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Digitalization of Wealth Management – Disruption or Evolution?


Last week, I had the privilege to be joined by an incredible panel of industry leaders to discuss the changing dynamics of the Wealth Management industry on a joint LinkedIn and Capgemini webinar.  

We had a great discussion and I wanted to share some of the highlights in case you missed it.

We were honored to have Jill Schlesinger of CBS News on-board to moderate this dynamic group of personalities.   Joining me on the panel were:

  • Jon Stein – Founder and CEO Betterment
  • Rachel Perkel – Head of Marketing Wealth Management Brokerage at Wells Fargo
  • Hardeep Walia – CEO Motif Investing
  • Hart Lambur – CEO OpenFolio

We covered a broad set of topics, but primarily focused on some key themes Capgemini has been covering the last two years in our World Wealth Report, Asia-Pacific Wealth Report, and U.S. Wealth Report, with a specific focus on:

  • Surviving and thriving amidst digital disruption
  • Adapting to automated advisory services
  • Differentiating wealth management practices

If you have a chance, I strongly encourage you take the time to listen to the webinar.

However, if you haven’t had a chance to do so, I have included a summary of some of the key points made by the different panelists during the first half of the webinar. (I have taken some liberty to paraphrase the commentary for the interest of length).  Listen to the original comments and what we covered in the second half of the webinar in the replay link above.

You can also download Capgemini’s latest white paper on the Evolution of Automated Advisors.

Bill – We have seen some very strong High Net Worth Individual growth. The U.S. grew 9%, adding over $1 trillion in wealth and is the largest HNWI market globally.  However Asia-Pacific passed North America to become the region with the highest number of high network individuals.  Last year we saw India (26%) and China (17%) lead the charge.  None-the-less, each of the top 5 cities in the U.S. (New York, Los Angeles, Chicago, Washington DC, and San Francisco) have higher HNWI populations than India (11th largest HNWI population country in World).

Rachel – We certainly are seeing and doing everything we can to continue to serve the wealth that is growing. Geographic concentration always helps us.  Certainly among the high net worth, we are going to talk a lot about digital disruption which we do embrace.  For HNWIs that have complex needs, being in the old guard traditional part of the industry, we can bring to bear a lot of resources, and some of those are certainly going to be in person.  Geographic concentration certainly helps us, but digital also enables us to tap into wealth throughout the country.

Jill – The traditional Wealth Management industry is battling against a lot of different forces – A lot of regulation since the financial crisis, margin pressure, a lot of consolidation, and some demographic shifts. We see studies that say Millennials don’t want to talk to anyone. They trust technology more than financial institutions. We see the Millennial Disruption Index, which was put out by Scratch, a division of Viacom, some stats that are mind-blowing.  71% of Millennials say they would rather go to a dentist than listen to what banks are saying. Nearly half are counting on tech start-ups to overhaul the way banks work.  2/3 say in 5 years the way we access our money will be totally different.

Hart – If you think about the Millennial generation, they have almost a sense of entitlement to have access to information, to transparency, to being able to understand and see how things work. They have a distrust of the pinstripe financial adviser if you think of it in stereotypical terms. What I think the Millennial generation is really doing, powered by the roboadviser trend, they are forcing the wealth manager to define their true value-add and to really justify what they are offering past basic investment management.

Hart (in reference to what is OpenFolio) – We’re not providing advice at all.  We let you see how your financial portfolio compares to others.  We take 60,000 users that have shared their investment portfolios. Not how much money they have, but investments in percentage terms.  We push them together into a global data set to produce our investor average.  It is effectively a benchmark that is a proxy for how the retail investor is actually doing.  For us, that is just a tool for transparency to create a better, more engaging benchmark to let a user understand how their investments compare.  It’s not advice, but it is a hook, it’s the top of a funnel to help a user look at their finances more critically and bring interesting questions or thoughts to their human adviser to help them make better sense of their own investment situation.

