually used
  • Reduce manual operations so you can provide the end-to-end service your clients want, cost-effectively

You don’t need to do it all. Target your investments toward the pillars that make the most sense for your client segmentation. These may vary depending on career status, risk tolerance, demographics, tax status and more.

We’re not encouraging you to buy an expensive unified, proprietary platform to compete with the mega-managers; you offer something different. But your clients are likely growing impatient with using a patchwork of systems with no connection to each other. Now, there are options that let you take advantage of an open architecture system. This lets you use legacy systems that are working well, while adding on the ever-growing menu of solid, cost-effective, third-party offerings seamlessly.

2. Build a segmentation model that can keep up with the big players at a lower cost

It may be time to change the way you segment your clients and prospects. An effective segmentation model tells you which type of client to target, how to communicate with them and what experience to provide. Too many middle-market managers use outdated techniques, such as segmenting by the channel the client interacts with the most. In the past few years, third-party companies have come to market with rich sources of data that can help you identify profitable (and unprofitable) client segments early enough in the acquisition funnel to save money later.

As the market changes, this could be critical to your success. We know of middle-market managers that have worked hard to build relationships with prospective clients, only to discover their wealth is tied up in fixed physical assets rather than in securities that can generate fees. Third-party data can help you compete more effectively.

3. Use personalized client experiences to give your customers the solutions, products and experiences they want now

Wealth management clients want the flexibility and convenience to communicate and transact on their terms. Due to COVID-19, this is increasingly online-only, and it may stay that way. To build the CX these clients want, consider the remote experience first before defaulting to traditional in-person experiences.

We recognize that middle-market wealth managers are walking a tightrope here. After all, many clients value the human touch along with digital capabilities. Using your insights from your new segmentation models, you may find that a sizable share of your clients actually prefer digital offerings — if they can get in-person help when they want it. Finding that balance is key to unlocking the value of the future. Before you invest heavily in a state-of-the-art mobile platform, say, you’ll want to know if the vast majority of your client base prefers to transact by laptop.

Also, this experience can change based on which band of wealth client you target. Here are two strategies that have succeeded at other firms:

  • Mass affluent strategy: Many mid-market firms serve the mass affluent market in the same way they would high net worth individuals (HNWI), even when it’s not cost-effective at this income bracket. Leading middle-market firms use a combination of remote teams and affordable bot/AI technology to deliver a personalized approach without tremendous cost.
  • HNWI strategy: In contrast, many older, high-net-worth clients want even more personal attention than everyone else. These HNWIs still want digital options, though not a digital-first experience. Middle-market firms that have succeeded here can provide that middle ground. For example, advisors can have a suite of digital options to enable their service of a HNWI customer, including everything from concierge tech to high-yield checking.

Time for a digital reboot

Mid-market wealth managers have been squeezed between fintech, mega-managers and a new generation that wants all of the luxuries that come from wealth management at no cost. Now, these challenges have been ramped up by COVID-19 and the need to be remote. And the competition won’t give them any break.

Mega-managers have a head start with technology, but you have meaningful brands, a culture of service and a history of relationships on your side. If you act quickly, you can implement digital tools to reinforce your relationships with your client base. Consider how you can meet the moment with a digital transformation that can improve service and build tomorrow’s client base. We expect to see winning strategies that combine the latest digital platforms, updated segmentation modeling and customer experiences that can adapt as your customers do. Most of your clients chose to work with a quality mid-market firm rather than a mega-manager. It’s time to give them what they want.

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