Closing the gap Wealth Management Survey. A comparative view of financial advisors and clients perceptions, preferences and priorities

Transcription

1 Closing the gap 2014 Wealth Management Survey A comparative view of financial advisors and clients perceptions, preferences and priorities

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3 Contents Foreword 02 Methodology and respondent profile 03 Trends influencing the industry 05 Key drivers across the client life cycle 13 Service channels today and in the future 19 Latin America 27 Conclusion 35 EY contacts 37 Closing the gap: 2014 Wealth Management Survey 1

4 Foreword EY is proud to release its third annual Wealth Management Survey. This survey encompasses the views of both financial advisors and wealth management clients across the Americas and represents a variety of age and wealth segments. While our past two surveys focused on developing a deeper understanding of the views of wealth management firms on topics like product and client strategies and technology and operations priorities, this year we decided to turn to the two key constituencies that firms cater to: clients and advisors. Our goal was to understand their views on key trends driving the industry and important elements driving their relationship across the client life cycle. In this context, the survey identified the following core themes: 1. Clients and advisors both cite holistic goal planning and wealth transfer as two of the most relevant trends driving the industry. However, our survey also suggests that wealth managers have yet to implement effective strategies to capitalize on these trends. For one, holistic goal planning has a fairly limited impact on client acquisition and retention, yet it s the most important trend influencing clients decisions to seek out wealth management firms. This suggests that clients see little differentiation across firms planning approaches and are not fully aware of the benefits of their current firm s planning offering. Capitalizing on the client desire for goal planning requires not just a differentiated offering that attracts clients but one that communicates the value proposition to clients across the life cycle. In terms of wealth transfer, advisors and clients both view this as an attrition driver, suggesting firms still have work to do to realize the opportunity, or mitigate the risk, posed by generational wealth transfers. 2. After several years of focusing on wealth preservation post-2008, portfolio performance has become top of mind for clients and advisors. Both clients and advisors rank portfolio performance as the top factor driving client retention and attrition. This presents a unique challenge for wealth managers who are currently working to shift the focus of the client conversation from performance benchmarks to individual goals. Firms will be wellpositioned to realize the benefits of holistic goals-based planning if they appreciate the magnitude and complexity of the required cultural shift and implement strategies to address the change in client mind-sets. 3. Key client behavior drivers beyond the strength of the client-advisor relationship, which are often overlooked by advisors, can be leveraged to improve client acquisition and retention. In general, advisors tend to overestimate the importance of their relationships with clients (although it s still a primary factor) while underestimating the relevance of firm reputation and segment-specific strategies. Advisors also need to better understand the subtle but relevant differences between boomers and nextgeneration clients to align firm offerings with demographic segments. Given these findings, firms that are able to confront advisors gaps in understanding their clients will be in a prime position to optimize their go-to-market strategy and capitalize on these opportunities. 4. Traditional channels are, and will continue to be for the next three to five years, the key medium through which clients interact with wealth managers. Clients views appear to point at digital channels playing a complementary role to traditional channels, with very little migration expected from traditional to digital. In this sense, digital channels effectively expand, but do not replace, the interaction options for clients. This poses some challenges for wealth managers, namely the importance of delivering a consistent experience across all channels while also balancing and prioritizing efforts and investments across a wider distribution infrastructure. 5. Although the demographic trends and implications of baby boomer clients and advisors retiring have been discussed for over a decade, advisors still consider generational wealth transfer and a lack of business succession planning to be among the top business risks. Firms need to revisit their current strategies and be focused on acquiring the next generation of clients as well as advisors. Talent acquisition and development is one of the areas where advisors are the least satisfied with their firms. Firms need to appreciate that the talent development methods that worked for baby boomer advisors may not work the same way for the next generation of advisors and revisit how they view incentive structures, branch support models and teaming incentives to position the next generation of advisors for success. As we experienced in last year s survey, the abovementioned themes apply across the Americas, but some key differences arise between North America and Latin America. Several distinctions are due to the fact that Latin American clients currently work with many more wealth managers than their North American peers, though their intention is to consolidate assets into fewer firms. As a result, breadth of product sets and channel offerings are 2

