The days when a relative minority of people can invest and manage their money effectively are coming to an end, rapidly brought about by new technologies. Alongside this, the behaviour of a new generation of investors will reshape investment in ways we can’t even currently imagine – they are the drivers of a sea change in the wealth management industry.
From the perspective of the banks, there has long been a vast untapped source of opportunity among consumers of certain demographics – for example, those commonly referred to as “mass affluent”. According to Accenture, past attempts to target the mass-affluent market have largely failed because of high servicing costs. There is truth to this: wealth investing has traditionally been conducted face-to-face through a relationship manager, and the costs of managing a portfolio manually mean that the minimum amount needed to invest can be prohibitive for some.
This means investing is challenging for those on the spectrum who find themselves at or close to spending their monthly income – for example, younger new entrants into the workforce. But, digital channels can be used to give anyone immediate access to portfolios; robo-advisors can take some of the role performed by relationship managers; and increasing backoffice efficiencies are reducing the minimum amount needed to invest.
Building habit-forming behaviours
Imagine you’ve just made your New Years’ resolution; you’ll start bringing your lunch to work every day. You save around HK$100 (US$13) each time you do this instead of eating out. Now imagine that as a habit, every time you bring your lunch to work you immediately move the money you just saved into an investment portfolio, with a few swipes on an app. New digital platforms mean investing as little as HK$100 is suddenly a reality. Stick to your New Years’ resolution and over time you’ll be able to see the benefits of building a portfolio, even in small increments.
And the opportunities for gamifying this experience are endless as money management becomes more digital, engaging, and intuitive. Instead of an obligation or an afterthought, investing becomes a positive habit – part of your daily banking experience.
The social implications of this could be significant – groups of people who currently have limited ability to build investment pots could suddenly have better control of their financial future. This empowerment could have a broad range of effects, from reshaping the way that pensions are built, to the way we save for a holiday.
And the potential for change could be particularly significant in Asia, which is on course to become the largest creator of wealth world-wide. Asia’s middle-class base and average household income are expected to more than double by 2030, which would put two-thirds of the world’s middle class in the region. We’re also at the beginning of a significant transfer of wealth from the babyboomers to younger generations.
The mindset of the future investor
Those who are now finding the barriers to entry for investing disappearing are often younger and more digitally savvy, and these Gen X and Gen Y investors have a different mindset from previous generations. As a report by Deloitte recently noted the investor of the future is becoming “re-wired”, showing a number of key traits, including: wishing to be seen as a unique individual rather than as part of a segment; more sceptical of authority, meaning they tend to seek advice from multiple sources, including friends; and a feeling of being entitled to access the same products as more wealthy peers.
New platforms are beginning to enhance access, while in our recent future of banking report, we noted that data is beginning to rapidly bring about hyper-personalisation of banking services. Meanwhile, longer term, there’s an opportunity to bring social aspects of investing into investment platforms too – such as the need to speak to a friend for advice.
We know there will always be a human element to wealth management. As Accenture also notes – some “wealth managers have been launched with pure-play robo-adviser offerings – but they’ve tended to struggle, partly because some clients prefer human interaction when making major investment decisions”. A successful future in wealth management is likely to involve a blended approach, bringing together the best of both people and technology.
But overall, it’s clear that the wealth management industry is in a period of accelerated evolution, reshaped by ongoing technological innovation and profound changes in customer expectations. The opportunity is there for both existing banks and new players to capture this – but it’s also an opportunity for consumers, particularly those who’ve not yet been able to invest. These people may see themselves interacting with their money and building wealth in ways never before imaginable.
Kevin Martin is HSBC’s global COO and head of digital transformation, global wealth and personal banking.