Globally, the reputation of the wealth management industry is under some fire right now, and I cannot see it letting up.

In Australia, we are having a Banking Royal Commission into financial services, and wealth management is taking quite some heat. The very public shortfalls from large institutions is now a matter of public record, and there are even investigative documentaries being published on mainstream television about such, which one would suspect must be impacting consumer perception of what has been going on, and the road forward.

Clearly what defines what is both acceptable and best practice in helping consumers with their wealth changes over time, and it appears that in many chapters of this evolution it has been about a new proposition superceding poor, or just outdated, practices of prior chapters.

A quick history : In the past a lot of wealth management was just for the wealthy who put considerable trust in individuals, and whilst I imagine mostly this was all fine, a few ‘bad eggs’ put an arrow into this approach, and the next chapter of trusted branded institutions came around that provided stability, safety of assets and quality of services. It appears now that the institutional model is somewhat being challenged because of poor and now highly publicised practices inside institutions smashing the public perception of their stability and trust, and with it increasing scrutiny of overall practices including what is in some cases called ‘vertical integrated’ business models, where the firms that own the advisers also own the businesses that make the products they recommend. This is raising many questions around conflicts of interest and fees in a world where today there are now ‘best interest’ standards.

So if this institutional model is at threat, what comes next, or just what do we have to change or add to it to bring it up to the new socially acceptable standards,  and what is the new model that has the ‘right to serve’ and get the trust of the consumers moving forward ?

From what we are seeing, the new requirements to best attract and retain consumers are gravitating to include:

  • entire fee transparency – which is meaning that every fee is both disclosed and clear as to what it is for in layman’s terms
  • trust – the ability to cultivate a relationship around trust which, on a recent TED talk, broke this down into 3 components:
    • authenticity : being positioned and ‘delivering to promise’ with an offering or proposition that really (and perhaps un-deniably) is in the best interest of the clients
    • logic : being able to logically describe a wealth proposition that makes straight sense to most people rather than tied up in pages and pages of terminology and speak that most consumers may not really understand
    • empathy : being something that is empathetic to each and every individual client, as opposed to being centred around products
  • understanding : being able to converse with the investors about their terminology and context rather than a pre-defined model that they may not relate to – the importance of the conversation being around how the client sees the engagement rather than a paternalistic approach I suspect will be key to building trust and understanding but also key for risk management
  • safety – being able to offer a proposition that if involves investments does so in a way that the investor feels confident that they are secure and out of range from being ‘diminished’ from fees
  • ability to depart – avoiding the feeling of being locked in, and hence separating any value adding services from ownership of investments

I am sure there are more, however it does raise the following questions for wealth management businesses to consider moving forward:

  • do my clients really understand what they are paying for, entirely ? and how defensible is this ?
  • in a world of increasing scrutiny, can I develop trust that goes beyond a brand ?
  • does my proposition really work around clients or do my clients have to fit into my proposition ?
  • are my clients assets in the best and safest place for them, or my business ?
  • are my clients being locked into something, and if so is this really in their best interest ?

When taking this into account, we are finding more and more firms are concluding that for their ongoing survival that they must:

  • remove themselves from complex fee structures
  • work very hard on understanding each individual client
  • work very hard to understand the frame of mind of the clients and the way they view investing
  • put client assets in a place that the clients largely own the assets or is something quite transparent
  • consider portability of client investments to improve confidence and trust

The new ‘right to serve’ is setting a high bar that many will think very challenging to reach, and they are right looking it through current industry infrastructure. However with some new perspective and use of broadly available and new technologies and techniques this bar can be a lot more achievable. Lets see..