5 key factors influencing the decisions of Latin American clients across the life cycle. Other differences, mainly around channel preference and usage, can be explained by some of the cultural and environmental differences between regions. Going forward, firms must take into account these regional differences when determining strategies and operating models. This is especially true as firms move toward globally consistent models to deal with more challenging economics and a more stringent global regulatory environment. This is a time of significant evolution in the wealth management industry, illustrated by possibly the greatest wealth transfer in recent history, retirement of the current generation of advisors, mobile technology innovation and transition to holistic goals-based planning. Our survey illustrates some of the key challenges and opportunities shaping the market for wealth managers in the Americas during this time of change. Those firms that can reshape their strategies and operating models to capitalize on the key macro-trends, absorb and leverage the increased complexity and sophistication of clients and advisors, and consistently address the changing needs of these constituencies will be in a prime position to benefit from the opportunity these challenges present. Methodology and respondent profile In February 2014, Oxford Economics surveyed financial advisors and clients in four markets: the US, Canada, Brazil and Mexico. To understand and contrast the behaviors and views of advisors and clients, EY stipulated that one-third of advisors work for, and one-third of clients belong to, each of the following wealth segments: Mass affluent (MA) = US$250,000 to US$999,999 in assets High-net-worth (HNW) individuals = US$1m to US$24.99m Ultra-high-net-worth (UHNW) individuals = US$25m+ The financial advisor and client respondents were then broken down according to the following: Region (North America, Latin America) Age (19 to 39, 40 to 49, 50+) Closing the gap: 2014 Wealth Management Survey 3

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7 Key points Advisors and firms must do more to show the lasting value of a goals-based approach. Trends influencing the industry Firms need to make investments to capitalize on wealth transfers and mitigate their flight-of-assets risks. Portfolio management customization is valued but can conflict with firms goals of using consistent model management and products. Closing the gap: 2014 Wealth Management Survey 5

8 Advisors and clients agree on the important trends driving wealth management business growth When it comes to where clients invest their assets, holistic goals-based planning is the biggest influencer, especially for HNW clients (73% vs. 45% total) however, as will be illustrated further in this survey, goals-based planning is significantly less important as an acquisition and retention factor. This stark contrast indicates that although clients value planning, advisors and firms have yet to figure out how to show clients the lasting value of a goals-based approach. And with boomers entering retirement, wealth transfers will also have a relevant and lasting impact on advisors business by creating an opportunity to retain assets while acquiring the next generation of clients. However, as we ll see, wealth transfers also pose a risk for advisors and firms that are not prepared to execute on the transition. Client What are the most important trends influencing where you invest your assets today? 45% 42% Holistic goal planning Geographic diversification 38% Generational wealth transfer 37% Desire to consolidate assets into fewer wealth management firms 32% Access to product specialists 23% 23% Improved service experience and tools Balance of personalized advice and self-service 15% 13% Shift from commission to fee-for-service Advisor What are the most important trends driving your future business growth today? Shift toward nontraditional investments Lastly, clients are also eager for global investments and diversification, even as large US wealth management firms have been shedding international operations. 55% 53% 41% 35% 32% 32% 23% 15% 12% Generational wealth transfer Holistic goal planning Geographic diversification Improved client experience and tools Shift toward nontraditional investments Consolidation of assets into fewer firms Balance of advice and self-service Shift from commission to fee-for-service Outsourcing of some activities to specialists 6

9 Advisor Which of the following trends represent the greatest risks for your business in the future? 67% Heightened regulation, disclosure and compliance (e.g., FATCA, KYC, AML) 48% Generational wealth transfer 41% Lack of business succession planning 32% Client desire for self-direction 24% 24% 21% 20% 16% Growth of independent advisors Geographic diversification Not keeping up with continued rapid technology change Shift from commission to fee-for-service Risk of advisor disintermediation due to digital channels Generational wealth transfer and succession planning are key risks to growth, besides regulation To capitalize on wealth transfers and mitigate the risks associated with them, firms need to invest in training, tools and products to support this transition. Advisors are also concerned with firms lack of business succession planning, also reflected in how advisors rank their firm s talent acquisition and development programs as least satisfactory. Ranking much lower are practice-related trends around technology enhancements, digital channels and shifting fee structures, which highlight that advisors seem more concerned with broader industry/market trends. Closing the gap: 2014 Wealth Management Survey 7

10 Overall, both advisors and clients are relatively satisfied with their firms Overwhelmingly, most advisors expect to be with their current firm in three to five years. Those who expect to leave cited being dissatisfied with support teams, starting independent practices and being dissatisfied with technology/tools as the main reasons. Firm satisfaction is also high for clients, with the highest among UHNW clients and the lowest among HNW clients. Interestingly, HNW clients are also more likely to consider leaving their advisor in the next 12 months (35%) than MA clients (15%) or UHNW clients (10%). This may indicate that HNW clients have higher expectations than the services they are receiving. For clients that do not expect to leave their current advisor, the satisfaction level is especially high (85%). Yet, even for those who are considering leaving, half say they are either satisfied or very satisfied with their firm. Client How satisfied are you, in general, with your current method of interaction with your financial advisor s firm? 55% 40% Very satisfied 60% 35% 25% 20% 30% 20% 5% Satisfied Neutral Unsatisfied MA HNW UHNW 10% 0% 0% Advisor Do you expect to switch firms in the next 3 to 5 years? 89% 11% 8