Jon – We don’t see it at Betterment as so much of a generational shift, such as a societal shift. Sometimes it looks like it starts with younger people, but we found at Betterment and our business most of our business comes from non-Millennials. In fact, something like 30% of it comes from customers that are 50 plus.  The way that people are looking to manage their money is changing.  It’s not so much that they just like technology better than humans.  I don’t think if you polled people they would say they like their computer more than humans.  It’s that they like things that are transparent.  They like things that are repeatable and evidence-based. And you can have either a human adviser or a technology interface-driven interaction that is evidence-based, and repeatable and transparent.  To us, at least what we are hearing from our customers, that is what they value.  It is the quality of that experience being something they can dig into and understand and repeat.  If they were to follow the same rules again they would get the same result.

Rachel – We do find in the wealth business for Wells Fargo we do skew older, which is pretty traditional in the industry. We do find there is a great demand and desire for digital engagement with advisers across a range of needs.  In terms of value add, advisers need to add value beyond investments.  This is a good thing for the consumer and also good for us in the industry.  They are getting increasingly managed more efficiently and the transparency there is really important to the consumer and it is important to performance.

What advisers need to do is add value beyond investments. I think particularly for the high net worth there is a lot of opportunity to do that. There is a lot of needs around wealth transfer and charitable giving. There are complexities for higher net worth individuals for concentrated positions or private equity exposure, or types of exposure that senior leaders might have outside of a traditional stock and bond account.  There are a lot of different ways to add a lot of value.  The opportunity and the challenge in the industry is to really be able serve and deliver value and also to adjust our models in terms of how we engage and charge for our services, to evolve from an asset-based approach to a more broad-based one.

Hardeep – When I say it (roboadvisers) is not disruptive, it does not mean it is not an important advancement. It just doesn’t change the economics to serve.  Our early adopters at Motif were actually retirees, mainly because they have money and they have time to try something new. Millennials don’t have money generally and we as an industry have a tendency to skew.

The issue with robos not being disruptive is kind of like my worst nightmare.  If you can wake up one day as CEO of a start-up and have all the big guys in your industry take five months to do what you did in five years.  It is pretty frightening from that perspective where everyone today is building robo capabilities.  It is an important feature set, but it’s not changing at all.  What robo technology has allowed a lot of people to do, its changing the economics.  For people who can’t afford an advisor now have for simple scenarios an opportunity to have managed advice, if you will.  I don’t actually subscribe that robo is actually advice, but it is allocation models. They have done it beautifully.  They have done it in ways that are simple

One way that millenials are very different is they care what they are invested in. This is something that hasn’t been addressed very well.  This generation cares about doing good with their money. When we look as advisers at helping and serving this audience, especially the high net worth component, a lot of it is about how you do good with the money while making a return.

Jon – I would expand on what Hardeep said about the level of advice you can get. I think there is sometimes a misconception among some in the industry that when we talk about advice, we’re talking about portfolio construction. That is table-stakes and I would agree that is pretty easily commoditized.  There have been portfolio construction things out there for 20 years.  I think where Betterment takes off is that’s the starting place.  We had that 15 years ago.

Where we’ve innovated is in providing more holistic advice after you have a portfolio construction.  What should your glide path look like, how much should you invest, how much should you put into your Roth IRA, how much into a taxable account, how much into a 401k, can we tax manage across all of those things, can we avoid wash sales, when you need to make a major purchase take it out of the right goal etc, .  It’s really holistic financial planning to take into account all of your outside assets, your income, your spouse’s income, joint account if you have one, where you want to retire, I could go on and on.  This is the kind of stuff everyone wants.  It’s not just what should my portfolio be.  It’s given how the amount social security benefit that I have, how much more do I need to save before I retire.  We’re answering those questions today at Betterment.  I do think there is a lot of advice that can be made accessible now to everyone that historically was only available to people who could afford a great and expensive adviser.

Hart – I agree with Jon in where Betterment is going to provide more advice.  But the starting point where Betterment started and competitors are now stuck, was roboadvisers as an automated investing service as a basic allocation service.   If you look back at the high-end of the RIA market, outsourced investment management has existed for years in the forms of turnkey asset management programs that hold $2 trillion of wealth under management.  What the roboadviser has done brilliantly is market direct to consumer the fact that investment management and asset allocation can be a service provided for low cost (25 basis points or less). And in doing so, they have forced the consumer to question their human adviser.   Hey, what am I paying for here?  If investment management is an outsourced service that costs 25 basis points or less, what is my 1% wrap fee getting me?  What is the value-add in this equation?

