COMPETING WITH STEVE JOBS - The wealthy give wealth managers subpar grades for innovation. Seeking solutions that empower and drive success.
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COMPETING WITH STEVE JOBS The wealthy give wealth managers subpar grades for innovation. Seeking solutions that empower and drive success.
In the last decade, historic levels of innovation in the consumer electronics and telecommunications industries have transformed the daily lives of consumers. Game-changing products like the iPhone, Kindle and Facebook have redefined how we communicate, learn and network. The bar of innovation has been set high as we take for granted instant communications, unlimited mobility and access to far-reaching networks. Call it the “Steve Jobs effect.” The genius of Apple’s founder revolutionized how we live and work, and unfairly or not, the rest of the business world will be measured against that benchmark. In the face of these transformative technologies, the wealth management industry does not appear to be measuring up. Recent research about innovation conducted by SEI Private Wealth Management and Scorpio Partnership has revealed that financial services, and more broadly, the professional services arena, get embarrassingly low marks for innovation compared with the glamour industries. They even trail stalwarts like automobile manufacturing and travel & hospitality. To explore these issues, SEI surveyed the attitudes and perceptions of 88 ultra-high-net-worth consumers throughout the United States in November 2011. Retirees, business owners and corporate executives, with average assets over $20 million, shared their views on innovation and the wealth management industry. This innovation survey is the second in a series designed to shed light on ultra-high-net-worth consumers, a demographic group notoriously private and hard to reach. These surveys are among the largest of their kind, providing a rare and revealing window into the belief systems of Americans who have accumulated impressive levels of wealth. In sharing the survey results, our goals are simple. First, we believe wealthy individuals are interested in what their peers think and believe. More importantly, we’d like to help raise the bar on innovation within our own industry. Precisely what kind of innovation should you, the investor, expect from your wealth manager? We’d also like to explore broader questions: Is wealth management truly stagnant? How important is innovation? Should you expect or even desire innovation from your wealth manager? What role does innovation play in the success of wealthy consumers and their families?
Innovation Drives Individual Success
To begin, let’s look at how the wealthy define innovation and the role it plays
in their lives. When asked what words they strongly associate with innovation,
“creativity,” “ingenuity,” and “inventiveness” rose to the top.
Innovation is clearly important to the success of wealthy individuals and
their families. About 95% of respondents say innovation is important or
very important to the future success of their families. How often do 95% of
people agree on anything? One respondent after another cited how technical
innovation impacted their lives.
›› “Communications and information technology have changed the way we do business,” said one respondent.
›› Innovation has “Allowed for greater increases in personal productivity” and “Impacted my success,” said another.
While wealthy consumers trumpet the contributions of innovation in their
broader lives, they’re not seeing it in wealth management, which ranks sixth
among 10 industries listed in the survey (see figure 1). Consumer electronics
and telecommunications get the highest marks, with the medical, automotive,
and travel & hospitality industries following well behind.
Wealth management, while well back in the pack, ranked ahead of education,
insurance, legal and banking.
›› “I have seen little innovation (in these industries),” a respondent said.
Figure 1: Industry innovation
THE MOST INNOVATIVE THEY ARE VERY THEY ARE QUITE THEY ARE NOT VERY
(1 ONLY) INNOVATIVE INNOVATIVE INNOVATIVE VERY HIGH (9-10) HIGH (7-8) MODERATE (5-0) LOW (3-4) VERY L
CONSUMER ELECTRONICS WEALTH MANAGER
TELECOMMUNICATIONS INVESTMENT MANAGER
MEDICAL TRUSTED ADVISOR
(EXCLUDING LAWYER, ACCOUNTANT)
AUTOMOTIVE ACCOUNTANT
TRAVEL/ HOSPITALITY FAMILY
WEALTH MANAGEMENT ATTORNEY
EDUCATION FRIENDS
INSURANCE BANKER
LEGAL 0 20 40 60 80
BANKING % OF RESPONDENTS
0 40 60 80 90 100
% OF RESPONDENTS
1% 1%
5%
18% MORE
38% CONTROL
10%
EMPOWERMENT
29%
OTHER
NEW IDEAS
16% NONE
7% IMPROVED EASE OF USEWhen you look specifically at roles within professional service industries, the
wealth manager gets the highest scores in innovation compared to accountants,
attorneys and bankers (see figure 2). Only 54% of respondents gave the wealth
manager a score of “high” in innovation. The “trusted advisor” and “investment
manager” scored lower but comparable marks. These scores are not bad, but
neither are they inspiring.