11 However, advisors see room to improve talent acquisition/development and tools support Advisor How satisfied are you with your firm s level of advisor support? 84% 83% 76% 75% 67% 67% 55% 48% Fewer than half of the advisors surveyed are satisfied with talent acquisition and development, which aligns with advisors perception that a lack of business succession planning is a top risk to business growth. To increase satisfaction and manage this risk, firms need to focus on acquiring/training next-gen advisors and developing transition plans that accommodate the needs of clients. Comprehensive product set Specialized knowledge Sales and marketing support Note: contains satisfied and very satisfied responses. Product sources Flexible reporting and communication options Operations and admin support Tools Talent acquisition and development Although many firms invest significantly in tools, next-gen advisors are the least satisfied (46%) while boomers are fairly satisfied (72%). This reiterates the importance of continued investment in tools as a key method of driving toward effective business succession as boomer advisors retire. And while the importance of digital tools is higher for younger advisors and clients, tool usage indicates that firms should follow a more balanced approach between traditional and new digital technology investments. Closing the gap: 2014 Wealth Management Survey 9

12 Balance consistent approaches with clients preference for customization and advisor discretion Regardless of age/wealth segment variances, most clients still want advisors to have discretion, believing it will lead to a more personalized approach. This unified client/advisor desire for discretion is in conflict with firms goal of using consistent advice, models and products to increase profits and ensure regulatory compliance. So while prescriptive policies make sense from a risk, operations and scalability perspective, advisors are less consistent about following firm-defined asset allocation models for example, only 17% of advisors (primarily next-gen) cite firm models as mandatory. Among clients, the next generation prefer advisors to have the most discretion, with 52% saying their advisor should have some level and 41% saying they should have a high level of discretion. However, boomers and those who are older are far more inclined to prefer a prescriptive model. UHNW clients are more inclined (85%) to prefer some or a high degree of discretion than HNW clients or MA clients (75% each). Client What level of discretion do you prefer your financial advisor to have as it relates to using a firm s asset allocation models? No advisor High level discretion of advisor discretion 21% 37% 42% Some level of advisor discretion Advisor Which of the following best describes your firm s asset allocation model management policy? Optional (full advisor discretion) No policy exists 24% 18% 17% 41% Prescriptive (mandatory) Recommended (strongly encouraged) 10

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15 Key points Traditional channels and not newer outlets like social media carry the most weight with clients. Key drivers across the client life cycle There is a disconnect around planning and the role of fees when clients are picking a firm. As the financial crisis fades, portfolio performance has become the most important issue once again. Closing the gap: 2014 Wealth Management Survey 13

16 Consider revisiting marketing strategies to align to clients preference for more traditional channels Almost 90% of all clients cite referrals as the main way to learn about advisors, evidence of the importance of word of mouth from clients and centers of influence. Though several strategies considered effective by advisors (e.g., events, media) do not seem to be directly relevant to clients, they can still be effective if they lead to increased referrals or advisor contacts. They are also more significant when targeted to specific segments (wealth- or age-based). For instance, HNW clients are more likely to hear about an advisor through marketing events (25%) or industry conferences (30%), and nextgen clients are more focused on industry conferences and nontraditional media. Interestingly, nontraditional media ranks low among clients in comparison to more traditional marketing tactics, suggesting that wealth managers should take a balanced approach when thinking about the role of social media in their marketing toolkit. Client How are you most likely to learn about a financial advisor with whom you may wish to work? 86% 89% Personal referral 50% 58% Contacted by advisor 23% 16% 9% Traditional media exposure 24% Industry conferences Baby boomers and older 18% 18% Marketing events 5% 21% Nontraditional media exposure Next generation 14% 16% Marketing campaigns Advisor What are the most effective means of reaching and marketing to prospective clients? 59% 59% 45% 43% 44% 55% 44% 44% Baby boomers and older 37% 35% 35% 33% 29% 25% Next generation Advisordriven campaign Advisordriven events Nontraditional media exposure Firmdriven campaign Firmdriven events Traditional media exposure Industry conferences 14

