The key issue in today’s business models for wealth management is the juxtaposition of investing considerable effort and money in being bespoke for an exclusive few while the reality is that the engine room of the business is in the “volume” market. In fact, based on client research assignments undertaken by Scorpio Partnership during the last decade, the truly consistent profitable target market spans the wealth client that possesses net investable assets of between E500,000 and E2.5m.
Indeed, some institutions are even acknowledging strong opportunities in the E250,000 – E500,000 segment too. Historically, this particular sub-segment triggered many forms of strategic prejudice among wealth management firms. So much so, that many businesses have tried to ignore the value of this arena and the main beneficiaries have been “premier” wealth solutions offered by banks and independent financial advisers.
Overall, our assessment does not ignore the importance of the wealth segments above E2.5m. But, based on recent work undertaken by us in collaboration with a wealth transformer par excellence SEI Investments, the consistency of successful models in terms of market penetration, revenue and profitability above this point become less apparent.
Indeed, the research work entitled Transforming the Worth of Wealth*, indicated clearly that many wealth managers trying to operate above this line often turn their backs on basic operational and asset management efficiencies that can be introduced. They remain convinced that the only true path to success is an internal solution and this is simply not a viable option. Once again, the business juxtaposition is clear.
Crucially, the volume wealth market is now being better understood. Moreover, the business models assessed are actively growing in this area when they have strong packaged product solutions that operate off a solid platform. In reality, the needs of the clients in this group are constant and, therefore, scalable. Further, clients in the volume-market are also accustomed to common access to products alongside (optional) enhanced service levels.
Our assessment is this segment can be equated to the business class, or in some cases premium economy, of a commercial airline. In essence, these customers are aware of their wealth, their buying power and are typically prepared to agree a premium cost in return for better outcomes. To complete the analogy, the plane is the same for all passengers, but the experience of the flight changes for those willing to pay the premium depending on their circumstances and needs. This is the future vision of the wealth industry that can dictate the strategic orientation of the business.
Most should accept premier and business class offer the best sustainable margins when operating on a standard platform.
Ultimately, the client is seeking a “wealth management experience” which is a combination of strong personal service and longer term investment management. To clients this has demonstrable fee value which is defendable by institutions if the experience is positive.
The investment management proposition does not significantly change with wealth in this segment but the service expectations of clients do. Therefore management executives are increasingly starting to focus on the differentiating element from a client’s perspective – the front office.
The connection between client experience and product proposition is somewhat new to the wealth management market and only informed with detailed client research, insight and knowledge. Over time this will improve as insight deepens.
Sebastian Dovey, managing partner at wealth management strategy think-tank, Scorpio Partnership
*The full report on Transforming the Worth of Wealth is available by contacting either Scorpio Partnership (Graham Harvey) graham@scorpiopartnership.com or SEI Investments (Brandon Sharrett) bsharrett@seic.com
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