Where will wealth take clients next?

Co-authored by Jonathan Simpkins, Swati Cavale, Christine Menezes, and Hudson Wildberger

EY Global Wealth Research Report 2021: Canadian insights

EY’s new report explores how wealth managers can use deeper, richer insights to provide clients with more holistic, tailored and meaningful experiences. 

Canadian financial services providers that build a rich understanding of evolving investor preferences, values and objectives can adapt strategies and strengthen client relationships with an eye to driving growth in the post-pandemic market.

In our EY Global Wealth Research Report 2021, we surveyed 500 Canadian investors to learn more about their current priorities and preferences, and what they’re focused on for the future. That deep dive surfaced four key trends on which Canadian financial services providers can build now:

• Investors are open to changing providers — this could be your next big opportunity.
• The right mix of products and services may set you apart.
• A hybrid engagement approach is key.
• Purpose is a longer-term play.
  

1. Investors are open to changing providers – this could be your next big opportunity.

One in five Canadian investors says they plan to switch financial services providers in the next three years. Organizations can tailor offerings proactively to seize on that sentiment now. Doing so effectively starts by understanding what motivates investors to seek out new options.

Investors considering a move rank investment performance and the pandemic itself as equally important drivers. Each factor garnered 26% of the tally in terms of the primary reason for planning to move money or switch providers. Gen Xers and baby boomers lead that charge at 46% and 29%, respectively.

Although most Canadian investors aren’t looking to change providers, not everyone feels equally prepared to meet their financial goals. Similar to their global counterparts, almost all of Canada’s oldest and savviest investors feel ready to protect wealth, ensure adequate income and security, save to meet goals and generate a diversity of wealth across assets. Meanwhile, that drops to 80% among millennials. Any investor who doesn’t feel adequately prepared for those priorities may be primed for a switch.

In line with what we’re seeing globally, just over 10% of Canadians rely on FinTechs today. Yet, there’s a 30% to 40% increase in the number who see themselves using these kinds of providers over the next three years. While only 4% highlight digital as the reason they want to switch, one quarter of Canadian investors want to see a digital component in their existing provider’s service offerings. Jumping on that interest could open up valuable new possibilities.

Taken together, these dynamics and motivators represent opportunities for traditional and non-traditional financial services providers alike. Banks, insurers and other financial services providers can deepen existing relationships — or generate new ones — by targeting these factors with improved solutions now. In the same breath, newer players can capitalize on this moment to carve out a distinctive value proposition that’s better aligned to the challenges investors perceive as they explore alternatives. Offering a wider range of products and services, simplifying asset transfers, and managing performance and fee expectations differently can all play a part.

What questions can you ask to make the most of this environment?

• What do our clients value about our existing offerings, and how can we double down in those areas to keep them with us and attract new clients?
• Is our digital component strong enough to offer existing clients the connected ecosystem they’re looking for without switching to another provider?
• How can we zero in on those most interested in moving to a more digital option to differentiate ourselves and win market share?
• As we grow our client base through compelling digital offerings, what levers can we pull to cement loyalty and build brand equity for the future?

2. The right mix of products and services may set you apart.

Canadian investors value products and services above all other aspects of their provider’s approach. That means different things on each side of the equation.

On the one hand, investors here are increasingly interested in accessing a greater range of products. Today, Canadians use an average of 4.1 investment products. But they expect to see themselves embrace an average of 5.5 products by 2024.

On the other hand, about half of investors prefer to use a single-source financial services provider. While we saw an appetite for that kind of consolidation globally, it was particularly prevalent among Canadians. Conservative investors — and those with low to medium investment knowledge — are most likely to opt for a single provider. As they gain sophistication in terms of risk profile and investment knowledge, investors become more willing to use multiple providers.

Both here and globally, this dynamic reflects opportunities for any financial services provider capable of offering more products through a single relationship. What could that look like?

