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Digital or Death—What do Nordic Wealthy Investors really want from their Wealth Managers?

In September 1975, Charles Schwab made history. The firm, named after its founder, redefined the wealth management industry by establishing the world's first discount brokerage. It offered affordable investment access to larger mass of investors same time as the Wall Street firms were raising their fees to benefit from the deregulation of securities commissions.

In a little more than a decade, the company defies conventional wisdom by opening nearly 100 branches, offering 24-hour-a-day quotes, and even exploring online services. The company becomes “America’s Largest Discount Broker" and by 1985 has 1.2. Million client accounts and 7.6 bn USD of assets under management severely hurting established players of that time. (1) An unbelievable growth story achieved in pre-digital era.

The crowd funding, social investing platforms and robo-advisors alike are the Charles Schwabs of today. They have already started their journey to disrupt the existing wisdom and beliefs of the wealth management industryjust like Charles Schwab did 40 years ago.

Digital disruption is rapidly increasing across the Nordic wealth management industry. New entrants, disruptive technologies, evolving customer needs as well as rapidly evolving emergent of new type of passive products such as smart beta force incumbent players to seriously reconsider their business models, customer service models and pricing in order to survive.

Yet the Nordic wealth managers and bank owned private banks have to date not been dramatically changing their offerings and business models despite the emergence of several local and global disruptors. Players like Nordnet, Avanza, Evervest, FellowFinance, Invesdor, Betterment, SigFig, SoFi and many others are winning market slowly and firmly by offering more convenient investment platforms, adequate quality of advice as well as lower prices which they combine with wider availability and diversity of products beyond the closet-indexers of banks' own fund products.

Our research indicates that as much as 58 percent of Nordic bank-owned wealth managers’ revenues are at risk by 2020. (2) We also found out that Nordic banks still charge two to three times higher fees (typically 100-200 bps and 50-100 bps for equity and fixed income) on their active fund management services compared to the new players and even some of their European peers leveraging ETFs. While active management does not equal to ETFs or passive strategies, the latter are effectively delivering the same end result for the large part of investors, net of fees. At the same time, incumbents offer a lower quality of digital service, including often biased investment advice pushing their own funds and discretionary management solutions that a have hard time to beat indexes after the high fees.

Considering above, it should not be surprising that incumbents are losing market share as we speak. However, nor the global or especially the Nordic local new players to date have been able to attract as much net flows from investors as their superior value proposition and lower pricing compared to incumbents would suggest. This leaves us with three fundamental questions:

  1. What do Nordic wealthy investors really wantwhat type of digital value proposition do they appreciate and are ready to pay for?

  2. How come have the Nordic incumbent wealth managers not suffered more outflows due to disruptionwhat is protecting them and how long will it last?

  3. How should the incumbents change their business model and value proposition to avoid losing 58 percent of their revenues by 2020?

Clearly, answering the first question helps to unlock other questions. This is why Accenture Strategy conducted a detailed and broad research among nearly 600 affluent and high net worth investors (3) during April 2016. Below is a summary of what we found out.

[Stay tuned for the full report coming out soon, including complete answers to all the questions above. And contact me to get an exclusive briefing for your leadership team.]

What do Nordic wealthy investor really want?
The Nordic affluent and wealthy investors do not yet widely use services of new entrants (online brokers, robo advisors, packaged portfolios or social investing platforms) for the management and planning of their wealth. Only 24 percent respondents aged under 50 years and 14 percent of the 50+ admit to do this. One of the reasons about their reluctance to try digital wealth management service providers is a lack of understanding of services and trust towards the new players. For example, as much as 34 percent of respondents aged under fifty years and 61% over fifty years do not understand or trust social and crowd investing services.

Despite current lack of trust, half of all the investors surveyed are willing to try new digital services for personal financial management (such as account aggregation, cash flow monitor, flexible budgeting tools and "Google"like search functionalities) and planning & investment (such as portfolio simulation, advanced portfolio analysis, scenario analysis, auto asset allocation and execution). The younger the investor, the stronger the interest. Up to 81 percent of under fifties and also 45 percent of investors aged over fifty expressed their willingness to invest part of their wealth into fully digital services. Further to illustrate the changing perceptions within younger generation, 61 percent of respondents aged under fifty are willing to use digital investment services outside the Nordic region.

Research also shows that Nordic investors, especially those under fifty, use multiple wealth managers and are prepared to switch if they are not satisfied with the service. In fact, nearly a quarter of respondents aged under 50 years that switched to a new provider did so in order to access digital tools or services that their previous wealth manager was not able to provide.

