A customer experience is made up of multiple touch points in a given context (rawson et al 2013) and therefore comprises of all the little things that happen in customer interactions.
Customer experience initiatives are being deployed at a rapid pace in the broader private banking and retail wealth management industry. New value propositions, operating model designs, mobile apps, remote financial advice solutions, you name it. Many wealth managers (I use wealth management in the broader context, which includes both private banks and retail wealth managers) approach these initiatives in isolation and not as part of a broader customer strategy.
This doesn’t mean to say that the initiatives undertaken are not good, no! Some of them are great and (aim to) fulfil a defined customer demand. But there are risks involved with the approach as mentioned above, like:
- Wealth managers focus on areas that don’t have the highest priority for their HNWI (High Net Worth Individual) clients as they haven’t assessed in detail what the real customer priorities are
- Fragmented approach of multiple initiatives, each with the idea to improve customer experience
- Losing “eye on the bigger picture” (fulfilling the customer needs)
- Initiatives are driven by internal organisational desires rather than a focus on end users and enabling value exchange between customers and the organisation
Note: This blog is addressing the role a customer centric focus plays in driving ROI for private banks and retail wealth managers. It covers both obvious and less obvious drivers and influencers on these entities.
A changing environment
The global HNWI/Mass Affluent landscape continues to change and will continue to change in the coming 20 years. A new generation of wealthy individuals is developing. Higher levels of entrepreneurship (please have a look at the interesting statistics in the recently launched report by BNP Paribas Wealth management and Scorpio Partnership) and an increasingly aged HNWI population has resulted in wealth transfers to the next generation, estimated at USD $4.1 Trillion globally by UHNWI (HNWI with free investible assets of USD $30 million or more, according to Wealth-X research, are driving this rapid transition). In the journey towards growth and profitability the wealth management industry is facing a few more specific challenges:
- Improved capital position regulations force banks to hold higher levels of capital, limiting the ability to invest in other areas that require improvements. Regulations tend to have the highest priority in the investment calendar of banks due to the significant risks and fines related to being non-compliant
- The ban on kickback fees (the commission banks got, until recently, from providers of investment product, for selling bank products) has impacted the banks heavily. The income they got from these commissions was significant and not easily replaced
Margins under pressure
- An increasingly competitive environment and the ban on kickback fees put pressure on fees charged on products, forcing organisations to review their business models, considering a more value driven approach, rather than income determined by (product led) transactions
- Organisations need leaner operating models to reduce cost to serve. Current CI-ratios are too high and driven by a costly service and operating model. Leveraging digital technology and optimising channel preferences in pricing to customers might be one way
Changing customer behaviour
- An aging HNWI population and, as such, an increasing young HNWI population that has different needs. Different generations of HNWIs have significantly different needs from financial products, engagement, channels, information and of course life. The major challenge for most wealth managers today is to deal with those different client needs and expectations
- Increase in levels of engagement initiated by customers instead of organisation and/or the advisor. Customers increasingly take ownership of their interactions and interaction needs
- Automated Advice, or robo-advice, increasingly becomes part of the overall service delivery model of financial advice. Not only to perform transactions but also for more comprehensive financial and estate planning
- Relationship Manager support tools to limit the amount of time spent on administrative tasks and enable them to focus on value adding activities
These trends (should) drive a change in behaviour among wealth managers in order to meet their HNWI/Mass Affluent client needs. Interesting to note is that these changing behaviours provide the wealth managers with the perfect opportunity to increase satisfaction levels while reducing costs to serve. Customer satisfaction is a perfect indicator for the effectiveness of customer experience initiatives, as long as organisations have the right measures in place to track where customer satisfaction changes come from.
Ensuring the HNWIs/Mass Affluents can interact with your organisation in their preferred way is critical. HNWIs/Mass Affluents increasingly want to use online and mobile channels to interact with their wealth managers and their advisors. These are channels that have a lower cost to serve, have shorter processing times, are much more flexible and as such are a great opportunity area for organisations. Different pieces of research published in past years show strong increases in HNWI preferences to use these channels to find information, do basic transactions and perform service enquiries while they prefer the relationship managed channel for more complex questions. Therefore, use of digital channels provides the opportunity for relationship managers to spend more time on value adding services (instead of administrative tasks).
They are only able to do so if provided with the right tools that enable them to deliver specific advice (being investment advice or broader life related advice) on the spot by having the different pieces of information available to them.
“Improvements in ROI, to a large extent, come from customer experience improvements…”
It is interesting to understand that improvements in ROI, to a large extent, come from customer experience improvements. This comes as a result of streamlining and cost optimisation, together with the implementation of tools and technologies that lower the cost to serve whilst also meeting HNWI needs and allowing relationship managers/advisors to spend more time on value adding services. The result: Relationship managers become more profitable while at the same time, they improve trust levels on a personal level.
Customer Experience in practice
Customer experience initiatives go far beyond journey mapping. A good example is Aviva. They are approaching customer experience differently – being more focussed, as you can read in an article about Aviva’s focus on client experience improvements on this website (published on October 16th).Overall, the instance of financial institutions focussing on digital enabled solutions to improve client experience is long overdue.
A reason why organisations tend to hold back on dedicated customer experience initiatives is the challenge of accurately measuring it.
Where should ROI come from?
A broader question around customer experience initiatives exists; the understanding of the relationship between customer experience initiatives and the ROI. Wealth managers can grow their business in four ways:
- Acquiring new clients – Development of differentiated and clearly articulated customer market positioning, solutions and value propositions to attract new clients
- Improving margin management by reviewing pricing or reducing cost to serve
- Expansion – Increasing the share of wallet of existing clients
- Retention – Reducing leakage of AUM and/or clients by recognising their loyalty
All four are driven by focussing on customer centric initiatives. The concept of value exchange between customer and bank as described earlier, which is driven by optimising pro-active lifecycle engagement levels and by managing value (beyond price), comes into play. Especially in the HNWI segments this, to a large extent, is driven by an increase in customer satisfaction levels, loyalty and trust!
Trust levels are moving up and down and are influenced by market performance but also, most importantly, by the wealth manager and their advisors that provide service. Trust is the key driver of how the customer is valuing the experience provided. There is a strong belief that trusted relationships are the foundation of trusted organisations and that trusted organisations have the power to change the core of industries.
Lifetime value of a customer
The lifetime value a private bank gets out of its customer can therefore be determined based on the understanding of three dimensions: 1. Superior products, 2. Operational excellence (being processes and channels) and 3. Trusted relationships. By relating the value of each customer to trust levels you will understand that there is a growth pad to be developed that develops the customer relationship from just having strong interactions to them actually trusting the organisation.