By Vinayak Deshmukh | Dec 06, 2022
We often come across statements like - banks are accelerating digitalization and digital transformation to cater to millennials and Gen Z. Digital transformation means fast, easy, and convenient for Gen Zers and millennials. But what do digitalization and digital transformation mean? The distinction is subtle. Digitalization means speeding up manual processes so they become more efficient. Applying this to the banking sector, digitalization means e-signatures, swift transactions, digital payments, etc. Digital transformation is the ability to use technology to create new value for clients. For the banking sector, this means creating a company website, mobile banking app, etc.
But digital transformation needs to be a continuous process. Creating a banking website or a mobile app is a transformation of a decade ago. The young and wealthy are looking for newer digital experiences. To move towards a client-centric digital future, banks and wealth management firms need to offer more - a mere website or mobile app is considered a hygiene factor.
HNI clients are always receptive to adopting new technologies. Young and wealthy clients, in particular, are the most open to experimenting with new digital tools. According to a PwC survey, more than 75% of HNIs under the age of 45 years, are enthusiastic about technology. But are banks and wealth management firms digitally ready for their clients?
Ref: Alpha FMC’s Wealth Management Annual Digital Readiness Survey - 2021
According to Alpha FMC's Digital Readiness Survey, only 7% of the firms are seen as digital leaders and are able to match client expectations on digital capabilities. The good news is that a whopping 71% of firms are getting organized to leverage digital technology compared with 33% last year.
This shows that banks and wealth management firms are re-evaluating what digital means to them and their HNI clients. They are starting to understand that they are inheriting a client base who are "true digital natives"- clients who have grown up in an environment surrounded by smartphones, the internet, and social media. These wealthy clients expect a digital-first approach. So, now is the time to gear up and engage these clients the way they expect.
The Covid-19 pandemic accelerated digitalization and digital transformation in general. Wealth management, an industry that is primarily human-led, was also compelled to transform. According to Aite Group's survey of global wealth managers, 53% of firms globally reported a major increase in clients demanding digital engagement. Lockdowns and social distancing pressed the need for a variety of digital tools, including the need for personalized digital engagement. The belief that traditional advisor-led engagement is the only thing that works, or the fact that clients are unwilling to adopt digital tools was no longer true. According to a FactSet study, clients who rated their financial advisors highly on digital tools they offered also felt more confident about their financial futures than their counterparts (48% Vs 26%).
Furthermore, most of the digital client communication till now has been one-way. This is evident from the fact that more than 17% of HNI clients feel the need for a better, more personalized, and interactive collaboration tool to be in place. Digital communication need not be one way, and the personal touch and experience can be added to digital experiences as well.
Wealthy clients are looking to engage more meaningfully with their advisors. They believe that a range of digital tools can be extremely valuable in managing their wealth. Banks and wealth management companies need to focus on the delivery of client-centric and client-friendly experiences and bring in innovative digital tools to enhance their HNI client engagement and complement their wealth offering.
A hybrid approach with the right mix of digital tools and advisor-led relationship management is the way ahead for banks and wealth management firms. Embracing digital tools enables HNI clients to make better use of their time, gives them more control over their portfolios, and allows them to get in touch with their advisors from anywhere and at any time. This hybrid approach can elevate the overall client experience, increase financial confidence for clients, and at the same time improve productivity for financial advisors.
Making digital communication personalized ensures that the human aspect of wealth management is retained. Till now all digital engagement and communication have been one way. Getting client preferences and feedback during every digital interaction ensures that banks can understand them better, and provide relevant information, services and offerings at the right time. To know more about clients' online behaviors they need to share their preferences digitally. But are they ok with this?
An E&Y Global Wealth Research Report indicates that clients are willing to share data with their wealth managers if it means relevant products and services and better engagement. In fact, millennials are much more inclined to share data than boomers and Gen X. Engaging these young and wealthy clients at the right time with the right messaging and right channels become critical. With millennials to inherit nearly $30 trillion, this is the time to plan and build a strategy for impressive digital experiences and prepare better for this great wealth transfer. Tech-driven hyper-personalized services and engagement will form the basis for attracting millennials and Gen-Z as they have come to expect seamless, interactive experiences customized to their needs and goals in life.