17 Client What are the key factors driving your decision to sign on with a financial advisor? 73% 63% Firm reputation/ trust 55% 55% Referral/ advisor reputation 45% 34% Advisor s experience serving clients like me 18% 37% Comprehensive product set 14% 29% Goal/ financial planning Experience during sales process Baby boomers and older 23% 13% 14% 13% Digital technology Marketing campaigns Next generation 18% 11% 8% 0% Advisor For each of the following client segments, what are the key factors driving acquisition? 53% 55% 49% 52% Competitive fees Clients and advisors differ on key drivers of client acquisition, revealing areas of opportunity Clients value a firm s reputation and trust more than an advisor s reputation when choosing wealth managers. And though planning is an important factor in driving clients to wealth managers, it becomes less relevant when actually choosing an advisor/firm. This could be because clients see little differentiation across planning offerings, which means an opportunity exists for firms that come up with a truly differentiated approach in the eyes of the client. There is also a disconnect around the role of fees in client decisions, a trend that is apparent throughout the client life cycle. Finally, advisors seem to overlook some key age segment differences that could be leveraged in targeted acquisition strategies and offerings: nextgen clients seem to place more importance on having a comprehensive product set, while boomers are more likely to embrace affinity-type segment-specific strategies. 39% 40% 32% 32% 31% 27% 28% 28% 28% 27% 15% 19% 13% 13% 7% 11% Referrals Goal/ financial planning Firm reputation/ trust Competitive fees Comprehensive product set Firmgenerated leads Prospect management Advisoracquired lists Client segmentspecific strategies Digital technology Closing the gap: 2014 Wealth Management Survey 15

18 For retention, clients rank portfolio performance as tops, while advisors also cite their relationship After years of focusing on liquidity and wealth preservation after 2008, clients now say portfolio performance has become the most important issue once again. Meanwhile, advisors highly overestimate the impact of their relationships with clients on retention, as well as the importance of the frequency and quality of their interactions. Advisors must not lose sight of delivering against clients performance expectations while focusing on improving their relationship management capabilities and the client experience. Goals/financial planning ranks fairly low for clients, suggesting they see little value in their current planning offering as a retention factor. Capitalizing on the planning opportunity then requires not just a differentiated offering that attracts clients but also one that delivers value across the life cycle by keeping them engaged and interested. Client What are the key factors keeping you with your financial advisor? 73% 68% Portfolio performance 53% 45% Advisor relationship 32% 24% 23% 23% 26% 16% 18% 8% Firm reputation/ trust Frequency and quality of interactions with my financial advisor Digital technology/ channels Advisor What are the key factors driving client retention? 67% 72% 71% 64% Transparent reporting Baby boomers and older 18% 37% Comprehensive product set Baby boomers and older Goal/ financial planning Next generation 18% 9% 5% 5% Ability to view my comprehensive financial picture Next generation 31% 31% 39% 43% 9% 20% 4% 5% 20% 11% 32% 31% 27% 23% Portfolio performance Advisor relationship Firm reputation/ trust Frequency and quality of interactions with my financial advisor Digital technology/ channels Transparent reporting Comprehensive product set Goal/ financial planning Ability to view my comprehensive financial picture 16

19 Key attrition drivers show the importance of portfolio performance and put fees in the spotlight Client If you recently left a financial advisor, what were your primary reasons for doing so? 68% 55% 41% 36% 23% 14% 9% 9% 9% 5% Poor portfolio performance High fees Wealth transfer to a beneficiary Limited frequency and/or poor quality of interactions with my financial advisor Departure of advisor Poor service quality Lack of self-service Limited channels for interacting with the firm Declining firm/brand reputation Limited product sources (i.e., proprietary products only) While advisors don t see fees as a top driver of client attrition, clients rank them second among all factors. Fees (though not critical from an acquisition perspective) do matter in terms of retention. As such, wealth managers should consider these changes when determining fee structures. Retention insights also confirm advisors view of wealth transfer as a risk. This reinforces the need for wealth managers to develop a comprehensive approach to identifying and addressing wealth transfers in order to maintain the assets being transferred. Advisors also seem to overestimate the impact of their own departure on client attrition. Advisor When clients leave, what are their primary reasons for doing so? 63% 53% 39% 39% 32% 24% 16% 19% Poor portfolio performance High fees Wealth transfer to a beneficiary Limited frequency and/or poor quality of interactions with my financial advisor Departure of advisor Poor service quality Lack of self-service Limited channels for interacting with the firm 8% Declining firm/brand reputation 1% Limited product sources (i.e., proprietary products only) Closing the gap: 2014 Wealth Management Survey 17

