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The Perfect Storm
Why You Must Take a Deeper Look at Your Customers
INTRODUCTION
Concepts of wealth and consumers’ motivations, attitudes and behaviors around the accumulation and management of
wealth are changing.
To succeed in an increasingly competitive Wealth Management marketplace, wealth management firms need to offer value
propositions that fit with these changing customers’ expectations better than the competition. Unfortunately, most
firms approach understanding their customers’ needs on a superficial level.
Wealth management firms can be prone to primarily engage customers as “types of investors” according to formal
characteristics such net worth, age, profession, and so on. This approach risks misunderstanding the “value
orientations” of clients; their definition of wealth, their sense of moral obligations, their conception of trust, etc. The worst
possible error an advisor can make is to assume that the customer’s worldview of wealth is the same as their own.
If these firms were to better profile clients by understanding how they define value and their preferences more clearly, they
would be able to:
• Support their advisors to translate client values into priorities, and their priorities into coherent
goals-based financial plans.
• Drive innovation by optimizing processes and products or designing new products, services and solutions.
• Improve the acquisition and retention of customers.
The bottom line: If wealth management firms don’t try to deeply understand the different
types of investors, they will not survive a changing and increasingly competitive marketplace
as customers change their behavior. The only certainty going forward is that change is afoot.
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FAILURES OF THE CONVENTIONAL CLIENT PROFILING APPROACH
Client profiling techniques don’t sufficiently consider client ‘value orientations’ and their
sometimes contradictory nature.
If there is one critical lesson we have learned in over ten years of
advising Fortune 500 companies, it is that human beings never seem
to act the way survey-based categorizations suggest they should. The
reality is that there is no individual customer that matches in actual
attitude and actual behavior to the definitions from the segmentation
model. The inconvenient truth is that human beings are delightfully
complex and, therefore, every individual defies such simplified modes
of categorization.
HUMAN BEINGS
ARE DELIGHTFULLY
COMPLEX AND
DEFY SIMPLIFIED
MODES OF
CATEGORIZATION
Standard approaches to profiling clients rely on categories of analysis.
These are formal metrics, and intended for general application such
as Investment Goals, Risk Tolerance, Risk Capacity, and so on. The
information they gather is important, but fails to reflect lived
experiences that color attitudes and perception. The advisor’s profiling tool only accounts for a
small number of factors that inform the client’s actual value orientation and preferences. They do
little to highlight individual values, or how these might contradict one another. For example, a
client’s conception of success may not coincide with their stated financial aspirations. While they
may dream of retiring at 50 and claim to accept volatility and risk, they may have no tolerance for
losses in portfolio value once their children enter college and the drain on disposable income becomes a reality.
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FAILURES OF THE CONVENTIONAL CLIENT PROFILING APPROACH
When an expert Wealth Advisor is conducting a needs
assessment, what sometimes happens is that the customer
suppresses the anxiety that comes from being uncomfortable
admitting their own fears and knowledge gaps.
The profile questions may get answered and a category label
applied, but the truth often remains hidden. This ultimately
results in a missed opportunity for the Wealth Advisor to make
meaningful recommendations that earn greater customer
loyalty and for the firm to design innovative products. It makes
the acquisition and retention of customers more challenging
than necessary.
To be truly “customer centric”, Wealth Advisors need to dig
much deeper and move beyond superficial definitions of
investors based on simple categorizations like Net Worth.
Unfortunately, there is no free ride. Understanding real
customers in real terms requires a certain amount of time,
energy and investment if an organization is to have a chance at
building success across all business verticals; from investing, to
saving, borrowing, payment, etc.
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THE SOCIO-CULTURAL REVOLUTION: CHANGING WEALTH MANAGEMENT SERVICES
The greatest challenge consumers face today is the persistent social and economic uncertainty; meaning that, for the
first time in a long time, the average citizen no longer believes they can guarantee their own personal success, even
through hard work. This change has altered the way many people think, feel and act across many dimensions, but
especially around financial decisions. We observe a new ‘frontier logic’ in which being tough and prepared for any
eventuality is prudent; faith in institutions is at an all-time low and consumers feel they are left to fend for
themselves. Fuelled by the most pessimistic outlook since World War II, concepts of wealth are no longer fully rooted
in money. For some, the metric of success is changing. Encouraging more faith in Wealth Managers may require more
than enhancing their financial literacy.
