Private View Blog: The democratisation of wealth in Europe

There has been no shortage of transformations happening in wealth management as all areas of financial services look to enter the sector in a bid to capture its stable, lucrative fees. As we slowly come out of the Covid-19 pandemic, wealth executives are gazing into their crystal balls to decipher what the future will look like in wealth management. One thing is clear – it won’t be the same as it was before.

Two trends stand out in particular when looking at Europe. The first is that the major global banks continue to reorganise their wealth arms and are merging affluent and private banking into a new, wider wealth organisation. This creates scale and follows the likes of the larger US players who have looked to democratise wealth.

The second is Vanguard’s recent entry into the UK wealth management market. Its offering is centred firmly around the growth affluent category and the firm’s exchange traded fund heritage and product innovation may allow it to drop fees to levels that could create price-based competition.

Digital revolution 

I won’t predict who is likely to win but both of these trends point to a larger sea change in Europe: we are witnessing the democratisation of wealth management advice enabled by technology and digital. The mass affluent market, which to some degree had been neglected in Europe, is now in vogue, as wealth services become more readily available to all via digital channels.

The timing is right for several reasons. One major effect of the pandemic is the increase in social awareness around wealth, with people taking more ownership of their financial affairs, such as linking their financial wellness and their health.

And for the bigger banks, this segment makes sense because low, or in some cases negative, interest rates in savings accounts mean that they are not making money on net interest income. Why not persuade customers to shift money from their savings account to their wealth account, where it has the potential to grow at a much higher rate? It is a mutually beneficial move.

Spend wisely 

To successfully grow and scale the mass affluent market, firms will need to make the right technology investments around automation and digitalisation. In the front-end, the digitalisation of interactions is key: people became accustomed to digital banking and financial services during the pandemic, so there will be a heightened demand for more digital interaction in wealth management moving forward.

Artificial intelligence (AI), coupled with data and analytics, can reinvent the client experience and empower advisers to have more personalised client conversations, tailored interactions, and to sell the right products at the right moments in their clients’ lives. In the back-end, AI can help improve the efficiency of routine tasks like administrative work or client onboarding. By relieving advisers of routine tasks, AI helps them maximise client time, serving a larger book of business, while focusing on relationship building.

For many banks, merging their affluent and private banking arms to form broader, more integrated wealth models makes sense. Not only can they benefit more from new technologies, but they can better leverage scale through sharing more common elements of their operating model across more diverse client segments.

No easy task

But the actual execution could be trickier than they think. Firms will need to make the right decisions around what capabilities to share, which are differentiating and which are commodity, and how to align different components of their business, operating and technology models to drive optimal sharing of business capabilities. Additionally, they will need a new management approach to address required organisational mindset and cultural changes, as well as reskilling and upskilling for new pivotal roles.

The winners will be those who can combine scale with personalised product innovation, whether it be greater access to ETFs or other new products or services, such as goals-based financial advice and wellness offerings that have been previously unavailable to the mass affluent in Europe. 

As a bonus, an integrated affluent approach helps wealth managers to enhance their purpose, something that is becoming more important in the post-Covid world, as stakeholders expect firms to be proactive in helping to address societal and environmental issues. There is a massive opportunity for banks and wealth managers to lead the way on investment education, advice and ESG in the underserved affluent segments.

There is increasing recognition that, as we emerge from the pandemic, the trend will be towards new hybrid wealth management models delivered through a combination of human and digital interactions in a more personalised way. This added level of hyper-personalisation will allow wealth managers to quickly adapt to the need to serve a far more diverse range of client segments, ranging from the newly affluent to the more established high net worth, as well as multiple and increasingly-diverse generations and with a greater focus on women as their share of wealth increases.

The future for wealth in Europe looks bright across all wealth client segments but particularly for those firms who can close the mass affluent advice and investment gap by successfully transforming themselves to become purpose-driven, responsible and digitally-integrated wealth managers.  

Ian Woodhouse is head of strategy and change at Orbium, part of Accenture Wealth Management