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21 Key points Digital channels rank lower for clients and advisors, although there are generational differences. Service channels today and in the future Wealth segments vary in channel preferences and value having multiple options to choose from. Usage data shows that boomers have a broader scope of digital channels than next-gen clients. Closing the gap: 2014 Wealth Management Survey 19

22 Among all client age segments, traditional service channels are favored now and in the near future interactions are the most relevant channel, though some discrepancies exist between clients and advisors as to where those interactions occur (in-branch for clients, out of branch for advisors). Both clients and advisors also see telephone and as key channels. Digital channels rank lower for both clients and advisors. Notably, the tablet s relevance when seen as a separate channel is marginal, yet use of online/firm websites is relatively important, and the tablet is a key enabling device for these channels. While channel usage trends are mostly consistent across client age groups, boomers are much heavier users of , while next-gen clients use smartphones more frequently. Client Through which channels do you most frequently conduct transactions or obtain other services from your financial advisor? Today 53% 59% (in branch) 47% 67% 43% 48% 22% 12% Telephone Firm website 20% 7% Smartphone 20% 23% Online 15% Client perspective 79% (out of branch) Tablet Advisor perspective 10% 3% 0% 3% Direct mail In 3 to 5 years Client perspective Advisor perspective 65% 73% 53% 45% 43% 42% 36% 36% 20% 16% 20% 13% 22% 18% 7% 11% 2% 3% (in branch) Telephone Firm website Smartphone Online (out of branch) Tablet Direct mail 20

23 Client Through which channels do you most frequently communicate with and receive information from your financial advisor? Today Client perspective Advisor perspective 53% 52% 53% 65% 52% 57% 72% 22% 15% 22% 17% 8% 21% 12% 10% 7% 2% 3% (in branch) Telephone Firm website (out of branch) Smartphone Online Direct mail Tablet In 3 to 5 years Client perspective Advisor perspective 67% 63% 48% 50% 47% 48% 51% 18% 12% 32% 33% 15% 12% 12% 7% 7% 9% 2% (in branch) Telephone Firm website (out of branch) Smartphone Online Direct mail Tablet Closing the gap: 2014 Wealth Management Survey 21

24 Varying channel preferences and usage trends across client wealth segments show need for diverse offerings The branch is and will continue to be the preferred channel for UHNW clients. In contrast, they are the least likely to use out-of-branch interactions and are also much less likely to use telephone or . Client Through which channels do you most frequently conduct transactions or obtain other services from your financial advisor? Today UHNW HNW MA HNW clients expect out-of-branch interactions to become their primary channel in the future but will continue making significant use of in-branch meetings. MA clients prefer the telephone and over face-toface interactions. They are also, and will continue to be, the heaviest users of smartphones. 70% 60% 30% 50% 50% 40% 30% 55% 45% 35% 5% 25% 20%20%20% 25% 20% 15% 25% 15% 5% 5% 15% 10% 0% 0% 0% (in branch) Telephone Firm website Online Smartphone (out of branch) Tablet Direct mail In 3 to 5 years UHNW HNW MA 75% 55% 50% 40% 35% 35% 30% 50% 45% 25% 10% 25% 25% 20%20% 15% 15% 30% 10% 35% 10% 5% 10% 5% 5% 0% 0% (in branch) Telephone Firm website Online Smartphone (out of branch) Tablet Direct mail 22

25 Client Through which channels do you most frequently communicate with and receive information from your financial advisor? Today UHNW HNW MA 75% 55% 30% 60% 50% 50% 40% 55% 60% 30% 30% 45% 30% 5% 10% 10% 5% 15% 15% 5% 15% 10% 5% 15% 0% 0% 5% (in branch) Telephone Firm website (out of branch) Smartphone Online Direct mail Tablet In 3 to 5 years UHNW HNW MA 65% 65% 45% 35% 45% 40% 40% 50% 55% 30% 55% 30% 20% 5% 20% 20% 5% 10% 15% 15% 5% 10% 5% 5% 0% 0% 5% (in branch) Telephone Firm website (out of branch) Smartphone Online Direct mail Tablet Closing the gap: 2014 Wealth Management Survey 23

