This is an excerpt from Finextra's Research report 'The Future of Wealth Management 2022,' and is available for download via Finextra Research.

Hyper-personalisation has always been an important aspect of wealth management. Clients would meet with their wealth managers over coffee or dinner to discuss a personalised print-out of their investments. This style of doing things didn’t seem to be receiving much disruption until the pandemic forced these interactions online.

However, as there has been a greater move towards a more online and automated perspective, this style of management is forced to change. Robo-advisors are increasingly offered to clients, and in some cases are used exclusively by clients for self-service advice. However, it is often better for both the client and the wealth manager to have some kind of personal relationship. Wealth managers are consider the need to adapt to a more hybrid style of advice.

Hybrid advice in a remote world

Robo-advisors seem like the way forward. They can offer cost lowering advantages, and the ability to take on a lower payment scale client who they might not otherwise have access to. However, for many clients a large part of their confidence in their investments comes from a personal relationship. It is likely that the pandemic has fast forwarded the digitalisation of this relationship, creating a challenge for wealth managers in balancing the benefits of both worlds.

Kyle Langley observes that, “lots of clients want to be able to check their investment portfolio at midnight, when they've finished work and they're just about to go to bed.” Thus, preferring the use of robo-advisors and online platforms.

Mann comments on the uptake in use stating, “even as recently as two years ago there was cynicism and scepticism over whether there was ever going to be a demand for digital wealth management services. Yet we've seen that shift accelerate in the last few years, as we've all been forced to go digital. Then it became a case of, digital isn't a nice-to-have extra, it's an essential 'we need to have it'."

From the perspective of Nutmeg, Mann notes that the aim of creating services like theirs was to improve financial inclusion in this area. "The business was started by people who worked in the investment and wealth management sector and thought this is great, but it should be available for everybody."

Kyle-Langley notes the 'advice gap' which robo services fill, "it's a way for us to serve a gap for our clients, whereby it suddenly became quite expensive to pay for advice for smaller investment amounts. It gave us the opportunity to design a way to get people invested in a sensible selection of options for them to consider, allowing them to take the right decision on their own with the right education online."

However, Mann notes that robo-advice alone will not take over the industry. "There will always be people and circumstances in your life where you'd rather speak to a person and you want that reassurance of speaking to a person.” Further adding, “being personable and knowing your clients can be equally as true of a digital provider as it can a traditional provider.”

Kyle-Langley comments that in part, "the personal element is giving clients a range of channels so they can decide how they interact with us. The quarterly face-to-face meetings with lots of printouts to discuss, start to look a bit silly in a more video-enabled communications world. Clients are perfectly happy to have those regular check-ins remotely."

A hybrid approach to robo-advice seems to be the way forward, using both robo-advisors and in person meeting, although less that before. This is especially when considering the changing demographics of clients, Danny Cox, head of external Relations at Hargreaves Lansdown observes, “the younger investor is far more likely to want to use mobile app, than to have a face to face meeting with an advisor. So that's where the real differences is, that the older generations tend to favour personal relationships more than the younger investor.”

Kyle-Langley raises concerns around how easier access to regular performance information through robo-advice was initially thought to affect investment behaviour, "as an industry I think there was some concern that if people are checking the value of their portfolio everyday, they may make poor decisions during periods of volatility. But I don't think that's something we have now seen in actuality."

When asked about whether there was a move towards hyper-personalisation, Kyle Langley commented, “To me, hyper personalisation is what private banking wealth management used to be like; serving every client in a different way with many different, complicated options. We know some of the slickest new fintech offerings are all about simplicity - so I don't think endless bespoke solutions is always the best answer." However, he did note that there is a greater willingness to self-serve.”

Juxtaposed to this, Mann notes, “we're so used to seeing personalisation in other aspects of our life, sometimes in a way that we might find almost intrusive but also useful. And I think if you're used to seeing that sort of personalisation in other aspects of your life, it then leads to the question: why not when it comes to my money?"