A recent S&P global financial literacy survey
indicated that, “On average, 55% of adults in
major advanced economies, [including] Canada,
France, Germany, Italy, Japan, the United
Kingdom, and the United States, are financially
literate. However, as shown in the infamous
graph of household debt to personal disposable
income below, the decisions being made defy
explanation – household debt has approached
170% of disposable income. Financial literacy
seems unrelated to financial decision-making.”
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THERE IS A BETTER WAY: GETTING INTIMATE
To develop intimate customer understanding you must turn to social science-based methods to learn about
different types of customers. Specifically, this approach provides a deep understanding of the clients’ beliefs,
values, needs and wants; all of which inform how they view “Wealth” as a concept, and their attitudes and
behaviors around goals, accumulation and management of wealth.
Getting intimate means immersing in the client’s world to observe their behaviors and listen to their language as
indicators of their values. For example, consider the terms people use to explain their financial circumstances
and goals; words like ‘family’, ‘entrepreneur’, ‘children’, ‘immigrant’, ‘retirement’, ‘summer home’, ‘work-life balance’,
‘the long-term’ to name a few. These terms are loaded with implicit meaning that can indicate a client’s value
orientation towards investments.
A High Net Worth Investor (HNWI) who is a
young and recently successful entrepreneur
will understand ‘balance’ differently from
one who is entering retirement. Similarly, a
Wealth Manager’s expert understanding of
“risk” may not correspond with the everyday
understanding of “risk” held by either of
these High Net Worth Investors. Socialscience methods provide the deeply
intimate insights into the Client that escape
conventional survey-based profiling tools.
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TODAY’S “YOUNG INVESTOR”
Many wealth management firms struggle to effectively
understand and engage with a younger generation of
investors. The solution to this is unlikely to be a onesize-fits-all approach based on age differences. “Age”
is a highly contextual experience, and there may be
more differences within the investors in the “under 45”
group than between them and another age group.
Younger HNWIs are more self-confident and less
dependent on expert knowledge. A 2013 survey by
Merrill Lynch Private Banking and Investment Group
recorded that “only one in ten young HNWIs who have
advisors said they relied heavily on them for investment
decisions.” Industry literature continues to explain this
in terms of youthful self-confidence. But it may also
reflect what sociologists of finance have identified to be
“meaningful discontent” with expert knowledge itself.1
The democratization of knowledge through the internet
has touched nearly every economic sector – from music
production to art history, from medical discovery to
financial advice.
1 Weiss, Hadas. 2015. Financialization and Its Discontents: Israelis Negotiating Pensions. American Anthropologist 117 (3): 506-518.
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ECONOMIES SHAPING BEHAVIOR
Leaning on socio-cultural analysis we can identify behavior trends amongst younger cohorts that
demonstrate the changes in metrics of success and value, while also point the direction for new
strategies that may attract young investors.
The Sharing Economy
• From communal office space,
automobiles, bicycles to haute
couture fashion
• Participating in collaborative
consumption permits access to
high-priced or hard-to-access goods
and services – ideal for an uncertain
economy
• Experiences, rather than ownership,
are becoming increasingly important
• As people rely on multiple sources
and channels for information, blind
trust in conventional authorities can
no longer be expected or taken for
granted
• There is a strong desire for flexible,
rather than full, commitments
The Passion Economy
• Etsy, Kickstarter and most craft
brewers around the nation
• The expectation to explore and
follow one’s passion has transformed
the idea of a career
• ‘Passion’ has become a marker of
personal fulfilment, social status
and success
• The ability to pursue passionprojects, mixing leisure with labour is
given high priority
• Not all ideas are fully formed;
one-size-fits all solutions are
dismissed in favour of dialogue and
exploration
• Demand for markers of success
other than profits to be recognized
The Attention Economy
• Constant bombardment with
information and data divides our
attention so we’re never focused on
one thing
• Outsourcing decisions to others is
to save time and streamline a busy
life – personal information is the
currency, provided value is provided
in return
• Too much choice can paralyze
• The opportunity to only pay
attention to what matters most is
highly desirable
• ‘Shortcuts’ to what matters are
valuable – algorithms, experiences of
successful others
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HOW TO WIN DURING THE REVOLUTION
Our viewpoint is that the social science-based approaches to understanding
customers and models for building strategies provide an extremely effective
way to:
• Help wealth management firms equip their advisors to translate client values
into priorities and financial plans.
• Help the organization design innovative products, services solutions or
optimize existing.
