How a Platform Model Can Help Wealth Managers Win

Digital Wealth

How a Platform Model Can Help Wealth Managers Win

The last two decades have been a time of significant growth, change and evolution for the wealth management industry.

Assets under management (AUM) have quadrupled from 31 trillion to 112 trillion. The rise of robo-advisory and the trend towards a fee-based service model are transforming the industry, as is the rise of newer asset classes for alpha (alternatives, IPOs, digital asset) and investing with purpose (ESG). At the same time, customers continue to look for higher returns, holistic financial wellness support, better digital experiences and lower fees.

To support these changes and increase efficiency, wealth managers have structured themselves around service offerings (e.g. advisory only, full-fledged advisor, model manager), segments served (e.g. mass affluent, HNW, UHNW) and products offering (e.g. MF/ETF, EQ/FI, alts, digital).

They have also organized people, process, and technology as an “assembly line”—a linear chain in which each function is tightly coupled with another.

What next for wealth management?

We are on the cusp of a significant shift in how wealth is managed, driven by the following customer needs:

These impacts put the future wealth offering at the center of three key dimensions, namely:
“How customers are acquired and engaged”, “How businesses can personalize their offerings”, and “How they can do this with price transparency while co-managing with customers”.

What challenges does this pose for wealth managers?

“Assembly line” wealth management structures are good at serving a single dimension, such as:

Higher returns and diversification:
rolling out new funds and strategies with newer asset classes

Fee reduction:
rolling out robo-advisory platforms or standard low-cost products

Better customer experience:
providing more advisor engagement and better digital tools

But when these dimensions are combined, wealth managers struggle because of how hard-wired their organizations are to the assembly line structure.

To draw a parallel, let’s look at a car manufacturing plant. The production line that produces a sports car and a luxury car are structurally very different. What if a customer wants luxury features in a sports car? How easy it this to accommodate? What changes to process, people and technology are needed to make this happen?

Compare this to wealth management. Customers want to pick and choose how much money they will self-manage and how many wealth managers they will hire. They want to choose which service they buy from which wealth firm. They want to decide how their data is served to them through web experience, mobile or data API.

Wealth managers struggle to provide the level of personalization and customization needed to support multi-dimensional customer needs.

How can wealth managers win?

Wealth managers can take inspiration from Albert Einstein’s theory of e=mc² to define how they structure their future business model away from the assembly line model to better serve their clients’ needs.

Wealth manager acceleration model = MC²

In Einstein’s theory, m stands for mass and c stands for the speed of light. In ours, the meanings are changed.

M stands for modularize (to organize services as individual components).

C² stands for collaborate and concoct:

Collaborate (with partners, with new offerings and effective pricing)
Concoct (seamlessly combine service and data across providers for customers)

Modularize

Rather than trying to bundle everything into one service, wealth managers can build each component as a service for a fee. The customer can choose if they want to buy a particular component service from a particular wealth manager depending on their strength. The wealth manager can also open new revenue streams—a manager serving HNW individuals could sell their models or financial planning services to other segments. It’s a win-win.

Collaborate

Wealth managers can look for effective and efficient ways to serve emerging and niche customer needs, such as investing in digital or alt assets. As internally building the capability requires significant investments and time, wealth managers can instead look to partner with a provider who can manage part of the portfolio and serve the specific customer need. This augments the modular structure as each component service is segregated and can be either supported internally or with a parent.

Similarly, a wealth manager doesn’t need to start from raw leads but can partner with a referrer with fee share to fasten the acquisition and focus on value creation through advising and managing the assets.

Most wealth managers already do this on a case-by-case basis for customers or partners; the real value lies in thinking of a “collaboration” model as core to the business model and designing processes and systems so they can be tweaked and extended without friction or significant change.

Concoct (combining various ingredients)

Wealth managers want to provide the best experience to their customers. Building client platforms and leveraging data aggregators to consolidate data from other providers helps to some extent in realizing this.

A customer might prefer, instead of using a family office system to consolidate across wealth managers or consume data through an API, to feed into their internal system or another fin app for consolidation.

Wealth managers can enable this by developing a seamless data interchange capability with another manager—similar to what “open banking” did for the banking ecosystem. This will help them meet their customer-specific need, price according to the personalized data and experience desired and offer more than a one-size-fits-all solution to their customers