The seismic events of the last few days (I refer to the Brexit vote and accompanying political fallout rather than Iceland beating England to qualify for the quarter finals of Euro 2016!) mean that Britain is now very much at a crossroads. Nobody quite knows what the future holds. And with large swathes of the population registering their discontent with the decision to break away from the EU, cool heads will be required to guide us through the next installment of our country’s history.
Beyond the macro sphere, wealth managers are approaching a crossroads of their own as increasing discontent among high net worth investors over servicing levels and the cost of financial advice create fertile conditions for automated advice models to thrive. Such levels of discontent are laid bare by the latest CoreData Research report revealing three quarters (74%) of HNW investors think they are being overcharged for services provided.
And with a majority of 66% of HNWs citing low fees as the main reason for using automated advice, cost is clearly is a key front in the battle to retain and win HNW clients.
But the challenge of preventing HNWs from defecting to the self-directed or lower-cost advice route is made that much harder by a volatile investment climate in which low returns are becoming the norm.
And the UK’s decision to break ties with the EU has greatly amplified volatility and uncertainty. Advisers therefore have a real fight on their hands stopping HNW clients from breaking ties with the adviser community and choosing the path of investor independence. A Brexit could well be followed by a high net worth exit.
With other geopolitical factors also being stirred into the toxic investment cauldron — including the US presidential election, slowing Chinese growth and central bank monetary policy — it is imperative that advisers are able to demonstrate the extra value they provide to HNW clients.
Not doing so could have grave consequences. Research undertaken by CoreData suggests that if advisers were to only receive half of their current fees across their HNW base (assuming average net assets of £2m), their practice would forgo more than £100,000 per annum.
So the stakes are high. And with our research showing nearly half (44%) of those HNWs ending their relationship with advisers do so because of failure to deliver adequate investment results, performance clearly matters to this client segment.
But performance is only part of the picture and there are other reasons why HNWs choose to terminate their relationship with advisers. A significant minority of 37% cite the fact their adviser failed to communicate with them and 34% cite the adviser’s failure to understand their savings and retirement goals.
Furthermore, our research (carried out before the EU referendum) shows that HNWs expect a strong level of protection. Indeed, a strong majority of HNWs say they want new portfolio strategies which help them better manage risk, insulate their portfolio from volatile markets and ensure they are less tied to the broader market.
Such a desire for protection will no doubt strengthen in the wake of the vote to leave the EU and continue to be uppermost in the minds of HNW investors in the post Brexit economic reality.
So satisfaction is not purely linked to performance or cost. Advisers and wealth managers need to raise the servicing bar to retain and grow their HNW client base. Those who develop robust strategies formed around diversification, risk management and long-term financial planning will be best placed to respond to the challenges brought about by Brexit and the volatile investment climate.
Much like our political landscape in the wake of the Brexit vote, nobody quite knows what the future financial landscape will look like amid the rise of fintech and a more autonomous investor base. But uncertainty and volatility abound and in this kind of hostile investment environment the human skills of engagement and communication will prove paramount. Advisers and wealth managers, more than ever, will need to reassure investors and help them make informed — rather than emotional — investment decisions in line with long-term financial goals.
Advisers face a critical juncture in terms of their relationship with HNW clients. They will need to devise a clear strategy for retaining this key client group. But those soft human skills of communication and engagement will likely prove key in the battle to retain HNW clients. And, thankfully for advisers, these are attributes no robot can compete with.