• Improve the acquisition and retention of customers and, ultimately,
customer loyalty.
The socio-cultural revolution will only continue to increase the ambiguity and
complexity for wealth managers to navigate. It is critical that financial services
organizations embrace these new ways of thinking in order to prosper in an
uncertain future. As with any new paradigm, care must be taken to socialize
the learning throughout the organization and to engage representatives from
all stakeholders in a process of business strategy innovation.
An important challenge to greater adoption and execution is that the talent needed to represent the voice of the
customer and to lead business strategy innovation is in short supply. Organizations looking to better meet the
changing needs of current and prospective customers will be wise to invest in understanding the client’s journey, and
drawing on the expertise of partner firms to create training and mentoring programs.
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About Fresh Squeezed Ideas
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financial services companies engineer breakout strategies for today’s global markets and customer.
Visit www.freshsqueezedideas.com to find out more.
APPENDIX
Academic Fundamentals: Understanding The Culture of Wealth
A great place to begin when looking at your customers is to challenge how you may think about their understanding of “Wealth”. The
definition of what wealth is is subject to change as social and economic circumstances evolve. It is important to recognize that since the
2008 crisis, circumstances have evolved.
Firstly, the concept of wealth is not standardized and is ambiguous. It means different things to different people. “Wealth” is, by
definition, an idea that has been defined over time, socially - meaning the concept of what constitutes wealth is based on society’s
shared understandings of its desirability, its associated obligations, and the forms it assumes.
Secondly, the accumulation and management of wealth are only technically possible because of social infrastructures such as markets,
laws, and the social contracts that inform them. In other words, wealthy people are really only wealthy in the way that the society agrees
to deem them as wealthy. Which means that the concept of wealth is fluid and subject to being revised over time as society adopts
different values. Since the 2008 economic crisis, there have been some important shifts in how some people – especially Millennials –
think about wealth.
In America, the currency associated with wealth is based upon accumulations of money, or the conspicuous things money can buy, like
property and high priced goods. In other cultures, the currency of wealth may be about livestock, or children, or even enlightenment.
Every society evolves to agree on the currency and in their concept of wealth. The fact that the concept of what wealth is across the
world is not universal should cause wealth managers and bankers to pause and question whether the concept of wealth is really even
universal in America.
The differences in the distribution of wealth in the world, as shown by Credit
Suisse, points to differences in the experience of wealth, which in turn leads to
differences in the meaning of wealth.
APPENDIX
Academic Fundamentals: Understanding The Culture of Wealth
Wealth is personal. While the meaning of wealth is shared across a society, the possession of wealth is not shared. In fact, the possession
of wealth, and the capacity to accumulate and retain it, is very unevenly distributed across society. There are the ‘haves’ and the ‘have
nots’, to use the most simple terms. Today, the accelerating income inequalities in America have generated heated public debate about the
sustainability of such uneven distributions and capacities.2 It seems the ‘haves’ are increasingly the ‘have-a-lots’ while there are a few ‘have
somes’ and, of course, quite a few of the ‘have-not-much-at-alls’.
None of the above is trying to make a moral judgment on the possession of wealth. If anything, our culture tells us to make the best of our
talents to prosper and wealth is simply the metric of progress. But it is important to recognize that wealth has a very peculiar character;
wealth connects and, at the same time, separates people.
1. It connects: it relies on socially shared understandings about what it is. Not unlike how most people will agree on whether a particular
person is attractive or unattractive; there is an unspoken, but shared agreement on what attractive is.
2. It separates: it also distinguishes some people from others based on possession of wealth. It is very easy to understand how a group of
people can easily can separate a crowd based on how attractive each of them are.
One the one hand, the use of wealth is informed by:
1. Implicit expectations and explicit tastes shared by their particular sub-culture or community, and
2. Obligations to their immediate family members or dependents.
On the other hand, their use of wealth is informed by:
1. Personal desires and interests that distinguish them as individual members of these social collectives, and;
2. Their specific financial circumstances and potential capacities.
The management and experience of wealth is therefore, both highly social and personal. Navigating this social/personal dynamic is
extremely important to understand in the field of wealth management. Key to a Wealth Manager’s success is a firm grasp of their client’s
social circumstances in order to gauge their personal risk profile and investment goals.
2 The accumulated global wealth of UHNWIs, for example, has increased threefold between 1992 and 2012: from US$6.7 trillion to US$25.8 trillion (O'Sullivan and Kersley 2012).