Figure 2: Innovativeness of influencers
HEY ARE VERY THEY ARE QUITE THEY ARE NOT VERY
NOVATIVE INNOVATIVE INNOVATIVE VERY HIGH (9-10) HIGH (7-8) MODERATE (5-0) LOW (3-4) VERY LOW (1-2)
WEALTH MANAGER
INVESTMENT MANAGER
TRUSTED ADVISOR
(EXCLUDING LAWYER, ACCOUNTANT)
ACCOUNTANT
FAMILY
ATTORNEY
FRIENDS
BANKER
0 20 40 60 80 100
% OF RESPONDENTS
40 60 80 90 100
% OF RESPONDENTS
›› “In over 30 years, I have not interfaced with an investment professional with innovative ideas.”
An examination of functions within wealth management is also revealing.
Respondents were asked to select the areas in which they had seen the least
innovation. Investment advice, reporting, education and family communications
were identified as the least innovative areas.
Respondent comments are very telling:
18% MORE
38% CONTROL
EMPOWERMENT ›› “Investment advisors continue to manipulate data and cherry-pick time
29%
OTHER
NEW IDEAS periods to show favorable performance results.”
NONE
IMPROVED EASE OF USE
›› “Too much of financial planning advice is based on forecasting a continuation
7%
BETTER RESULTS of recent trends. Little time is spent on ‘what-if’ strategies.”
21% BETTER INFORMATION
These responses suggest something more than a lack of innovation. They hint at
an underlying lack of credibility and objectivity.
So as we review these results, it’s clear that:
›› Innovation is important to the success of wealthy people
›› They expect and are getting innovation from industries like
telecommunications
›› They’re not seeing it within the wealth management and finance industries
›› Any apparent innovation in the industry does not appear to contribute to
what the wealthy investor wants above all – empowerment
Whether or not these perceptions are accurate, and we have no reason not to
trust them, we must concede to the old adage that “perception is reality.”Innovation Missing The Mark
The fact that the wealth management industry appears to lack creativity may be
a function of the industry itself. Much of the innovation over the last 20 years
has been under the proverbial hood and invisible to the people who benefit
from it. Systems and processes that deliver performance reporting, help you
make speedy transactions, and allow you to aggregate your accounts are
largely taken for granted.
At the risk of sounding defensive, ingenuity and creativity can be a challenge in
a highly regulated industry. For example, many financial service providers have
been slow to embrace networking tools like Facebook and LinkedIn due to
complications with the regulators. Even though regulation is in your best interest,
it does suppress risk-taking. Peter Thiel, hedge fund manager and founder of
PayPal, was asked by Newsweek why there has been so little innovation in
business outside of technology. “Everything else is being regulated to death…
with regulation we have become a much more risk-averse society.” 1
It hasn’t helped that recent product innovations have achieved mixed results.
On the positive side, the industry has shown ingenuity in helping consumers
to come to grips with the realities of the twenty-first century. “Distribution”
products, which help regulate spending in retirement; tax-advantaged
investments, which help investors keep more of what they earn; and managed
volatility funds that help mollify risk are all examples of the industry successfully
using innovation to address serious issues.
Unfortunately, for every effective innovation there have been well-publicized
failures. The meltdown and ultimate failure of Lehman Brothers, triggered by
heavy investments in subprime mortgages and over-reliance on leverage, is the
most recent example.
So it’s not that the industry has not tried to innovate, it’s more a function
of innovation missing the mark. As one survey respondent put it, “The
proliferation of hedged funds and structured products knows no bounds, but
perhaps it should.”
1 “The Pessimistic Billionaire,” Newsweek, February 20, 2012, p24.Communicate. Translate. Empower.
So where does that leave you? Where can innovation do the greatest good?
Rather than exotic products,THEYwealthy
THE MOST INNOVATIVE ARE VERY individuals
THEY ARE QUITE areTHEYasking
ARE NOT VERY for things more
(1 ONLY) INNOVATIVE INNOVATIVE INNOVATIVE VERY HIGH (9-10) HIGH (7-8) MODERATE (5-0)
straightforward and simple (see figure 3). To help them track and grow their
CONSUMER ELECTRONICS
financial lives, investors are asking for better information. Not necessarily more WEALTH MANAGER
TELECOMMUNICATIONS INVESTMENT MANAGER
information, becauseMEDICAL the financial services industry tends to swamp them with
TRUSTED ADVISOR
(EXCLUDING LAWYER, ACCOUNTANT)
data and content. Rather, AUTOMOTIVE how you can use innovation to: ACCOUNTANT
TRAVEL/ HOSPITALITY FAMILY
›› Employ just-in-time education strategies to quickly identify and act on
WEALTH MANAGEMENT ATTORNEY
relevant issues and opportunities
EDUCATION FRIENDS
INSURANCE BANKER
›› Empower them to make
LEGAL
good decisions while also guiding the decision-
0 20 40
making process BANKING % OF
0 40 60 80 90 100
›› Translate investment results and other information that speak to goals and
% OF RESPONDENTS
promote rational behavior
Figure 3: Innovation Benefits
1% 1%
5%
18% MORE
38% CONTROL
10%
EMPOWERMENT
29%
OTHER
NEW IDEAS
16% NONE
7% IMPROVED EASE OF USE
BETTER RESULTS
21% BETTER INFORMATION
17%
We cannot overstate the importance of relevance and empowerment. The
financial services industry pumps out way too much information that’s hard to
understand, translate and act upon. For example, if you Google “rules for SEP
IRAs,” the search engine spits out 347,000 hits in 0.17 seconds. Where do you go
with that?