26 Clients still leverage digital channels, particularly for account and performance information Digital channels are widely used by clients, especially for viewing account information and tracking portfolio performance. Advisors significantly underestimate the importance of providing portfolio performance through digital channels, especially given the impact of performance on retention. As wealth managers continue evolving their digital offerings, portfolio performance should be a key component. What activities do you (your clients) perform through digital channels today? What activities will you (your clients) perform through digital channels in 3 to 5 years? Client perspective 82% 72% 65% 68% 57% 57% 50% 58% 43% 42% 43% 42% 40% Today 47% 3 5 years Interacting through social media ranks last among client activities being conducted through digital channels. This further supports the fact that firms should avoid placing too much focus on social media within their digital strategies. Overall, channel trends suggest that clients are less interested in migrating from traditional to digital channels. Rather, they value having multiple channel options from which to choose. This reaffirms the need to develop multichannel strategies in a coordinated manner. View account information View/manage portfolio performance/ analytics Advisor perspective 89% 87% Conduct transactions (e.g., move money, trade) Access research and advice 72% Collaborate with financial advisor Track goals Open accounts Today 18% 20% Interact through social media 3 5 years 35% 48% 45% 55% 59% 39% 47% 39% 45% 53% 55% 33% 41% View account information View/manage portfolio performance/ analytics Conduct transactions (e.g., move money, trade) Access research and advice Collaborate with financial advisor Track goals Open accounts Interact through social media 24

27 What activities do you perform through digital channels today? What activities will you perform through digital channels in 3 to 5 years? Client perspective today 86% 79% View account information 68% 63% View/manage portfolio performance/ analytics 50% 61% Conduct transactions (e.g., move money, trade) 45% Access research and advice Client perspective in the next 3 to 5 years 77% 77% 68% 63% 59% 55% 55% 61% 53% 55% Collaborate with financial advisor 55% 37% 50% Baby boomers and older 39% Track goals 59% 36% 42% Open accounts Baby boomers and older 50% 45% Next generation 14% 21% Interact through social media Next generation Boomers are more inclined to expand digital channel usage in the near future A common misperception is that next-gen clients are more inclined to leverage digital channels, yet usage data shows that boomers have a broader scope of digital channels. This trend is even more evident when looking at clients future expectations of digital channel use: for most interactions, boomers expect to use more digital channels in the future, while next-gen clients are less consistent about whether their use of digital channels will increase or not. As a result, wealth managers digital strategies should avoid any biases toward younger clients so that the requirements and expectations of boomers are factored in as well. 34% 32% 23% 18% View account information View/manage portfolio performance/ analytics Conduct transactions (e.g., move money, trade) Access research and advice Collaborate with financial advisor Track goals Open accounts Interact through social media Closing the gap: 2014 Wealth Management Survey 25

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29 Key points Latin American clients aim to consolidate assets: 47% of them work with more than four firms. Advisor campaigns and other traditional marketing tactics are much more relevant here. Latin America Broad product sets and digital offerings are vastly more important than in North America. Closing the gap: 2014 Wealth Management Survey 27

30 Latin American clients have a distinct interest in consolidating their assets into fewer firms North American clients are less definitive than Latin American clients regarding the trends driving their investment decisions. Latin American clients are clearly driven by holistic goals-based planning, generational wealth transfers and a desire to reduce the number of firms with whom they work, and they tend to work with more wealth management firms: 47% work with more than four firms compared to only 2% of North American clients. As Latin American clients look to consolidate their relationships, wealth managers abilities to provide comprehensive product and multichannel offerings will be key to capitalize on this opportunity, as we ll see in the next few pages. Client What are the most important trends influencing where you invest your assets today? 74% 32% Holistic goal planning 53% 32% Generational wealth transfer 53% 29% Consolidation of assets into fewer firms 42% 27% Access to product specialists 42% 41% Geographical diversification 21% 24% Improved service experience and tools Shift from commission to fee-forservice Advisor What are the most important trends driving your future business growth? 5% 20% Latin America 5% 17% Shift toward nontraditional investments North America 5% 32% Balance of personalized advice and self-service Latin America North America 59% 52% 52% 54% 41% 42% 41% 27% 33% 35% 30% 19% 38% 22% 11% 17% 15% 7% Generational wealth transfer Holistic goal planning Geographical diversification Consolidation of assets into fewer firms Improved client experience and tools Balance of advice and self-service Shift toward nontraditional investments Shift from commission to fee-forservice Outsourcing of some activities to specialists 28

