The investment services industry – once built upon loyalty and intimacy – has experienced unprecedented disruption due to digitalization and generational changes. It is more important than ever for incumbents to shield their once unconditionally loyal customers.
In the second article of our Wealth Management series based on our 2020 Market Pulse Survey (MPS) in Belgium, we shed more light on the overall satisfaction level of Belgian investors and their current relationship with their investment service provider(s).
Accenture’s survey identified three key takeaways regarding customer satisfaction in investment providers:
- Investment service providers need to get closer to investors’ hearts. A low average Net Promoter Score (NPS) of 4 reveals a mildly positive, yet fragile relationship with the Belgian investor. Key indicators like digital experience show room for improvement to meet customer expectations.
- Investors are not only sniffing out the competition; they are moving for a multitude of reasons. Traditional investment service providers must react swiftly to avoid customer churn. They need to understand what incentivizes investors to change in order to define clear actions to retain them, and to increase their client portfolio by providing services their competitors lack.
- Increased competition from non-traditional players. Niche providers are targeting the Belgian market and are becoming increasingly attractive to younger generations of investors.
Omni-channel heart surgery needed
NPS measures customer loyalty by defining customers as either promoters (satisfied users) or detractors (dissatisfied users) and is expressed as an absolute number between -100 and +100. With an average NPS of 4, our survey reveals that the relationship between Belgian investors and their investment service providers is mildly positive, yet fragile.
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This signals that providers should look for ways to renew and improve their relationship with their clients.
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Investors are less satisfied with the digital experience of their investment products and services (an average NPS of -1). Accenture’s International Wealth Management Survey 2020 also reports that the importance of digitalization will soon span all wealth bands. The use of digital channels across all client segments has been spurred by the COVID-19 pandemic, and banks should accelerate their digitalization efforts and redefine omni-channel service models to meet altered client expectations.
With an average NPS of -3, our respondents appear to be even less satisfied about their branch experience. While the use of branches has been – and will be – impacted by COVID-19, they will stay relevant in the future. Providers should bolster and gear the branch experience towards individualized attention and insights into their clients’ most complex wealth management issues.
Investors are switching or staying…
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of Belgian investors are actively exploring different providers to find a better fit with their needs, indicating a significant vulnerability for customer churn.
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This can be explained by the fact that a lot of providers are offering a seamless – and often fully digital – onboarding process, lowering the bar to become a customer. In addition, taking the example of KeyTrade Bank, investors could be attracted by monetary incentives (i.e. signing bonus). The fact that investors are exploring the competition should be considered as an opportunity for banks to explore cross-selling opportunities. The survey results suggest that investors are open to patronize multiple investment service providers to satisfy their needs, showing a potential to increase client portfolio. Providers could attract additional clients by directing service offerings towards specific client segments with specialized needs.
Over the last three years, 21% of our respondents have changed their main investment provider, translating to an average customer churn of 7% per annum. If this client behavior persists, providers could see more than 30% of Belgian investors changing their main investment provider over a five-year period. Banks, however, should anticipate an increased customer churn, especially among younger generations. More than one-fifth of Millennials responding to our survey revealed their intention to switch provider soon, compared to a quarter of Generation X. Baby Boomers on the other hand are looking for stability, with only 6% intending to leave their current provider. To battle the ever-increasing churn, and to ensure proper continuation of business, rigorous client segmentation is key to understand the drivers of customer churn.
… For a multitude of reasons
It is key to combine both the factors that keep investors at their current provider and those that trigger their decision to leave to understand the motives for customer churn. For example, our respondents indicate high prices in their top three reasons to leave their current provider. Yet, our survey results show that a low price-setting is not enough to keep them at their current provider. One key finding is that Belgian investors value transparency and services exhibiting deep understanding of their specific situation.
Investors are more diverse than ever, and the array of pull and push factors are also increasingly diverse across different client segments. To illustrate, young, socially active investors demand more environmental, risk and outcome accountability in their investment products & services.
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By comparison, we see that older generations are more price sensitive than younger investors.
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Considering other demographic aspects like gender, our survey shows that women would be more prone to leave when banks fail to provide investment products and services reflecting their personal life goals. Men on the other hand, prioritize clear information and a seamless digital experience.
A one-size-fits all model will not suffice to attract and retain investors as clients, and banks need to include additional dimensions such as digital/channel preferences, and Environment, Social & Governance (ESG) products, as they move towards hyper-personalization. By developing analytics capabilities, banks can exploit their already vast amount of data to reinvent customer segmentation. Additionally, with the ever-increasing customer churn, banks should apply Artificial Intelligence algorithms to anticipate customers at risk and capture feedback when clients decide to leave.
Shielding against non-traditional players
Niche players and Fintechs are increasingly gaining ground in the Belgian market by, amongst others, offering specialized and innovative investment services. Aion Bank, for example, leverages Artificial Intelligence as a differentiator in optimizing money management. Other entrants – inspired by the success story of Robinhood in the US - are offering commission-free transactions and fractional shares, lowering the bar to trade expensive shares.
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Next to Fintech players, the Financial Services industry in general is attracting the attention of large technology companies.
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GAFAs are already offering financial products to clients and providing services to wealth-tech players, building on their massive infrastructure backbone. These companies possess a vast client base accompanied by a massive amount of data. This distinctive asset will enable them to scale up and potentially move towards innovative wealth management services. Inevitably, GAFAs will be challengers in the Belgian market.
Conversely, our survey still reveals relative skepticism towards GAFAs for investment services. Relative to incumbents and niche Fintech providers, Belgian investors are least likely to move to a large technology company for their investment services, even with the promise of competitive pricing and comparable levels of quality. While their foothold in Belgium – and Europe in general – is comparatively limited due to fragmented markets, the variety of languages and cultures, incumbents are unlikely to stop the encroachment of GAFAs.
While price plays a role in the decision to change provider, Belgian investors feel more comfortable switching to traditional players rather than to new Fintech players. When asked to score their willingness to change provider (on a scale from 0=unwilling to change to 5=very likely to change), respondents indicated an average score of 3.19 (switch to a traditional player), compared to lower scores for Fintech players (2.76) and GAFAs (2.25).
However, the threat posed by Fintechs and GAFAs should not be ignored, especially when comparing age categories. Our data suggests that younger generations are more willing to change to non-traditional investment service providers when they offer a similar quality of service at more competitive fees. The younger the Belgian investor, the more likely they are to switch to a niche Fintech or GAFA, a trend that will gain momentum with generational wealth transfers over time.
Hyper-personalization will allow banks to preserve their position as trusted investment service providers and strengthen client loyalty
To strengthen the fragile relationship with their clients, traditional investment service providers need to revamp their omni-channel service models and provide seamless digital experiences. This is likely to become even more necessary in the future given changing customer behavior, as the COVID-19 pandemic has taught us.
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With an ever-increasing customer churn, banks need to bring hyper-personalization to the core of their service offerings.
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By re-inventing customer segmentation based in personalization, they can anticipate potential leavers and strengthen the service offerings their clients are most satisfied with. More robust data and analytics capabilities will allow banks to exploit their already vast amount of customer data and tap into new sources of data like digital customer behavior (in-app choices, websites, etc.) and other external data sources (i.e. social media, leveraging third party services via APIs).
If banks succeed in differentiating themselves in terms of personalized service offerings, they can build on the one thing that new players do not have: existing relationships, trust, and a deep understanding of their clients.
In our next article, we will explore the investment products & services Belgian banks need to develop in order to keep their clients satisfied.
The article has been co-written by Jamel Hachmi, Djamel Mohamed and Evi Heeren.