Do Wealth Managers Have The Innovation
Wealthy Families Want?
The short answer is yes, but it is not yet prevalent in the market. Applications
that provide balances or deliver news are commonplace, but don’t go far
enough for the wealthy investor. Innovations that deliver knowledge versus
data and empower better financial decisions are more difficult to find, but fit the
wealthy investor’s definition of “real innovation.” The survey indicates that some
wealthy investors are seeing innovation from their wealth managers, although
it’s not prevalent. Eleven percent of respondents gave their wealth manager a
“very high” score for innovation. So what does real innovation look like? Let’s
take a look at a couple of key areas.Real-Life Advice While simple calculators and iPhone apps can calculate “your number” or compare refinancing terms, they have limited value. The more innovative firms combine technology and people to deliver robust “what-if” analysis to address real-life issues. What if my son gets divorced? What if our foundation makes one large donation every five years? These questions go beyond a simple online calculation. They require a combination of financial, behavioral and decision- making analysis. While still emerging, such innovation allows individuals to play out scenarios, evaluate the consequences of decisions and educate themselves and others on the real risk to wealth preservation. Designer Investments While investment innovation is often described in terms like “exotic,” “exclusive” and “complex,” the next wave will be defined by terms like “objective-based,” “targeted” and “risk-adjusted.” Innovation in the investment area will be akin to the next wave of pharmaceuticals, where we’ll see the end of the one-size- fits-all approach. Designer drugs of the future will be customized to match the patient’s DNA in order to attack a specific cancer or other ailment. Wealthy investors are looking for the same “designer” approach to meet lifestyle, retirement and charitable gifting objectives. Investors will no longer settle for portfolios that let asset classes and their benchmarks dictate objectives and allocation possibilities. The next-generation portfolios will define strategic objectives to meet financial goals like capital accumulation, inflation protection, income, or stability of capital. They will then identify asset classes, sectors and an investment approach that should enable investors to consistently meet their objectives with an appropriate level of risk. Reporting Progress To Goals At a minimum, investors should expect access to balances and transaction records. There are “apps for that,” but “that” is not enough. Some savvy investors are getting full aggregation of all assets, whether liquid, non-liquid, cash, private or publicly held. Beyond aggregation, top firms provide reports that show progress to goals, compare spending and other key metrics, and track performance against personal benchmarks. Some reports allow the investor to see any overlap in portfolios managed by different investment managers. Impactful Education Until recently, financial education and its impact on financial success have been either ignored, left to the family to manage, or poorly executed. There are multiple resources for families to consider, and more innovation is forthcoming. New technologies allow investors to delegate access and share information with their children and heirs. A peer-group approach moves financial education out of the classroom and into a more impactful apprenticeship environment.
Innovation Your Way
Does the wealthy consumer want innovation from his or her financial
providers? Clearly the answer is yes. But just as clearly, he wants it his
way. Innovation must lead to success, which means more than just making
information more timely. We must find ways to use innovation to deliver
relevancy. Consumers at all wealth levels want information they can act
upon and that empowers them to do the right thing.
As one respondent put it, “More information has not yielded better
results.” The desire for relevance and empowerment should drive
innovative thinking. To quote one last respondent, “If (innovation) assists
in providing knowledge and guidance to the individual, it is good. If it
merely creates complex financial products, it’s not so good.”
For more information,
call 1-888-551-7872 or
email SEIPrivateWealth@seic.com
to reach a team member.
To learn more about SEI Private
Wealth Management, please
visit www.seic.com/privatewealth
SEI Private Wealth Management provides individuals and families with an innovative approach to wealth management. Our
approach starts with knowing our clients. To that end, we have sponsored a series of surveys, peer round-table discussions and
other work, all designed to uncover and share the insight of wealthy individuals. The Innovation and Wealth Survey was conducted in
partnership with Scorpio Partnership Limited, an independent research firm.
SEI Private Wealth Management, is an umbrella name for various life and wealth services provided through SEI Investments Management
Corporation, a registered investment advisor.
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