Outcome based portfolios

When asked out a potential move to more outcome-based portfolios, rather than a more traditional product-based approach, Mann commented that she didn’t see them as, “much as I think we would like there to be.” Additionally, Kyle-Langley commented that he hadn’t really seen this more “pot-based” approach amongst high-net-worths.

Kyle-Langley observed that his clients, potentially because of their greater wealth, did not tend to take a pot-based approach to their investments. He commented that although aspects of investing are changing, the general idea from clients is still, “I've got this money, I'd like to invest it over the longer term, I might need to take some out at some point in the future - but it's not all thought of in goals-based pots."

However, Mann does note that one place where they have seen more of a focus on outcome-based investments is in the ESG space. Further adding that, “the conversation has moved on, albeit not as much as I would have thought. The idea that socially responsible investing (or ethical or green investing) are doing well, but probably not going to get good returns - is outdated. We've moved on to a place where the returns are pretty much parallel, and in some cases outperform. Interestingly, this is not an outcome for the individual, but a social outcome.”

This is a trend also noted by Cox. While he does note that the sharp rise in ESG investments, this is only in part because of a low beginning point. However, he does add that this shift could be in part to personalised advice, “when you're actually advising somebody on a personal basis is much more likely that ESG is going to be become more prominent.”

Contrasting this, Kyle-Langley observes that his clients view a sustainable leaning in their investment to be a pleasant additional outcome, commenting, “it's generally that clients are pleased to learn that our approach to investing is all sustainable and that feels like that's a nice thing to know about it, rather than something which is specifically requested.”

Financial wellness

When asked whether an emerging holistic approach to wealth management has led to greater concerns and attention being given to client financial wellness, Mann commented that “even if wealth managers haven't been thinking about general financial wellness, the impact of the pandemic on lifestyles, means clients definitely have been. For us at Nutmeg, we definitely have.”

Mann notes how the pandemic has changed the situation of some investors. "We had clients who who have previously had quite a good buffer, but they've been self-employed, and suddenly their business ceased overnight. So, then they were dipping into that fund. One of the things that was very interesting was they then came back and said, ‘now I just need to make sure it's built again’.”

Additionally, Mann noted that “one of the things that we've definitely seen as a result of the pandemic is people are less afraid to talk about their finances.” This included the concept of financial resilience, which she noted more clients had a greater emphasis for.

Mann commented that at Nutmeg they, “really encourage people to give their investments a goal, whether this is your pot that's going to buy your holiday home or it's going to allow you to retire early, whatever it is.”

Some of the data collected through robo-advice may aid in the focus of clients’ financial health. Mann notes, “if you have an investment pot, for example, but it's around maybe a child, or university fees, then you start to see that that pot getting drawn down and then you're in a place where you're thinking okay, this possibly means these people now have children of an age that are going to university because they're starting to use it: what might be useful for them to know? And how can you start to look at that?”

Kyle-Langley did note a customer led concern for financial wellness, as noted by Mann above, stating, “Now you can just link an app to your bank accounts and really easily see how you're doing versus the prior month. And so, I think understanding their expenditure makes people feel they have more control over their money and makes them feel more comfortable about the idea of planning, saving and investing.”

However, while Kyle-Langley claimed to have not seen a focus on financial wellness in a “pot-based” form, he did raise concerns over whether digital and robo-advice might lead clients to take their own financial wellness into consideration less. He stated, “I wonder whether this is something that is at risk from the trend toward self-serving guidance. A strength of face-to-face advice is that having someone to challenge you, and help you think through the unexpected events to plan for. If you don't have that conversation and you invest, online or self-guided, providers should be careful that the customer journey through whatever solution, finds a way to challenge clients and gets them thinking. That role of wealth manager as sparring partner is important and valuable. That's got to be thought of carefully, in my view, when it comes to robo advice offerings."

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