Asia’s tech-savvy wealthy place more importance on digital tools than anywhere else in the globe, but the region’s wealth managers lag the rest of the world in digital capabilities, according to Capgemini’s Asia-Pacific Wealth Report 2016.
The study found 85.9% of the region’s high-net-worth individuals (HNWIs) consider digital maturity an important factor when deciding to allocate assets to wealth managers, far above the 72.4% rate for HNWIs in the rest of the world (RoW).
The region is home to 5.1 million HNWIs with the total pool of wealth totaling $17.4 trillion in 2015. However, its rich prefr to park their wealth in cash or a retail bank account (32.6%) than hold it with a wealth manager (30.6%).
The figures falls further in Japan, where only 23.7% hold assets with a wealth manager while most others hold it in a bank (27%) or as physical cash (17.8%), the study revealed.
On the other hand, their trust in wealth management firms rose to 76.2% in the first quarter of 2016 from 63.7% in the year ago quarter. Among Japanese rich it grew to 47.3% from 24.9% in the year ago period.
Capgemini head of banking and capital markets Anirban Bose said: "Such contrasting behavior — increasing trust and a lower proportion of assets under professional management — points to an opportunity for wealth management firms to leverage digital capabilities. With a large majority of Asia-Pacific wealth management clients outside of Japan saying that digital maturity is key to increasing or decreasing assets with their firms, it is clear that improving digital capabilities can translate into client satisfaction, increased assets under management and reduced wealth manager attrition."
In India, the report added, 96.2% of rich are likely to consider their primary wealth management firm’s digital maturity as a critical parameter in their decision to allocate assets over the next 24 months. In China and Indonesia, the numbers reflect 95.5% and 95.1% respectively.
“The greater propensity of Asia-Pacific (excluding Japan) HNWIs to not put assets under management or walk away from their wealth managers also underscores their low tolerance for sub-par digital tools. Often self-made and independent, Asia-Pacific HNWIs are accustomed to accessing information at their own discretion, using self-service digital tools, and they expect the same high level of access to their wealth-related data,” authors of the report opined.
In the report, Capgemini’s DigiWealth Maturity Assessment Model shows Asia-Pacific wealth management firms scored as low as 2.8 on a scale of 5, for delivering a ‘digitally-enabled client experience and strong client capability over digital channels’.
The study found that firms also risk losing wealth managers in search of competitors that offer better digital capabilities. Nearly half (45.5%) of the Asia-Pacific (excl. Japan) wealth managers said they would potentially leave their firm for lack of strong digital capabilities against 40.2% in the RoW. For under-40 Asia-Pacific wealth managers (excluding Japan), this rose to 50.6%.
Wealth management firms, in addition to the demand for digital maturity, also face rising competition from a wide range of automated advisories — online-only firms that offer automated portfolio management services. Asia-Pacific HNWIs (excluding Japan) are highly likely to turn to automated advisory services, with 79.6% considering the prospect, compared to only 64.7% in the RoW.
However, only 20.2% of wealth managers in Asia-Pacific (excl. Japan) said their clients would consider using automated advisories, as against the 32.8% of wealth managers in the RoW.
The report futher noted that wealth management firms cannot be complacent while innovative competitors offer game-changing services.
“To counteract unfavorable trends and move up the digital maturity curve, they should consider prioritizing a comprehensive digital transformation roadmap that has support from the top leadership. Too often, funds and effort that could be spent on digital modernization end up going toward investments that prolong business as usual practices which provides a further advantage to innovative competitors,” it said.
The report concluded that elements of the roadmap must include Big Data opportunities, FinTech partnerships, holistic return models for investments in digital programs, engagement of wealth mangers in such programs, and a culture of innovation.