31 Marketing Client How are you most likely to learn about a financial advisor with whom you may wish to work? 89% 88% Personal referral 79% 44% Contacted by advisor 37% 5% Marketing campaigns 32% 12% Industry conferences 32% 12% Marketing events Latin America 21% Nontraditional media exposure (e.g., online, social media) 12% 11% Acquisition Client What are the key factors driving your decision to sign on with a financial advisor? North America 22% Traditional media exposure Latin American clients place much more value on firm and advisor reputations Though referrals are the key channel across regions, advisor campaigns and other marketing tactics (e.g., events and conferences) are much more relevant in Latin America than in North America. On the acquisition front, Latin American clients weigh reputation, both the firm s and the advisor s, more heavily than North American clients. Another key difference arises around product set as a driver of acquisition, especially as Latin American clients look to consolidate wealth management relationships. North American clients, on the other hand, are significantly more focused on finding advisors that have experience with similar clients and with the sales process. 84% 79% Latin America North America 59% 44% 42% 51% 24% 32% 20% 32% 5% 11% 24% 11% 11% 15% 2% 0% Firm reputation/ trust Referral/ advisor reputation Comprehensive product set Goal/ financial planning Marketing campaigns Competitive fees Advisor s experience serving clients like me Digital technology Experience during sales process Closing the gap: 2014 Wealth Management Survey 29

32 Product set and digital channel offerings are emphasized when assessing existing wealth managers Retention drivers provide further evidence of Latin American clients focus on product breadth (already highlighted as a key acquisition factor). The channel offering among Latin American clients is a newly important element. Although not seen as a key acquisition driver, channels (specifically digital ones) do seem to become highly relevant once the relationship is established. It s interesting to note that transparent reporting, frequency and quality of interactions, and goals/ financial planning also seem to be rather insignificant to Latin American clients. To capitalize on or mitigate the potential risk of asset consolidation in Latin America, wealth managers will need to focus on key fundamentals: competitive portfolio performance, a strong product offering and a comprehensive suite of channels. Retention Client What are the key factors keeping you with your current financial advisor? 79% 66% Portfolio performance 74% 10% Comprehensive product set 68% 5% Digital technology/ channels 54% 42% Advisor relationship 29% 21% Firm reputation/ trust 16% 12% Ability to view my comprehensive financial picture 17% 0% Transparent reporting Latin America 0% 27% Frequency and quality of interactions with my financial advisor North America 0% 10% Goal/financial planning 30

33 Heavier usage of digital channels shows why they are emphasized as retention factors What activities do you perform through digital channels today? Client today 89% 78% 68% 51% 68% 41% 53% 39% 42% 44% 42% 76% Latin America 32% 44% North America 26% 15% However, there is one notable exception to this trend: viewing portfolio performance. This could be the result of wealth managers limited ability to provide performance through digital in Latin America. Interestingly, clients in Latin America suggest their usage patterns will change, with typical digital activities decreasing (like viewing account information and conducting transactions) and more complex interactions increasing (like accessing research and advice and opening accounts). View account information Conduct transactions Access research and advice Track goals Collaborate with financial advisor View portfolio performance/ analytics Open accounts Interact through social media Client in 3 to 5 years 78% 84% 80% Latin America North America 58% 58% 56% 46% 42% 41% 37% 44% 42% 47% 46% 32% 15% View account information Conduct transactions Access research and advice Track goals Collaborate with financial advisor View portfolio performance/ analytics Open accounts Interact through social media Closing the gap: 2014 Wealth Management Survey 31

34 Still, traditional channels are relied upon most for interacting with advisors and their firms Differences across channel usage seem to reflect some cultural differences, which wealth managers should consider in developing their offerings and strategies for Latin America. Latin American clients prefer the personal, live interaction of the telephone vs. the formality and low-touch nature of . They also tend to make greater use of out-of-branch interactions than their North American peers, which may be driven by some of the challenging elements of life in large Latin American cities (e.g., mobility, security) but also by the potential offshore nature of some of the relationships. In this sense, the common thread across regions from a channel perspective is the importance of making multiple channels available to clients for them to conduct their business and interact with advisors. Client Through which channels do you most frequently conduct transactions or obtain other services from your financial advisor? Today 74% 34% Telephone 58% 51% (in branch) 26% 20% 26% Firm website 10% (out of branch) 21% 20% Smartphone 16% 56% 16% 7% Tablet Latin America 11% 24% Online North America 0% 0% Direct mail In 3 to 5 years Latin America North America 63% 58% 51% 56% 34% 21% 20% 37% 10% 16% 22% 11% 5% 7% 11% 27% 5% 0% Telephone (in branch) Firm website (out of branch) Smartphone Tablet Online Direct mail 32

