Connecting With Next-Gen Investors

The roots of the investment industry are in trust. It’s in the name ‘fiduciary’ – fiducia being Latin for “trust” – and it’s in the experience that we need to feel with the people we make stewards of our assets as investors.

We’ve all seen first-hand what happens when trust is compromised – think Bernie Madoff – and these horror stories within our industry that have shaken the trust of many investors, causing them to question the capabilities and motives of their investment partners. Now more than ever, regulations are critical. But so are relationships. Transparent, trust-building interactions with clients are crucial. As surveys show, investors feel that there is vast room for improvement in building trust in the industry.

The danger of inaction

Despite all the money in motion right now (between $30 and $60 trillion, depending on who you ask), wealth managers are on the back foot. Gen X, Millennials, and other inheritors of assets are demonstrating low loyalty to their parents’ or grandparents’ money managers. These managers have built little to no real relationships with these younger generations, and as a result, they have been unable to demonstrate their value. Collecting fees without demonstrating value certainly does not engender trust. The value needs to be visible.

Several professional services firms have released studies showing that upwards of 60% to 80% of inheritors fire their wealth manager after an inheritance. Robos came on the market promising to be the answer for these newly wealthy - threatening to take business away from the traditional investment houses. When that didn’t go so well, Robos wanted to partner with the more established investment houses. And now? Robos are trying to sell themselves off to the people they threatened to take business from. So much for disruption...

Robos are dead. Their initial insight of wanting to automate experiences and make information more accessible has been reborn in hybrid solutions and better digital offerings, created by established investment houses.

There’s a lot of surveys of the US market, but to see how things are evolving across the pond, InvestCloud recently surveyed 47 UK investment businesses and 1,019 UK investors. We found that only 1 in 5 investment managers believe their digital propositions are good enough for modern investors. Another 20% describe them as “poor”, and nearly a third expect to lose clients over the next five years – specifically due to their poor digital propositions.

The more you look at the problem, the more it’s obvious that poor client retention and acquisition has to do with a lack of empathy, which results in poor engagement. When empathy is low towards an investor, trust in the manager is low as well.

Boosting trust through excellent digital service

Better client retention is a goal of every investment manager. The old school approach to retaining clients is playing golf and eating steak dinners. But with an eye towards empathy - is that really what modern clients want?

For a manager to connect on an empathetic level with these new clients, it’s much more productive to focus through a digital lens. Through deployment of an interactive client portal, investment managers can digitalize processes and engage with clients in a more efficient manner across multiple channels. These portals can then be further customized based on unique investor personas – delivering relevant news, and investment suggestions based on their preferences. Data collected from these portals can then in turn support managers when communicating with investors, allowing them to provide hyper-relevant investment advice. This is not one-size fits all.

These are the demands of the modern investor – proactive communications based on relevant data, with an opportunity to interact through multiple channels. Communication should always be relevant, flexible, and timely. Not to mention, the better this communication works with the client, the easier it will be to identify concerns and address them early on – ensuring better retention in the long-term.

Nearly 75% of US-based wealth managers still rely primarily on email and phone for communication with their clients; many don’t even have a client portal to begin with. And among those that do offer a client portal, few offer one that meets all of the above criteria; a combination that is central to expressing digital empathy.

Given the competitiveness of the wealth management industry and the unabating pressure on fees, it’s equally important to focus on client acquisition. This starts with an active website – one that ideally supports interaction through the application of gaming theory. This can be expanded to the notion of an authenticated prospect – i.e. a prospective client that has engaged with your website and created a user profile, by providing some personal information (name and email) as part of the sign-up process. This data can then be used to offer a gamified financial planning experience to the new prospect.

To stand out in such a competitive crowd, it’s also crucial for firms to offer their prospects the ability to conveniently share their views – such as blogs that are posted on the firm’s social feeds, or website. Leveraging the psychology of the gaming theory’s ‘community dynamic’ makes users feel an important part of the firm’s circle.  Making this function easily accessible to prospects, and for firms to position themselves as a thought leader in the space will encourage prospects to be quicker moving through the sales funnel. The more they engage, the more likely they are to sign up. And that engagement is directly related to digital trust.

Once prospects become the new customers, seamless digital onboarding is of utmost importance, as it significantly shapes the first impression and therefore paves the road the customer is about to start its journey on. Offering automated, digital tools for Know your Customer (KYC), bank verification, account opening, account funding and risk tolerance evaluation means convenience for the end investor and a higher margin for the wealth manager. Onboarding processes that are full of friction alienate modern investors, ultimately leading to failure in converting prospects.

But how does one improve quality service in practice, and what are the missing links? More importantly, how can all these missing links be centralized in a cost-effective solution?

Leveraging a digital platform for personalization

Relevant client communications that engender trust rely on true and accessible data and information. This is only possible by creating a single version of the truth for data. This can be enabled by a digital warehouse – a data solution that is open to all users, combines non-traditional data points with traditional financial data, and provides advanced analytics.

By harnessing your data, you can be confident in your knowledge of clients and prospects. This knowledge enables more effective outreach, and a highly personalized human service. Using this data doesn’t only give the ability to enhance the human element of a hybrid service, but also enables businesses to personalize their digital offering. As not all clients are the same, there is no one-size-fits-all solution to client engagement – that is self-evident. Despite this common knowledge, managers often struggle to express their understanding of the individuality of investors – simply because their digital tools don’t allow them to.

A platform that enables mass customization is vital. That means being able to support different user journeys simultaneously, each corresponding to a unique digital persona. Marketing 101 tells us to segment our clients, and managers are typically good at this. But it’s about translating that knowledge into digitally personalized portals.

There’s a great quote that seems rather applicable at this moment: “your past does not equal your future.” Building better trust with investors using digital strategies is within the grasp of every investment manager, but if the investment management industry fails to adapt, the future could be bleak.

Image sourced from Pixabay