Despite the strong interest towards digital tools, investors do make a strong statement that digital is not a value in itself. Nearly 9 out of 10 investors say that face-to-face communication is an important consideration for them in managing their wealth. On top, investors expect digital-only services to come with a hefty discount on traditional services. In fact, on average investors expect pure digital providers to have 38% smaller fees than traditional providers, and as many as a third expect those fees to be 60% smaller.

Further, MiFID II directive will force most of the wealth managers to consider changes into their pricing models. Our research shows that among those who currently use wealth management services, the most preferred pricing option (54 percent of respondents) is pricing linked to the performance of portfolio.

Our research also shows that the highest portion of investors is willing to pay more for services that address their complex and longer-term planning objectives and require advice from specialist teams. These include areas such as retirement and estate planning where almost one fourth of respondents were ready to pay an extra fee. Focusing on serving these type of complex needs offers a clear advantage for traditional wealth managers. Complex needs are not (yet) easily addressed through pure digital channels and it is often hard and costly to find good experts that customer are ready to pay for.

However, that advantage is something of a double-edged sword. If incumbents would focus on complex advisory only, investors have an incentive to switch their purchase of other more conventional services to cheaper digital providers, and use incumbents for (complex) advice only. Eventually, as investors transfer their wealth to new players, incumbents would be forced to change their earnings model based on advice charged by the hour because assets would decrease. This would not only significantly reduce the number of touch points and revenues but also increase transparency on pricing and consequently cause even further margin pressure on the market.

A Wake-up Call for Action
The luxury of strong inflows and high fees that the Nordic bank owned and independent wealth managers have enjoyed so far is reaching its end within the next 18-24 months if they continue business as usual.

Nordic investors demand more convenient, intelligent, fully scalable and low cost wealth management services. Despite growing revenues and market share thanks to their strong retail distribution and advisory networks, banks are already today losing their most prestigious and profitable affluent customers to new players and niche private banks. Often incumbents do not even notice this before it is too late.

Fortunately, there are also opportunities. Incumbents have a window of opportunity during the next 18-24 months to leverage their brand and trust by providing their customers with the best of the both worlds: Valuable face-to-face relationships augmented with new digital offerings. Fully embedding digital to their end-to-end business model enables incumbents to justify somewhat higher fees than new players and also represents also a lucrative way to decrease their cost to serve. This in turn helps retain fair price and margin levels despite the unavoidable commission decreases in the near future. International players like Prudential, UBS, Credit Suisse and DBS demonstrate that by intelligently combining face-to-face with digital this can be done.

At Accenture Strategy, we believe there are two complementary ways for Nordic wealth managers to start embrace digital; (i) completely re-design the on-boarding and advisory processes to create a state-of-the art customer and employee experience, as well as to (ii) launch a tailored digital concept to a carefully targeted segment, such as mass affluent or affluent plus. This can include for example crowdfunding and a robo-advisory elements by leveraging third parties. Behind the scenes, robo-advisory can also be used for managing discretionary mandates or balanced fund strategies at low cost. While digitalizing their offerings and processes, Nordic wealth managers should invest in educating the investors about how the digital tools and processes can help them make better decisions and save time in order to win their trust.

Leveraging digital front-to-back releases more time for what really matters for Nordic investorsthe human touch and face-to-face meetings with customers. Physical meetings suddenly get much better when relevant digital tools are employed before, during and after the interaction. This is how incumbents can win the race if they act decisively.

The findings of our research summarized above should serve as a wake-up call for incumbent wealth managers to start to plan for a digital go-to-market strategy including a clear road map on what, how and when to launch the relevant offerings specific to their market context and overall business strategy. In addition to launching new digital concepts, wealth managers should devote special attention to customer education, awareness and trust building to attract even the most doubtful investors. And they need to do this before the new players do. If not, incumbents face a significant risk of turning from a wealth manager into a wealth adviser only.


Ikka Ruotsila
Strategy business lead for Banking & Financial Services - Nordics

Ilkka Ruotsila is leading the Accenture Strategy business for Banking & Financial Services in the Nordics. He re-joined Accenture 2014 after spending 12 years in different leadership positions in Nordea Markets and Nordea Asset Management as well as in McKinsey & Company. Ilkka has over 14 years of experience in strategy consulting for large Global and Nordic organizations with expertise in business and digital strategies, business model development, market entry strategies as well as service design at the intersection of business, design and technology. Ilkka’s main expertise areas include Wealth Management, Corporate Banking, Retail Banking and Payments, as well as Lean methodologies across industries.

Ilkka is passionate about helping financial institutions to prosper by helping them to navigate through disruption and to better serve the customers in their everyday needs. Ilkka is a frequent and prominent speaker and publishes actively white papers on FS related researchmost recently on digital disruption, PSD2 strategies and digitalization in Wealth Management. Ilkka holds a post grad degree from Harvard Business School and a Master of Science Degree from Tampere University of Technology, Finland.

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