Australian wealth managers need to digitise and differentiate, as 40% of clients consider switching providers: EY research
Wednesday, 22 May 2019
- 40% of Australian clients plan to switch wealth providers in the next three years, compared with just 13% of clients changing providers in the past three years
- Around half (47%) of Australian clients now prefer mobile apps as their primary interaction channel with their wealth manager, increasing from 12% in 2016
- Wealth managers need to demonstrate value, refine their fee models and leverage digital to differentiate and win in the market
Wealth management relationships in Australia are undergoing a significant period of change with 40% of wealth management clients nationally planning to switch providers in the next three years, according to the EY 2019 Global Wealth Research report. This increase in switching is being driven by the global themes of emergence of new digital solutions, changing digital habits and evolving definitions of what clients value. Locally it is also likely being further driven by the impact of the Financial Services Royal Commission and increasing consumer and regulatory scrutiny of the sector over the last twelve months.
With no sole provider able to meet respondents’ varied needs, many wealth management clients are currently maintaining relationships with more than five different types of providers. As the industry grapples with new entrants, new technologies and changing client expectations, wealth managers need to take a step back to evaluate their offerings and redefine how they provide financial advice in a way that better addresses clients’ needs and expectations.
Client switching opportunities are often triggered by life events – with having a child, leaving a job and getting married being the primary drivers in Australia. The reasons customers consider switching are not only driven by price, but also strongly related to the wealth manager’s reputation and servicing capabilities in areas such as advisory services, personal attention, quality, products and technology. This points to Australian clients seeing value in multiple attributes that do not relate to price and wanting a deeper relationship with their wealth managers.
Antoinette Elias, EY Oceania Wealth and Asset Management Leader, said:
“There is the potential for a significant movement across the Australian wealth management landscape over the next few years, as clients look for providers who can better meet their evolving needs. The impact of the Royal Commission adds an additional layer of complexity to a sector that is already facing intensified competition among both incumbents and new market entrants. In this environment, wealth managers will need to continuously raise the bar when it comes to satisfying client demands. Those who can understand and deliver on what matters most to their clients, such as anticipating major life events and proactively engaging around them, will be best positioned to succeed.”
Use of independent advisors and fintechs expected to rise
According to the EY research, the use of independent advisors and independent advisory firms in Australia is expected to rise over the next three years, by 73% and 93% respectively. This is in line with global trends, however the percentage change expected in Australian is significantly higher than in other regions. While this significant swing towards independence suggests the flexibility in solutions and fees being offered is becoming more attractive to clients, it may also be reflective of the public and regulatory scrutiny of the wider sector in the wake of the Royal Commission.
The percentage of Australian respondents expecting to use fintechs for their wealth management needs is also expected to increase, by 53% in the next three years – significantly higher than the expected increases in Asia-Pacific (22%) and globally (19%). Although these new entrants have relatively low levels of assets under management (AUM) at present, the research shows that the number of respondents using fintechs is on par with those using long-established wealth institutions.
Clients are seeking a new generation of digital engagement
The EY research also shows that digital channels are evolving faster than wealth managers and their clients anticipated three years ago. Around half (47%) of Australian respondents now prefer mobile apps as their primary engagement channel for wealth management, compared with just 12% in 2016. More than half (60%) of clients across Australia say 24x7, any device, anywhere digital access is the most important element when interacting on digital channels with their wealth manager.
When it comes to emerging technology, although only 2% of respondents in Australians prefer digital and voice-enabled assistants as a primary channel today, 20% say they would prefer this channel in the future. This future demand for digital assistants is greatest for receiving financial advice (32%), an area where advisors today are expected to provide greatest value to clients. While not all this technology exists yet, it clearly indicates where consumer preference is heading.
While in-person and phone interactions are continuing to decline as the preferred primary communications channel among Australian wealth management clients – down from 35% in 2016 to 22% in 2018, and projected to fall below 10% in future – there is still a key role for human advice delivery. Wealth managers need to focus on areas where they can add most value, reconfiguring their digital delivery model to meet new expectations from clients.
Elias said: “As wealth managers prioritise their digital investments across multiple channels, they need to consider how client engagement may evolve in the coming years. This could mean reallocating budgets from websites to mobile apps and voice-enabled services sooner than planned, and capitalising on hybrid models where clients have access to both digital tools and human interaction.”
Fee transparency can drive greater understanding and awareness
Australian clients are more likely to trust they are being charged fairly and to understand how their advisor is compensated, compared with wealth clients globally. This is likely due to the emphasis given to this level of transparency in Australia compared to other regions. Almost three-quarters (71%) of Australian clients said they have full awareness and understanding of wealth management fees, with transparency playing a significant role in the relationship. Percentage of AUM and hourly support are currently the most common payment methods; however, fixed fee models are the most desired.
Elias said: “Australian wealth managers recognise their clients now expect more than just strong investment performance, but they are struggling to differentiate and communicate the value of their offerings and services in an increasingly crowded market. The answer is not simply in lowering fees, but rather a combination of increasing transparency and predictability in pricing models, and equipping advisors with ways to communicate value beyond investment returns.”
- Ends -
Notes to Editors
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Information about how EY collects and uses personal data and a description of the rights individuals have under data protection legislation is available via ey.com/privacy. For more information about our organization, please visit ey.com.
This news release has been issued by Ernst & Young Australia, a member firm of Ernst & Young Global Limited.
Liability limited by a scheme approved under Professional Standards Legislation.
About EY Global Wealth Research Report
EY worked with ESI ThoughtLab to conduct a comprehensive survey of 2,000 wealth management clients in 26 markets globally, and spoke with 50 different wealth management executives globally to understand what they value most in their wealth management relationships across quality, products, services, technology, pricing and personal attention.