The wealth management industry dynamics have shifted significantly, greatly influenced by evolving customer needs, rapid technological advances and shifting market dynamics. The old ways of managing wealth for customers no longer work, as customers are more discerning and know what they want. In an increasingly competitive environment, players must reorient their thinking or risk being waylaid by more perceptive players.
The good news is that global growth in the wealth segment continues to grow, increasing from US$125 trillion in 2009 to US$226 trillion (RM913.7 trillion) in 2019. A study done by Boston Consulting Group (BCG) on Global Wealth 2020 identifies emerging markets, which include Asia, as a significant driver of this growth. Emerging markets charted a 9.3% compound annual growth rate (CAGR) from 2014 to 2019, whereas mature markets charted a 4.5% CAGR in the same period.
The Covid-19 pandemic has had an adverse impact globally, leaving an aftermath that will be felt for a long time. We see further shifting of investment paradigms in the markets, decoupling from the economy. As digital adoption accelerates, increased remote client interactions and employee working arrangements will be here to stay. There is also increased cost pressure, given the challenging revenue outlook. Against these impacts, we see digital as a critical cross-cutting enabler in wealth management.
Malaysian market landscape
Malaysia's affluent segment is faring well, continuing on an upward growth trajectory despite market challenges. Malaysia accounts for 17% of wealth in Southeast Asia, which is expected to grow at a CAGR of 4.5% in the next five years compared with a global CAGR of 3.2% for the same period. Malaysian high-net-worth individuals (HNWIs) are also pretty sophisticated investors, as seen by their low cash holdings (35% of total wealth) and high equity and investment funds holdings (43% of total wealth versus 36% global average) in 2019. Of their holding, 75% to 80% are predominantly onshore, with the rest in foreign investments. The market needs savvy wealth managers to leverage this opportunity well.
The competitive landscape in Malaysia is highly fragmented across the different wealth segments. The upper and ultra HNWI (more than US$20 million wealth) segment, which commands 37% of Malaysia's wealth share, is predominantly served by foreign global private banks and niche family office providers operating from Singapore. The HNWI category (US$1 million to US$20 million), which makes up 17% of the wealth share, is served mostly by local private banks with an expectation of sophisticated relationship managers (RM), personalised service and unique offerings linked to segment needs. The affluent and mass affluent segment (US$100,000 to US$1 million) takes up 13% of wealth space, which is highly crowded with no real differentiated offerings.
Malaysian affluent customers underserved
The majority of wealth players do not understand their customer segments and their nuanced needs, and tend to offer a one-size-fits-all basic value proposition delivered through RMs, who are seen as “product pushers who do not understand the needs of the customers”.
Our study highlights several friction points caused by RMs and service providers that rub the affluent segment the wrong way — offerings that are too complex and hard to grasp, low investment knowledge, improper use of investment vocabulary, lack of personalisation and actionable investment advice, unconsolidated and inconsistent overview across their separate investment accounts, lack of cost transparency in complex fee structures, and lack of premium service experience — to name a few.
Customers want tailored advisory and engagement with wealth managers
Based on our study, we see three emerging value propositions that need to be addressed by wealth managers who want to capitalise on the vast opportunities posed by the local HNWI segment.
First, customers seek personalised and actionable investment advice. Given their broader investment appetite, they want a reliable RM who can introduce them to different investment specialists and wealth management products, not an RM who is just a “product pusher”.
Second, Malaysian customers want cross-border wealth solutions. Currently, they reach out to private banks in Singapore for their family office and next-generation wealth management needs, which are not widely available in Malaysia. They invest in high-yield overseas markets through online brokers, only using private banks for their local needs. Many know exactly what they want, and they want an RM who can help them with what they need.
For instance, from the study, one customer had been looking for a high-yield Islamic investment product for some years, knowing that Middle Eastern fintech may offer some good choices. However, finding a local RM to identify and facilitate this was not readily forthcoming.
Third, there is a limited breadth of digital offerings and a lack of personalised attention on customers’ portfolios. Customers feel that they do not have visibility on how the bank manages their money, preferring to see simulations to understand how their investment choices may fare under various conditions. They want a good, intuitive digital app that provides frequent market updates with a robust dashboard that shows the impacts on their investment portfolios. They also want an app that can give them a holistic and integrated view across their personal and business investments and transactions.
Pivotal time to reshape wealth management advisory model
Against these challenges, the agenda now for CEOs of wealth management firms is to protect the bottom line, win the future and build capabilities.
To protect the bottom line, CEOs need to look at smart revenue uplift initiatives that include how sales, pricing, and upselling and cross-selling are structured to deliver relevance. The front-office setup needs to be bolstered with RMs, analysts and investment specialists who can provide the right, tailored advisory services that customers want today, with key performance indicators (KPIs) and incentives that encourage the right customer approach. Underscoring this is the need for robust compliance and risk management that is integrated and cost-effective. Overall structural efficiency is vital to reducing costs to be lean and agile.
To win the future, CEOs need to prioritise segmented value propositions that appeal to and engage the individual needs of their customers, and take a need-based approach in providing differentiated offerings that are tailored and distinct from competitors. They must expand their product suite with cross-border solutions, alternate investments and family office, which are what the HNWI segment wants. Customers want real and tailored advisory that reflect their particular needs and risk appetites. CEOs should also think about building a robust ecosystems and setting up partnerships to deliver market insights and provide exciting investment options to clients.
To build capabilities, it is vital to have a clear understanding of customers’ needs. There is a need to develop an institutionalised approach to client understanding with insights that go beyond wealth parameters, and new ways of segmentation. Leveraging digital and data is key in elevating the client experience, using various channels and advanced analytics to build a clear understanding of customers. Talent and culture shifts are fundamental to being in accord with the identified purpose throughout the organisation, building new skills and new ways of working. CEOs need to invest in technology platforms that provide scalability, connectivity and cost-efficiency.
How these should be executed and achieved are essential matters that should keep CEOs up at night. Implement these well and they can win the future, build capabilities and protect their bottom line.
Sumit Kumar is managing director and partner at Boston Consulting Group