35 Client Through which channels do you most frequently communicate with and receive information from your financial advisor? Today 74% 68% Latin America North America 44% 53% 54% 37% 32% 15% 17% 16% 16% 17% 5% 12% 5% 15% 0% 2% Telephone (in branch) Firm website (out of branch) Smartphone Direct mail Online Tablet In 3 to 5 years Latin America North America 58% 46% 37% 54% 32% 12% 53% 22% 5% 68% 5% 20% 0% 10% 5% 15% 0% 2% Telephone (in branch) Firm website (out of branch) Smartphone Direct mail Online Tablet Closing the gap: 2014 Wealth Management Survey 33

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37 Conclusion As this survey illustrates, key macro-trends are driving significant changes across the two key constituencies to whom wealth managers cater. To successfully capitalize on the opportunities presented by this changing landscape, firms will need to change and adapt their operating models and strategies while dealing with the pressure of increasing regulation and decreasing margins. Some of the key elements of success that we have identified in our work with several clients across the industry are: Consistently understand and address client needs. Key insights surfacing from this survey include the disconnects between clients and advisors, showing opportunities for improvement in terms of understanding clients needs. Firms should implement mechanisms to consistently and continuously obtain direct client feedback, in addition to relying on advisors for understanding client needs. Financial institutions are increasingly relying on data and analytics throughout the client life cycle to improve the client experience, acquisition and retention. This is especially relevant given the changing demographics of clients and the generational wealth transfer trends. Make talent development and succession planning a strategic priority as boomer advisors retire and the next generation of advisors takes charge. Given the heightened demand for new talent, firms need to appreciate that breeding success with the new generation may require a different model from that of their predecessors. Rethinking new forms of partnership models, branch support allocation methods and incentive payout structures, among other things, can be used to increase the success rate of the next generation of advisors. Shift toward a goals-based planning approach that guides the relationship between clients and advisors across the complete client life cycle. As seen here, although clients seem to understand the significance of goals-based planning, it does not drive how they conduct business. The key is to offer a truly differentiated approach that clients can understand and relate to and that is leveraged across the client ife cycle to address their changing needs. Shifting the conversation from How did I perform against the benchmarks? to How did I perform against my goals? should be a key component of this approach. Develop and execute against a comprehensive channel strategy based on coordination and consistency across all channels. Though clients have a strong preference for traditional channels, it is also true that they leverage digital channels for many of their interactions with wealth managers. This enhanced distribution and servicing platform creates new opportunities to interact with clients and gain insight into their preferences and needs. But capitalizing on these opportunities requires a well-coordinated and consistent channel strategy, aligned to the expectations of various client segments. Support the strategy with a nimble and highly flexible operating model. As we learned from last year s survey, most firms across the industry have been investing heavily in streamlining and replacing their operational and technology platforms to capitalize on all these opportunities while also meeting regulatory requirements. As this process continues, firms need to make platform flexibility a key operational requirement to cope with the continuous change and evolution of the business and regulatory environment. Successfully delivering and executing against these elements will enable firms to transform the uncertainty inherent in the evolving landscape into sustainable business growth. Closing the gap: 2014 Wealth Management Survey 35

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39 EY contacts Marcelo N. Fava Principal Ernst & Young LLP Financial Services Nalika C. Nanayakkara Principal Ernst & Young LLP Financial Services Juan Carlos Lopez Executive Director Ernst & Young LLP Financial Services Closing the gap: 2014 Wealth Management Survey 37

40 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the United States. For more information about our organization, please visit ey.com. EY is a leader in serving the global financial services marketplace Nearly 43,000 EY financial services professionals around the world provide integrated assurance, tax, transaction and advisory services to our wealth and asset management, banking, capital markets and insurance clients. In the Americas, EY is the only public accounting organization with a separate business unit dedicated to the financial services marketplace. Created in 2000, the Americas Financial Services Office today includes more than 6,900 professionals at member firms in over 50 locations throughout the US, the Caribbean and Latin America. EY professionals in our financial services practices worldwide align with key global industry groups, including EY s Global Wealth & Asset Management Center, Global Banking & Capital Markets Center, Global Insurance Center and Global Private Equity Center, which act as hubs for sharing industry-focused knowledge on current and emerging trends and regulations in order to help our clients address key issues. Our practitioners span many disciplines and provide a well-rounded understanding of business issues and challenges, as well as integrated services to our clients. With a global presence and industry-focused advice, EY s financial services professionals provide high-quality assurance, tax, transaction and advisory services, including operations, process improvement, risk and technology, to financial services companies worldwide Ersnt & Young LLP. All Rights Reserved. SCORE no. CK (ORG ) NY ED 0617 (CVR) This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com