Why a Hybrid Approach Could Help Wealth Managers to Reduce Client Churn

  • John Wilson, UK Managing Director at Avaloq

  • 04.11.2021 05:15 pm
  • #Wealth #Management

Avaloq’s survey among mass affluent and high-net worth individuals in ten countries, including the UK, China and Germany, has found that almost 30% of wealth management clients are considering to switch their financial advisors. At the same time, around 50% of respondents would be comfortable for wealth management services to be provided with the support from artificial intelligence (AI). Based on these results, the future of wealth management may well be a hybrid model, blending AI-powered solutions with personal advice.

While high fees and poor performance were the top two reasons why wealth management clients would switch their financial advisor, 43% said they would switch because their needs were not being considered while 42% said it would be because of infrequent communication. 29% said they were currently thinking of switching, underscoring the sector challenges but also the opportunities for firms with the right service and product suite.

The survey, commissioned by Avaloq, the global leader in digital banking solutions, found that 26% of respondents who have a financial advisor would be happy for an AI-only service to make product recommendations based on behaviours or changes in their situation. The same number (26%) would be fine for an AI-only platform to answer portfolio questions while a third would be happy for AI-only analysis of portfolio performance. In each case, a higher number of these respondents preferred a wholly run AI service versus one without AI.

Avaloq’s research, part of an extensive international study looking into investment behaviours and market sentiment of wealthy investors, also found that the majority of those surveyed, regardless of whether they have a financial advisor or not, said they would prefer a hybrid model – one in which AI supports their relationship managers and financial advisors. Between 47% and 56% of respondents with and without a financial advisor said they would prefer a hybrid approach when it comes to the management of their personal details, answering of portfolio questions, performance analysis, and the receiving of product recommendations and investment advice.

John Wilson, Managing Director UK at Avaloq, said: “AI is already playing a growing role in the delivery of personalized and more efficient wealth management services, driving revenue growth and client engagement levels higher for financial institutions. We believe that a hybrid approach is most likely to become the future standard model. The benefits include greater operational efficiency and a seamless, real-time client experience.”

To add further insight into its research, Avaloq looked at aggregated, anonymized end-client data, stored from banks and wealth managers using its systems in the EMEA region. This separate analysis revealed two major challenges facing wealth managers and advisors: they tend to communicate with clients more at times of large in- or outflows from accounts; and once a client’s assets cross the USD 1 million threshold, contacts with their financial advisor significantly increase.

John Wilson concluded: “The challenge for financial institutions is that, in this highly digitalized time, client loyalty is under increasing pressure. Given the increasingly competitive market environment, wealth managers need to deliver a highly personalized client experience to remain relevant. The answer is a hybrid model that blends automation and digital availability with face-to-face advisory. AI will not replace front office staff such as financial advisors, but it will help them to provide a richer service while also meeting key business demands, such as scalability and efficiency.”

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