A report just released by McKinsey, On the cusp of change: North American wealth management in 2030, offers some interesting perspectives.
The ideas presented in the report include the rise of “fit-nance” tracking of holistic advice, financial advisors focusing on life coaching, and ubiquitous user ratings of advisors.
One of the key concepts in the report is that financial advice will be substantially provided over Netflix-like subscription platforms:
The “Netflixing” of advice
In 2030, up to 80 percent of new wealth management clients will want to access advice in a Netflix-style model — that is, data-driven, hyper-personalized, continuous, and, potentially, by subscription.
The emergence of a tailored and personalized model underpinned by data can be observed across industries, but is perhaps most prevalent in entertainment — in the shift from physical music recordings to unlimited streaming of digital music, or from seeing films in movie theatres to streaming them from home — or from anywhere. The “streaming giants” are using customer data to continuously and deeply understand preferences and develop hyperpersonalized recommendations.
For wealth managers, continuous access and automatic hyper-personalization could change the terms of success. Advisors can embark on the journey now by using data and technology on a more frequent and consistent basis.
Of course the 80% of “new” wealth management clients will on average be less affluent than the industry’s current client base. However from the advent of digital platforms, many private banks and wealth managers were surprised by the speed at which their High Net Worth clients chose to migrate to digital interfaces.
As I discussed at length in my first two books, Developing Knowledge-Based Client Relationships and Living Networks, a key challenge with digital platforms for high-value clients is the potential disintermediation of human relationships, and the design of integrated digital and human relationships to provide both exceptional client value and deep engagement.
The rise of “robo-advisors” that use AI to to provide personalized advice is now close to a decade old and gaining momentum.
What has been largely missing is the use of rich data to make both the advice and its delivery substantially more customized. This needs to include at a minimum behavioural data, and potentially even information on emotional responses to investing activities.
Invoking Netflix of course points to the potential for platform winners based on breadth of offers and greater customization from deeper levels of customer data.
As I have often noted, the end-game of AI-based assistants is indeed a winner-win-all market. That is less likely to happen in financial advice, but it points to the potential value of these approaches.
So will finance advice be delivered primarily through Netflix-like subscription platforms? The answer depends largely on whether today’s (or tomorrow’s) financial institutions are able to design and implement them effectively.
While current wealth management companies are coming from a history of advisors at the core of the business, tech-centric newcomers probably do not fully understand the role of human relationships in personal investment decisions, that by their nature are often emotional.
There are certainly opportunities aplenty as wealth management expands its value creation to far more diverse groups, leveraging technology while maintaining humanity.