• April
  • 2020

It’s the Customer, Stupid! How to Make Your Digital Financial Advisor Awesome.

The financial sector continues to evolve at a rapid pace. As the digital-native generation Z open their first bank accounts and cloud-native offerings rise amidst the COVID-19 pandemic, financial institutions feel an increasing pressure to adapt to new customer demands. Although it is fair to claim that online banking services are widely available in western countries, wealth management services remain a privilege for the most fortunate. However, it has become more apparent that these services have a fair chance of being next in line to experience a dramatic transformation. In this blog entry, we discuss how recent technological advancements could result in significant changes to digitalised customer journeys in wealth management.

Healthy Financial Habits. Life involves a chain of decisions of varying importance, with many of these decisions impacting on our financial well-being. While it is common practice to save for significant life events - pensions, mortgages, savings for children and other reasons, – the space of ‘smaller’ savings remains untapped for most of the industry. However, FinTechs have already entered this segment with offerings that have a vivid connection to everyday life - such as encouraging saving for hobbies, vacations and birthday presents for loved ones. These events look insignificant, but due to their frequency, they play an instrumental role in maintaining a continuous dialogue with the consumer and fostering trust. An excellent example of such a service is the Dreams app. This Scandinavian savings app equips its customers with various behavioural techniques to help them save for life events, dreams and aspirations. The service offers tips and tricks to encourage the user to quit destructive habits (such as smoking), economise by bringing lunch boxes to work and occasionally sell the items one no longer uses.

Themed Investments. Short-to-medium term investing ties into the narrative about saving for smaller and more frequent life events. When a customer accelerates their savings for an expensive piece of hobby equipment by investing, it creates an engaging experience. Upon achieving that investment goal, they are then likely to produce another touchpoint in the future. Moreover, in the domain e of short-to-medium term savings, financial institutions can create some space for experiments. For instance, the selected portfolios could be personalised according to income levels and risk attitudes, but also in line with customers’ interests. Although the concept of themed investments has been around for quite some time, it has recently experienced a new wave of popularity primarily driven by (but not limited to) sustainable investments. A tech-savvy banking customer could enjoy their personalised portfolio that would include stocks in cutting-edge new tech. At the same time, a passionate environmentalist would love an opportunity to save by investing in sustainable companies.

Investing in Retirement. Saving for retirement is often overlooked at the time it has the potential to make the most impact. Since the younger population does not usually possess significant funds, this part of the market is largely ignored by traditional wealth managers. Moreover, it is rare for the younger generation to consider investing in pensions, in part because at the time of entering the workforce, it all seems too far ahead. This phenomenon may be a result in lack of knowledge regarding the importance of investing in one’s quality of life in retirement. In this case, intelligent visualisation can prove to be crucial. Skandia, a large Swedish insurance and unit-linked pension provider, has recently built a web app that helps potential customers better understand how their private savings may impact their financial health and well-being in the future.

Shared Economy in Finance. Another exciting dimension of everyday financial decision-making, often overlooked by the traditional financial institutions, is the fact that some economic decisions are rarely taken individually. A great example of one such decision is saving for a down payment on a mortgage. Financial institutions traditionally provide these services on an individual basis, which rarely accounts for the fact that people live in micro-communities that often share income and, hence, the burden of financial decision-making. The financial institution could extend its offerings by providing a platform for managing personal economies on a family-level, which could provide the customers with a holistic view of their family’s finances. Such options could be useful when making joint economic decisions; be it going on holiday, gathering funds to arrange grandpa’s birthday or taking a loan of a lifetime.

The digitalisation trend and unprecedented ability to build creative financial customer journeys are likely to turn banks and insurers into specialised tech companies. However, the digitalisation alone is hardly a remedy to all potential challenges that could hinder your newly built robo advisor app from becoming a successful revenue stream. Given the trends above, it is likely that the future of wealth management will become a natural part of the digitalised personal financial planning experience, which would extend beyond traditional tasks of a wealth manager, offering customers a 360 degree view of their finances. Therefore, it becomes questionable whether the traditional siloed approach to financial services still makes sense in the world that has the technical capacity to support full-balance sheet analytics. In any case, financial institutions, both old and new, should find ways to build productive, engaging and relevant dialogues with their customers. They are essential for building trust, remaining relevant and pointing your innovation strategy towards creating value for your customers.

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