What is the issue in retaining client relationships after wealth transfers?

High Net Worth Individuals (HNWI’s), or millionaires, see their Wealth Manager (or bank, in this blog I continuously refer to Wealth Managers as such) as their most important service provider. Not surprising, clients need a sense of security with the Wealth Manager where they have entrusted their money. They expect Wealth Managers to act in their best interests. Many clients expect their banking products and services to be a commodity. The promise to protect and the ability to grow clients wealth is only part of what a bank should offer to promote customer loyalty.

Wealth Managers for years were primarily focused on acquiring new clients to increase their Assets Under Management (AUM). On the other hand, retention (ability to retain relationships with existing clients) is still a major challenge. Why are the Wealth Managers not sufficiently able to ‘permanently’ bind clients? The 2011 results of Capgemini’s World Wealth Report showed that in over half of all cases, where wealth was transferred to the next generation, the wealth is actually transferred to an other Wealth Manager and so leaves the company. Other studies have shown even higher percentages.

This is a worrisome statistic when we look to the coming 25-30 years when we expect 55% of all Australians privately held wealth to be transferred to the next generation. This is not only an Australian problem but a global trend!


Retention receives too little attention

There are several factors affecting retention:

  1. The image of the banking sector which has suffered several scandals over the past few years (Lehman Brothers ; Liborgate; Government buy-outs;  etc. );
  2. Investment results have been under fire because of the pressure on financial markets;
  3. Clients have become even more critical in recent years to their banks and have become more involved in managing their wealth and so their relationship with the Wealth Manager;
  4. High turnover in relationship managers influences that a relationship is difficult to build. The fact that within wealth management most of the times it is about the relationship managers and not the firm supports that. Think about the fact that when a relationship manager leaves the firm they take some clients from their portfolio with them. This often happens on request of the client and not the relationship manager.
  5. Wealth Managers increasingly face difficulties in differentiating from the competition because only the customer experience is distinctive. Products are no longer a differentiator. However, propagating that the customer gets the best advice at your firm is no longer enough.
  6. There is an increase in the number of wealth transfers causing rejuvenation in the population of wealthy individuals.

The last two factors have much in common.

Are Wealth Managers able to convince their clients of their added value or do they pay enough attention to the future generation at an early stage?

Keeping in mind that it is much cheaper and easier for advisors to retain existing client relationships than acquiring new ones, question would be why this group of future wealthy gets so little attention. In the coming years more than ever, capital transfers will occur in advance of the next generation. There is a great opportunity for Wealth Managers to look after the interests of this group as early as possible. They actually should have started doing so already.

Match the needs of current and future clients

How can Wealth Managers show their added value and ensure that the new generation of wealthy will bank with them, now or in the new future? How can Wealth Managers limit the outflow of wealth and so increase their AUM (so the effect of new clients is more visible to their portfolio)?

Wealth Managers can improve retention in several ways, but it all comes to aligning with future clients needs. Some of these initiatives are already employed:

  1. Setting up advisory teams consisting of advisors from several generations;
  2. Use modern communication technologies, such as mobile applications and tools, that are appealing to the next generation;
  3. Educate the future wealth owners by using a Next Generation Program in managing wealth;
  4. Pay attention to what is interesting to that group. A large group of near future owners of wealth would like to be successful themselves or want to run an own company. Try to support them in that and be a real advisor. Others might be more interested in Social Responsible investing.
  5. Organisation of events that appeal to young people. Not to the art-fair, but to a concert of One Direction or DJ Armin van Buuren.
  6. Many banks have lately realised that their employees are their most important assets. Investing in development, training and growth opportunities are important factors to pay attention too. Wealth Managers would do well to invest in their advisors, especially as digitization is continuing at an accelerated pace, but nevertheless, the advisor will not be replaced.

Overall, what it comes down to is that it is of great importance to keep up with the needs of the clients. Not every customer is in need of a personal visit from an advisor, but may want online or mobile access 24/7 to their financial situation. By using the same channels, Wealth Managers also keep in touch with the future generations of HNWIs(the children of their current clients). The Wealth Manager needs to focus on this group as well, at a much earlier stage, to give them positive feelings and reassurance from the ‘bank of mom and dad’.

There are several opportunities for the Wealth Managers to attract this group of potential clients, who indirectly are already clients, to retain for them. This is a lot cheaper than focusing on new customer acquisition.

3 thoughts on “What is the issue in retaining client relationships after wealth transfers?

  1. Pingback: Banks are changing rapidly behind the scenes, but still need to have the basics right | SocialFS

  2. Pingback: What if a wealth manager is not offering digital services at all? | SocialFS

  3. Pingback: Why millennial investors deserve a different approach to managing wealth | SocialFS

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