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Hyper-personalization: A Holy Grail to Success in Wealth Management

The changing contours of the wealth management industry 

The wealth management industry is in the middle of a transformation. Contributing factors include the ever-growing expectations of a new generation of investors, a continuous influx of innovative products and a number of new and disruptive technologies. Additionally, increased regulatory thrusts, fee compressions, and new business frameworks are intensifying disruptions within the field. 

The world is witnessing ‘The Great Wealth Transfer’ that will result in an estimated $68 trillion* from baby boomers to millennials. This will disturb many deep-rooted advisor/client relationships due to aging of advisors and the changing demands of millennials. Millennials who are accustomed to personalized recommendations (via Netflix, Amazon, and Google, for example) will expect a similarly personalized approach to wealth management. The dividing line between HNIs, UHNIs and wealth customers are overlapping with each of these considering non-traditional and varied investments in digital currencies, impact investing, art, wine etc. Retail investors are joining the bandwagon and contemplating similar access to potentially high yield asset classes as the accredited investors.

A daunting investments ecosystem, distinguished by increased levels of unpredictability and rising costs of risk, is making it difficult for advisors to generate superior returns for clients. New fintech firms are making a mark in the wealth management industry by using disruptive technologies to create personalized customer experiences (CX). Finally, those wealth management firms that leverage data with digital technologies and deliver best-in-class hyper-personalized experiences for the clients will beat competition while meeting the needs of the customers.

Hyper-personalization in wealth management: learning from Netflix, Amazon, and Google

 Millennials and members of Generation X are digitally proficient. They seek engagement that is contextual, collaborative, insightful, and responsive to their needs. As wealth changes hands to these generations, wealth managers must revamp client engagement models to create customer-centric, contextualized experiences.

Many managers are already occupied with personalization efforts and the generation of customer delight, which is derived from hyper-personalized, contextualized, and customized CX. Hyper-personalization depends on the delivery of distinct and intricate experiences at scale. Customers have grown to expect hyper-personalization – in the same way that they expect Netflix to provide movie recommendations, Amazon to suggest products, and Google to prioritize relevant search results.

Digitization and ‘Netflixing’ of advice are critical for increasing the market share and wallet share through client retention and deep engagement. In wealth management, such hyper-personalization requires in-depth analysis by creating customer personas. This requires taking into account their preferences, sentiments and lifestyle while considering the risks, costs, and compliance with regulations. This requires integrating data capabilities seamlessly into the next-gen digital experience. To actualize all of the above, a few steps are recommended:

  • Data aggregation and customization for creating customer personas

Content aggregation and data customization help personalize investment ideas, analytics, and recommendations. Wealth management firms need to synthesize structured, unstructured, internal, and external data for creating comprehensive client profiles that facilitate predictive analytics while providing key business insights around client segments to accordingly bundle offerings.  Ultimately, these firms will develop algorithmic analytics to aid in real-time investment decisions.

  • Using artificial intelligence (AI) to curate portfolio and investment advisory services

Wealth management firms need to provide actionable insights on customer data by using analytical technology and AI to hyper-personalize their offerings. This will allow firms to evaluate existing or potential clients’ investment choices, transaction history, lifetime value, and level of risk acceptability. AI can then be used to curate tailor-made portfolios and recommendations, screen portfolios, develop watchlists, create alerts, and push notifications in real-time. Arguably, the greatest benefit from AI occurs when clients’ data is interpreted and transformed into a holistic client profile that provides actionable advantages.

  • Increasing client engagement through Relationship Managers (RMs) and Registered Investment Advisors (RIAs)

Digital channels need to complement RMs ― not compete with them or replace them. Through video calls, file sharing, or other means, necessary information can be pushed to the client, and an action can be taken in a timely manner. This information needs to be made available to the end client via relationship manager (RM) apps or by providing APIs to RIAs. API-based integration can help financial advisors bundle customer-centric offerings, with respect to financial planning, reporting, or portfolio rebalancing. Similarly, customer relationship management (CRM) for wealth management can store client information and manage all activities, such as client emails or workflows, providing a view of the client, the advisory life cycle, services, fees, or other useful information.  

To increase customer engagement, Morgan Stanley rolled out a new solution called the Next Best Action (NBA). This is an AI based recommendation engine for investment and wealth management ideas that their RIAs could present to their clients. The solution substantially increased client interaction, with a higher number of clients reaching out to talk to them. They now have a sophisticated machine learning (ML)-based algorithm that picks out information that will interest clients.

  • Portfolio diversification to include digital assets and impact investments

Wealth management clients are investing in digital assets due to the potential of higher returns. Investing as per one’s beliefs and value system is the trend and hence the demand for ESG investing is on the rise.  Firms must adapt in several ways to be successful by integrating advisory for investing in digital assets and ESG using real-time and relevant data to create differentiated offerings. They need to educate their RMs and RIAs with necessary insights and solutions that can be extended to the clients.

  • Phygital touch:

 Finally, it is important to note that advisory is always made more meaningful through ‘human touch’. Insight plus interaction plus inference through ‘phygital touch’ (physical + digital) can result in hyper-personalized investment advice and help build long-term client relationships. 

 Remember: Well begun is half done!

 To play this game well, hyper-personalization throughout the client journey is now table stakes. The first and very critical step though is data aggregation and analysis.  Right from digital onboarding to omni-channel engagement to AI-based advisory to exceptional customer service- everything is about accessing the correct data, aggregating the information while providing tools to track, monitor and analyze investments to churn out hyper-personalized content.  Since hyper-personalization entails leveraging on digital and data capabilities, it results in higher engagement by being relevant to the client segment and thereby staying ahead of competition.

*Source: Forbes and Cerulli & Associates                 

 

 

 

*Source: Forbes and Cerulli & Associates                

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Preeti Mishra

Preeti Mishra

Senior Director- Capital Markets Practice

Virtusa

Member since

20 Mar 2023

Location

Mumbai

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