Bill – We asked HNWIs how open they would be to leveraging a roboadviser type kind of capability or an automated advisory services. We found almost 50% of HNWIs globally were open to leveraging it. Although it was a bit lower in the U.S. at 34%. However, when you start looking at the dynamics of ages, that’s when your eyes start to open.  For those under age 40, over 70% were open to leveraging it.  For those under 30, 87% were open to leveraging it.  And of those that were under 30, when you ask how much would you consider being managed by that type of capability, 77% of those said they would be willing to put over half of their assets into that kind of a tool.  As what others are saying, this is becoming table-stakes.  However, it is not going to replace the wealth manager.  It’s is going to place the focus on what is the value proposition of a wealth manager.   What are you doing to deliver the value for those services.  It’s not just about your ability to properly put together an asset allocation.

Rachel – The traditional industry has often historically struggled with serving broad-based family needs and younger family members because of their pricing model and the portfolio management part of the business in some ways was challenged from a scalability point of view. I think digital advisory can help us more holistically serve families based on different needs across the family and different price points.

With regards to digital needs beyond advisory or digital needs among the high net worth, we research and get input from our own clients and prospects. People have much increased needs, and it is not just demographic. What we’re hearing from our customers is they want to engage with us in a multi-channel way and they want to be able to digitally engage with their advisers.  High net worth have time challenges and there may be multiple family members.  Being able to make appointments and interact with their advisers across different locations and family members via video is becoming increasingly important.  Video conferencing as well as being able to review and do what-if’s around financial plans, not just investment plans, but financial plans online.  A lot of interactive planning type of needs.  There is a need, even among high net worth, around financial education.  How can we help continue to educate and add value with our clients in that capacity?  We need to bring to bear, certainly with high net worth, more than just investment advice.   We need to bring to bear other experts and resources in a team-based way as needed, whether be trust or asset protection with insurance, or other types of banking, other types of capabilities for broad-based needs.   We need to be able to bring the team and resources in a multi-channel way.  These are all things that frankly put pressure and emphasis on digital roadmaps and traditional firms to be able to deliver against these types of broad-based needs.


Hardeep – A lot of next gen investing, even the current gen investor, wants to understand what they are getting involved in. A lot is about having a conversation.  I know with my adviser after a while it gets boring just looking at my asset models and looking at a report on how I am doing. Now you can have a productive conversation about what I am invested in and what are the underlying strategies with the asset model.  Core asset allocation is going to get commoditized.  For advisers, what else is left after you take that aspect out?  A lot is about relationships and having a differentiated view on the markets and being able to give tailored advice.  Really, really hard today, especially in high net worth situations, to get tailored financial advice from a robo product.

The challenge for most people is how do we get to the millennial generation.  That is what big institutions are trying to figure out.  There are big, tectonic shifts in demographics.  We all feel it in our businesses. The question for incumbent firms is how do we work to use this technology to get into this next generation segment before they become high net worth customers so we can build those relationships.

Bill – We noticed that high net worth individuals are interested in leveraging these kind of automated advisory services, but they are not looking to replace their advisers. But when we ask their wealth managers, there is still some denial in that their high net worth clients are not interested in leveraging automated advisory services. Less than 20% of wealth managers felt their clients would ever consider using automated advisory services.

If we look back 10 or 15 years ago, we were having similar discussions with the private banking industry saying their clients would never interact with them digitally.  It is such a face to face, personal relationship, there is never any need or demand for us to be leveraging digital tools.

I remember having a conversation with a CEO of a large European bank back in 2005 when I was living in Paris.  He told me point blank you are an arrogant American to think that my clients are ever going to engage with us online.   Now, if you look at what that firm is working on now in terms of its digital initiatives, there is a lot going on.  It’s about enhancing and leveraging digital to deliver more value to your clients and to enhance the relationship and value proposition.

I think that’s related to roboadvisory services.  The good wealth managers are going to be able to effectively incorporate this into how they are serving their clients and the weaker ones will struggle.  It is really around defining what your value proposition is and how you provide holistic wealth management to your clients beyond just investment advice.

If you found this dialogue interesting, please check out the full replay at here.

You can also explore the findings from Capgemini’s Wealth Reports at and follow the discussion on Twitter at #WWR2015.

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