Finance
A road map for capitalizing on a growing HNWI market
Global Banking & Finance Review®
Company
By Gareth Wilson, head of banking and capital markets, UK, Capgemini
Recent rapid growth in the UK’s high-net-worth individual (HNWI) market is colliding with a series of economic challenges—war, high inflation and unsteady markets among them—to create opportunities for banks and wealth management firms that can meet evolving client expectations.
In 2021, the number of HNWI individuals in the UK grew 6.3%, to 609,400 according to Capgemini’s 2022 World Wealth Report. The financial wealth held by those people rose 7.4%, to $2.27 trillion.
Recent market turmoil has heightened client sensitivity to the value of wealth management services. It’s a fiercely competitive market, and the terms of engagement are evolving. The winners will be those firms that target growth segments with the skills and capabilities to deliver superior client experiences and build emotional connections.
What HNWI clients want
HNWI clients expect a lot from their wealth managers. They want personalised offerings, innovative products and services—including investment alternatives in emerging asset classes such as ESG, cryptocurrencies and nonfungible tokens (NFTs)—as well as real-time advice and recommendations that can anticipate their needs and help achieve their unique aspirations.
They’d like those features delivered digitally, in the same seamless, transparent manner they get from Amazon or Uber. While handholding can be important, these clients are comfortable—and often prefer—using self-directed digital tools to manage their portfolios. They also want wealth managers to help orchestrate their unique digital ecosystem journeys, in real-time.
FinTech firms, built for the digital world, are made for this moment. For incumbent banks and wealth management firms that excel at old-style relationship management, the model looks only vaguely familiar.
While the industry has long revolved around helping clients achieve their goals and meeting lifestyle needs, creating the level of personalisation needed to compete in today’s digital world is more about leveraging technology and data-driven insights than face-to-face interactions.
Adapting to these new expectations can be a challenge. To position themselves for success, banks and wealth management firms can target high-growth segments and embrace the data-driven business models, delivery technologies and talent needed to provide differentiated experiences and meet client expectations.
Target emerging growth segments
Much of the growth in the HNWI market is coming from a handful of market segments, yet only 27% of wealth management firms in our survey said they actively pursue such groups with targeted engagement strategies.
One of these emerging client segments is Tech wealth, following the surge in venture capital-backed unicorns which has created a fast-growing group of ultra-HNWI’s whose clients flush with IPO cash. Tech-savvy HNWI’s demand support in active investing, personalisation and consolidated services from wealth management providers. In fact, a majority prefer family offices over large banks or wealth management firms.
Beyond this, women are becoming one of the fastest growing client segments, with the demographic set to inherit 70% of the world’s wealth over the next two generations. However, they are less confident than men in their ability to generate and grow it. These consumers value purpose, connections and content tailored to their needs. Ellevest, a FinTech firm founded by women with an investment algorithm that considers gender, has grown quickly by focusing on that demographic.
Similarly, millennials are on the receiving end of a massive generational transfer of wealth and want more digital engagement – but many also need help with the basics. In Hong Kong, HSBC’s “Wealth Coach” and “Wealth Bootcamp” offerings are examples of leveraging education to help capture more millennial clients.
A relatively new client segment that has emerged, LGBTQ+ individuals are often faced with legal and financial system complexities during pivotal life events. Such clients value an inclusive approach—from investments to legacy planning. Thirty percent of global wealth managers in our survey said they did not understand LGBTQ+ clients’ needs, showing that the industry still requires educating in how it can best meet the needs of emergent consumer groups.
Finally, the mass affluent are leveraging new technologies and delivering superior experiences to win clients early on in their journey to greater wealth. JPMorgan Chase’s 2021 acquisition of Nutmeg, a British robo-advisor focused on the segment, is considered critical to the New York bank’s UK retail strategy and demonstrates this is a proven pathway to growth.
Getting from here to there
Succeeding in this environment means meshing a combination of personalised products, capabilities and services that can differentiate a firm in the eyes of clients – and it starts with leveraging major data sources like FinTechs.
Incumbent banks have lots of data but often are not good at turning it into insights that can personalise engagements and drive growth. Investing in technologies like artificial intelligence and machine learning (AI/ML) algorithms that can deliver actionable insights in real-time can put a firm on solid competitive footing.
Likewise, HNWI clients expect to access their portfolios and other services digitally and in real-time, 24/7 and from any device. As such, it’s important for firms to embrace new delivery technologies to ensure that the client experience is consistent across channels.
In many cases, the quickest and most-cost efficient way to offer new digital products, services and delivery options is by partnering with or acquiring a FinTech that has already developed it. So many capabilities are needed, it is all-but impossible to build them entirely yourself, and so collaborating with your rivals may actually reap many rewards.
The next step is to look at your talent and where skills can be learned or upgraded. New ways of doing business can require hiring people with data, technology and product skills. It also helps to have talent that reflects the diversity of the markets you’re targeting and understands what those clients want. It can be easier to win LGBTQ+ clients if you have employees who understand key sector expectations. Following this, it can be useful to name a chief client officer within the firm, as many organisations feel this is a time-effective way of rising to the enhanced expectations of emerging consumer groups.
Finally, the key driver behind many of these emerging segments’ needs and preferences, is the desire for greater transparency. In our global survey, 27% of HNWI clients were unhappy with the fees they were charged, primarily because of poor transparency around pricing. Sixty-four percent said they preferred fees based on metrics such as investment performance or service quality.
As clients warily eye an evolving economic landscape, banks and wealth management firms can build stronger emotional connections. Firms that can best guide clients through uncertain times with personalized experiences that inspire confidence will be positioned to build deeper, longer-lasting relationships.
A high-net-worth individual (HNWI) is a person with liquid assets above a certain threshold, typically over $1 million, which makes them a target for wealth management services.
Wealth management is a comprehensive service that combines financial planning, investment management, and other financial services to help clients manage and grow their wealth.
Emerging asset classes refer to new and innovative investment opportunities, such as cryptocurrencies, ESG (Environmental, Social, and Governance) investments, and non-fungible tokens (NFTs), that are gaining popularity among investors.
Personalized banking refers to tailored financial services and products designed to meet the specific needs and preferences of individual clients, enhancing their overall banking experience.
A family office is a private wealth management advisory firm that serves ultra-high-net-worth individuals or families, providing a range of services including investment management and financial planning.
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