Satish Avhad, Consulting Partner, Global Practice Head, Wealth Management, Wipro Consulting.
For banks, the recent high interest rate environment positively impacted net interest margins while also reducing loan volumes. Whether or not banks benefitted from these external conditions, most banks are seeking revenue models that are more resilient to interest rate fluctuations. That means fee-based revenue, and in particular, revenue from wealth management offerings.
Certainly, banks face an uphill battle when seeking to dramatically grow their wealth management businesses. The wealth management market is more saturated than ever. Between legacy wealth management firms, banks with significant wealth management divisions and newer fintech entrants, wealth management clients have a dizzying array of options. At the same time, clients now demand service that is more personalized and insightful than ever before.
In this context, banks have two important competitive advantages: Legacy banks have built inherent trust with clients, and at the same time, they have rich longitudinal data about those clients.
When Data Meets Institutional Trust
Client trust has long been a driver of fee-based wealth management for banks. But banks need to be doing more with data. To scale their wealth management offerings, banks must invest in data capabilities that move clients into the advisory funnel, with differentiated strategies for each major wealth client segment (mass retail, mass affluent, high-net-worth, ultra-high-net-worth and so on).
By effectively sub-segmenting clients, banks can efficiently reach mass affluent and mass retail clients with intelligent robo-advisory services and serve high-priority clients with unprecedented care and focus. In short, banks have an opportunity to create wealth management offerings that are both more cost-efficient and more personalized than ever before.
Three Priorities For Wealth Management In Banking
Digital Engagement
A next-generation wealth management strategy for banks should begin by focusing on enhancing digital engagement. Digital platforms will be critical for maintaining ongoing engagement with clients through regular updates, market insights and personalized content. Mass affluent/mass retail clients will require an efficient, light-touch approach that leverages data to respond to significant life events and meaningful asset thresholds. For high-net-worth individuals ($1 million to $5 million in investible assets), carefully layering AI-driven automation enables a service model that combines personalized attention with new data-oriented insights and operational efficiency. Emerging wealth tech partners can bring innovative solutions that provide advanced analytics for portfolio management, AI-driven financial planning tools and AI-powered insights engines. An iterative test-and-learn approach will allow banks to double down on the partnerships that quickly demonstrate value and abandon partnerships that do not contribute to “sticky” offerings.
Bespoke Solutions
As advisory practices find ways to serve mass affluent/mass retail clients efficiently and effectively, they should also devote resources and creativity toward building bespoke solutions for ultra-high-net-worth (UNHI) individuals and family offices. Wealth management options for these clients will continue to proliferate, and it will become harder than ever to hold onto wealthy clients. Bespoke solutions serve two purposes: They will give these high-priority clients experiences that they can’t get from other institutions, and they can also command higher fees. In addition to exclusive investment opportunities, these offerings can focus on providing access to specialized lending options, philanthropy management, tailored tax and estate planning services and even lifestyle services. Advisory practices should regularly reevaluate the services offered to ultra-high-net-worth individuals and family offices, seeking to avoid churn among these extremely high-value accounts and stay one step ahead of competitors.
Sustainability And ESG
Finally, wealth management firms should prepare to significantly expand sustainability and ESG investing. Advisory practices can develop fee-based services around ESG investing, including advisory services that help clients align their portfolios with their values and reporting services that measure the impact of their investments. Many advisors continue to see high demand for these investments from their HNI clients. At the same time, clients are seeking assurance that green/ESG funds are making a positive impact on the ground. To effectively present these funds to clients, banks will increasingly need to take a deep dive into impact accounting. If they are not satisfied with the ratings offered by third-party validators, they may even seek to build their own proprietary sustainability/ESG parameters.
Synthesizing The Wealth Management Of The Future
The wealth management space is primed for innovation. Digitalization and AI-based tools are giving advisory practices powerful new levers to cultivate long-term wealth creation at scale.
Today, customers across the wealth spectrum are overwhelmed by the complexity of digital finance. Banks that seamlessly offer everything in one place—pairing sophisticated, easy-to-access advisory services alongside more traditional banking services—will gain a new level of resilience. In addition to boosting assets under management, they will find their business models more immune to future interest rate fluctuations.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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