Larger institutions can work to provide more product versatility in a single spot, consolidating clients’ financial lives into a single relationship using the right capabilities.

Independent advisors with one key product can explore partnerships, filling this white space through co-opetition. The right alliance can empower an existing single-product provider to quarterback a much broader network of client offerings.

New entrants and non-traditional players can capitalize on the other 50% of the investing population’s willingness to use multiple providers by developing niche products that help even the most traditional investor flesh out their portfolio with innovative options.

Because these preferences change across demographics, providers can also segment strategies, addressing core tranches with a customized approach to products and services. For example, consolidation becomes more important to investors in their later years as they transition from wealth accumulation to using their wealth as their primary source of income. Demographically, baby boomers are most likely to prefer using one provider; 76% of retirees fall into this category. Some 10% of all investors who plan to switch providers say they’ll do so to consolidate their financial services relationships, including 18% of boomers. The sooner they consolidate, the easier it is to manage that wealth from one central location. Addressing these sentiments strategically may strengthen relationships with specific client groups.

Providing more personalized offerings based on what products a client is already using can also help. In Canada, 75% say they’re using investment services; 80% are making use of banking and insurance services; 65% currently use financial planning services. High-net-worth and mass affluent investors are more likely to play in these areas, driving the use of tax planning, property insurance and actively managed funds. Applying the data you have to better position certain products to certain groups can show you understand their goals, and are adapting to help.

This is true, too, for addressing client perceptions around fees. Three quarters of Canadian investors say their advisor provides value for their money. Although almost 60% of Canadian investors aren’t concerned about hidden fees, a sizeable minority is. Millennials and very high-net-worth investors are most likely to be skeptical about this area. Addressing those worries and working harder to put this group at ease is important.

For example, two-way dialogue around evolving and emerging Canadian regulations and laws can be a starting point for more personalized conversations. That customized approach can help with broader fee conversations, too. Canadian investors now deem performance-based fees the most attractive, followed by fixed fees, percentage of assets under management (which is how most pay today) or a combination thereof. Knowing this can help providers become more proactive in the fee structures they offer and discuss with clients.

What questions can you ask to make the most of this environment?

• Which product gaps can we close to serve clients who want a wider range of offerings?
• Could we partner with other providers to offer clients a more holistic wealth offering, without them having to go anywhere else?
• How can we align our unique offerings to build relationships with clients who are most willing to source different products from different providers?
• Are we adapting our marketing based on what we know about different age groups?

3. A hybrid engagement approach is key.

Digital isn’t the only factor that Canadian investors consider when deciding who they work with, and how. While more and more Canadians expect to see a digital snapshot of their portfolio, they’re still seeking deeper insight from a real, qualified advisor. Most investors have come to expect access to both digital tools and a meaningful relationship with an advisor or manager.

By the numbers, 56% say they’re interested in using more digital and virtual tools going forward. Over half are interested in some kind of virtual engagement option, such as robo advisors or chat bots. That’s driven largely by millennials, followed by more than half of Gen Xers. The stronger an investor’s knowledge is, the more likely they are to want digital and virtual tools, as well as some level of virtual engagement. While numbers have been moving in that direction for several years, 60% of Canadian investors now see some digital engagement as a positive feature.

Meanwhile, when it comes down to asking questions or planning for life’s biggest moments, Canadians aren’t quite ready to embrace purely digital interactions and experiences. The higher the investor’s net worth, the greater their interest in preserving personalized, authentic interactions with a real advisor.

Providers that strike a hybrid balance between digital tools and meaningful advisor relationships can differentiate themselves in a post-pandemic market where investors will be seeking both. As COVID-19 ultimately recedes, that personal connection will likely take different shapes. Some will undoubtedly want in-person meetings back on the books, while others will appreciate the convenience of a video call. Either way, figuring out the best balance of face-to-face advice, bolstered by effective digital tools, can help.

