As the U.S. House and Senate make last-minute changes to the final wording of the financial-overhaul bill, one thing seems fairly certain: U.S. banks and brokerages stand to lose billions of dollars in revenues as a result of the new rules aimed at providing additional safeguards for consumers on investments and other products.
For banks and brokerages focused on private client/wealth management services that are looking to make up for anticipated revenue shortfalls triggered by the legislation, customer segmentation and customized communications with affluent clients can play critical roles in enabling them to profile specialized customer groups and to define product and marketing requirements for distinct customer sets.
Traditionally, wealth management advisors have taken a one-to-one approach in managing customer relationships. But that can be extremely daunting, given that the typical advisor manages investments and relationships with 200 to 400 clients on average. That makes it difficult for them to cater to individual customers, most of whom require reassurance and guidance in this topsy-turvy economic climate.
In the face of these existing and near-term challenges, wealth management advisors are encouraged to apply customer segmentation strategies and supporting technologies to help them to logically group affluent clients into specific quadrants based on common characteristics, investment requirements, and product needs. Such tools can also help advisors to precisely define unique strategies for different customer groups and to align support for them more effectively.
Changing the mind-set
Taking a more customer-centric approach to wealth management execution strategies can enable banks and brokerages to more accurately distinguish the investment products and services demanded by prosperous clients. By meeting customer needs more effectively, advisors can gain additional trust with well-heeled clients, which in turn can help open up profitable cross-sell and upsell opportunities with them.
But to obtain those types of favorable business outcomes, banks and brokerages need to shift away from traditional product-centric wealth management strategies to more of a customer-centric approach. That begins with listening closely to the needs of high-value customers and tailoring products and support to meet and even exceed their expectations. By going above and beyond, advisors will see improvements in customer loyalty and increased customer lifetime value, both short and long term.
They're also more likely to see an uptick in referrals from happy customers. According to Financial Planning magazine, 60 percent of financial planners receive one to two high-value referrals per month, while 30 percent of planners obtain three to five referrals per month.
Making it happen
In order to effectively execute the kinds of cultural and process changes necessary to transition to a more customer-focused approach, banking leaders must carefully consider how their wealth management businesses will need to operate going forward, particularly as the forthcoming regulations and compliance costs eat into margins.
The Hartford recently outlined its go-forward business plan, including the development of a customer-centric business strategy for its wealth management business. In announcing these efforts, The Hartford described how the population of U.S. residents ages 65 and older is expected to grow 36 percent by 2020, presenting "significant opportunities" for the company to provide retirement savings, estate planning, and income needs of consumers and small business owners.
One recommendation for helping to satisfy customers' needs is by applying a multichannel approach for customer support, including voice, IVR, Web, chat, and mobile. Studies have shown that a company's most valuable customers tend to use multiple channels for support.
Banks and brokerages can leverage technology in other ways, like monitoring and gauging customer sentiment and investment preferences through the use of analytics. These tools can also help advisors to anticipate customers' future investment and services requirements.
The current financial climate is a worrisome time for both financial planners and their high-net-worth customers. But by taking a more customer-centric approach to product planning and service delivery by using a well-conceived segmentation strategy, customers and advisors alike stand to collectively reap the rewards.
About the Author: Orkun Oguz is a partner of Peppers & Rogers Group. Contact him at ooguz@1to1.com