At the Fifth Annual CFA Institute European Investment Conference, Scorpio Partners founder Sebastian Dovey gave delegates a vision of the future in a session titled The Future of Private Wealth Management: The Next 20 Years. The presentation showcased new ways that firms market to private clients. It also focused on a skill that Dovey believes drives Scorpio’s success, which involves “understanding the mind of the millionaire.” Admitting that the private wealth industry does not often discuss the future, he stated that it is time for asset managers to focus on “what wealth is and what wealth needs.”
To demonstrate why the industry needs to change in order to survive and grow in the future, Dovey began by clarifying the issues facing the private wealth industry today. He insisted that practitioners should care about the future because of the significant problems they currently face, which include an economic model in trouble because of rising costs, revenues that are falling due to fee compression, competitive pressure on asset growth from other uses of capital, lack of growth in new money, and an industry that has only an anecdotal understanding of clients and their needs. Further complicating these issues is what Dovey describes as the “client revolution” — a growing number of customers who try to assess the true value of their investment advisers, while deciding if it is too risky to manage their own assets.
Suggesting a way to rectify some of these concerns, Dovey discussed “Future Wealth,” a project that he and his partners have been working on that attempts “to understand the anthropology of the wealth client.” He added, “We have been plotting what is important to wealthy individuals…in terms of parts of the customer journey (ranging from brand to customer experience in terms of the service model) and also in the context of the independent opinion you can get.” By asking millionaires about their experience with other industries, examining where they have spent equivalent amounts of capital, and determining the motivations for their actions, certain inferences can be made about what high-net-worth individuals (HNWIs) need from private wealth.
In addition to verifying clients’ needs, understanding client motivations helps private bankers segment the population of HNWIs and determine the appropriate clients to serve. Dovey makes the case that the high cost-to-income ratio that characterises the industry may be due to many organisations servicing clients that are unprofitable or otherwise inappropriate for the way that they conduct business. Dovey has gone as far as segmenting HNWIs by location, age, career track, and numerous other factors to establish which segments are likely to disregard the benefits and extras that the private banking industry provides and pays for. For example, he mentioned that his data show that clients in the 30–39 age range are more likely to take advantage of hospitality and education events, whereas Europeans who summarily disregard these benefits place more value on staff efficiency.
Dovey contended that the science of wealth management is about using better insight to determine what customers want from their private bankers and finding clients that value the services and skills that an organisation provides. He forecasted that we are going to see people within the C-suite of private banking — chief marketing officers and chief intelligence officers — driving business growth much more in the future. “Those are the same people who were sitting in Google, Apple, and Microsoft over the last decade, and those are businesses that have clearly grown and reached clients that you want to reach too,” he added.
Dovey also suggested that the industry take steps to find new approaches to ensure client retention. The industry knows that periodic contact matters, but it needs to determine what type of contact is truly valued. Private wealth needs to learn from the hospitality industry and find better ways to acknowledge and reward clients for their continued loyalty.
Dovey stated that the private wealth industry has to learn to find and communicate with clients where they are, which he believes is online. Because millionaires are very well connected and increasingly use the internet and social media, private bankers need to ask themselves, “How good is my digital strategy?” According to Dovey, the growth of private wealth business calls for a change in the traditional relationship model needs, not only because clients are pleading for it but also because technology is changing the way that private bankers will engage with clients. To elaborate on the need for change, he stated that research is showing you cannot ignore digital technology and that this is a gift the industry should not walk away from. Dovey said that you cannot view digital technology as “a cheap freebie”; the industry needs to think more strategically about its integration into the business proposition and ultimately how to make money from it.
Dovey’s recommendations to engage clients with technology also comes with a warning. Not only will private bankers who refuse to use technology face risk from competitors that do use it, increasingly, upstart technology companies using sophisticated algorithms are looking to automate financial advice thereby threatening to disintermediate at least some clients from the marketplace altogether.