Keep in mind: whatever level of digital interaction you offer, those channels reflect an abundance of data sharing opportunities that can fuel product cross-selling and customized experiences. More than 70% of Canadians say they’re willing to share data with their primary wealth manager, a trend that’s similar across demographics, investable assets, gender and level of investment knowledge. Like their global counterparts, Canadian investors are more willing to share data than providers realize.

That willingness, though, is tied directly to relevance. Investors must see an upside to providing more information — for example, an advisor’s demonstrated ability to channel that data into improved or personalized service that unlocks additional results. Exploring ways to extract greater value from data shared by implementing solutions (like next best action) can help providers capitalize on accessible information.

Of course, as Canadian privacy regulations become more stringent, providers will need to enhance their strategy to not only capitalize on the richer data clients are willing to provide, but to ensure the infrastructure and policies are in place to manage it appropriately. Communicating around how you do that is also essential, as investors become more focused on transparency.

What questions can you ask to make the most of this environment?

• Where are our digital blind spots, and how can we invest strategically in the right tools and resources to exceed client expectations?
• Are we enabling our advisors with the right training, support and organizational culture to thrive in a market where clients expect proactive, fulsome dialogue?
• How are we preparing our processes and systems to handle a continued increase in personal data, while navigating evolving Canadian regulations?
• How does this hybrid approach impact our physical presence, real estate makeup and go-to-market strategy?

4. Purpose is a longer-term play.

Canadians care about the environmental, social and governance (ESG) impacts of their investments. But they’re not yet ready to choose an ESG-focused investment at the expense of their bottom-line results. That’s quite a dichotomy for financial services providers now operating in a market where long-term value creation has become more closely tied to ESG priorities.

What are Canadian investors looking for? They’re buoyed by the fact that a financial services provider is operating with sustainability in mind, but they’re not yet making moves based primarily on ESG. Investors here rank sustainable investments as the sixth most important factor when choosing a wealth manager. Sustainability falls behind strong performance, a wide range of products, competitive fees, advisor reputation and a strong digital offering.

That doesn’t mean purpose doesn’t matter. Rather, investors here aren’t yet emphasizing this element of their investment decision-making to the degree that global markets, regulators and institutional investors are. They could be considering ESG in other aspects of their lives. For instance, 60% more Canadians indicated they plan to engage in philanthropy by 2024. That may start to shape their investment decisions going forward.

Moreover, while 73% of Canadians have sustainability goals (largely focused on the environment), roughly half say their advisors don’t understand those priorities. That gap represents an opportunity. Providers that work to learn more about their investors’ sustainability focus now can likely differentiate themselves over time.

While most Canadians are keeping their investment approach separate from their ESG priorities, those planning to do more are looking to positive screening over negative screening and impact investing, which is set to increase by 4% and 3%, respectively, over the next three years. This reinforces the need for traditional and non-traditional providers to continue strengthening authentic, purpose-led investment strategies in anticipation of what could be a growing interest in this area going forward.

What questions can you ask to make the most of this environment?

• How can we segment our sustainability products to the right clients, at the right time?
• Are we communicating around purpose, ESG and sustainability effectively to position ourselves as a provider of choice as this ultimately becomes increasingly important to investors?
• Do our advisors have the expertise to proactively lead sustainability conversations with investors who fall across the spectrum, from traditional to less traditional?
• Can we align our proactive advice to the key stages of affluence, banking on client shifts that occur as they reach different milestones?

What’s the bottom line for financial services providers?

From the way you market products to the conversations you have with individual investors: every interaction is an opportunity to deliver a personalized client experience that can impact your future bottom line. Digging into what your investors expect in terms of products, services, engagement and ESG offerings can help align your tactical approach to their evolving preferences. Doing so continuously can position you as a provider of choice, in tune to changing needs and ahead of the pack on shifting trends. This can strengthen client relationships, build new ones and cultivate the kind of loyalty capable of bolstering bottom-line results in a post-pandemic world.