Wealth managers which fail to offer today’s younger, more tech-savvy high net worth demographic the opportunity to interact with their advisors via video conferences and the like face losing nearly 60 per cent of their clients, the technology giant Cisco has warned.

Having surveyed 1,200 HNW clients in the US, UK and Germany, Cisco found that 57 per cent of wealthy US investors under the age of 55 would consider moving a portion of their assets to a firm that offers video interaction with advisors and other experts if their current provider did not.

Echoing numerous other studies which have revealed similar findings, Cisco's second annual wealth management report found that younger clients are far less loyal to wealth management providers and much more open to taking their business elsewhere. The survey found that 20 per cent of younger investors plan to change their primary advisor over the next year, contrasting with just 5 per cent of older clients saying the same.

Cisco’s findings take on even more resonance when we consider that wealthy investors aged 55 and younger already represent approximately 40 percent of global investable assets, and this share will increase as they age and inherit assets from older generations during the next 10 years. Cisco estimates that the gap between the technological interaction younger clients want and the provision they are actually getting represents a $31 billion revenue opportunity for wealth managers ready to move with the times.

Cisco believes that technology, and social media and video channels, are an essential means of wooing younger HNW individuals – clients who want more frequent interaction with their advisors and who see collaboration and video interaction as key to developing a trusted advisor relationship.

It perhaps used to be the case that wealth management firms saw technologies like video interaction as a mere “nice to have”, but they are increasingly waking up to the fact that wealth management clients can be among the most technologically-minded individuals of all, particularly if they are entrepreneurs.

In fact, 49 per cent of the HNW individuals polled by Cisco consider themselves to be “early adopters” or in the “early majority” in using new devices and technological services. As it stands now, a massive 71 per cent of wealthy investors under 55 use a computer to check or manage their investments at least once a month and 36 per cent say they do this on a daily basis. Meanwhile, 28 per cent of younger clients use a smartphone to keep an eye on their portfolio and 24 per cent use tablets.

Video demand

When it comes to how younger clients prefer to interact with their advisors, Cisco identified a very strong desire for video capabilties – unsurprisingly, considering how embedded in everyday life this is since the advent of Skype and similar services. The firm found that around half of younger wealthy investors have used some type of video channel to "meet" with friends, family, or colleagues in the past year. Crucially, 61 per cent of respondents said they want the option of video meetings with their advisors in addition to traditional face-to-face meetings. To a large extent this seems to be a logistical issue: more than 20 per cent of wealthy investors in the US and UK live more than 50 miles from their financial advisor, making face-to-face meetings somewhat impracticable on a regular basis.

A failure to take note of younger investors’ strong interest in services that incorporate visual, virtual, social, mobile, blog and webinar activities could cost wealth managers dearly - regardless of whether they are serving US or European clients - according to Cisco.  While in the US 57 per cent of clients under 55 would consider taking their assets to a firm with a better technology offering, in the UK and Germany the corresponding figures are 51 and 54 per cent respectively.

Stemming outflows

Cisco believes that video and collaboration technologies are key to engaging the next generation and stemming the attrition of assets which so often occurs when wealth transfers. It also believes that technology is key to building up trust between advisors and younger clients - which is currently woefully low. It is in fact well documented that younger investors often prefer to turn to their peers for financial advice and Cisco’s study bore this out: shockingly, only 29 per cent of the under-55 group in the US and 26 per cent in the UK trust the investment advice they receive from financial advisors more than that of their fellow investors.

Cisco believes that better technology provision isn’t just about stopping clients from walking out of the door, but is also key to tapping currently unmanaged wealth and also deepening existing relationships. Looking at the US, some 27 per cent of wealthy under-55s don’t have a financial advisor at all, but two-thirds of these people would consider entering a wealth management relationship if the circumstances were right. Meanwhile, the fact that clients tend to spread their wealth around a number of providers means that there is a real opportunity for forward-thinking firms to win business away from their competitors through using technology to provide a better client experience. Cisco found that in the US 77 per cent of clients have assets run by more than one firm, while 36 per cent have investments with four or more firms. The picture is similar in the UK and Germany; in the former the average number of wealth management relationships is over four, while in the latter it is close to three.

"The rapid adoption of technology is quickly changing the game for interactions between wealthy investors and their financial advisors. With the right technology-enabled approach, financial advisors can create a significantly improved customer experience resulting in more frequent and higher quality interactions that will boost customer loyalty and that will even attract wealthy investors who currently do not have an advisor,” said Jörgen Ericsson, vice president and global lead, Financial Services Practice, Cisco Internet Business Solutions Group.

Of course it is also worth noting that enhanced technology provision isn’t just about attracting and retaining the business of younger clients. A recent study produced by Scorpio Partnership and SEI revealed that in fact the latest technologies are a topic close to the heart of HNW clients generally, and this becomes more pronounced the higher up the wealth scale one looks. The firms found that on average 56 per cent of HNW clients believe their “engagement with the internet and digital technology” has contributed to their ability to create wealth, with this figure rising to 76 per cent for clients with a net worth over $4 million. Even more strikingly, on average 77 per cent of HNW individuals believe that the internet and digital technology will be foundational to their success over five years, while the corresponding figure for the wealthiest clients is 92 per cent. Internet reliance also looks set to rise across the board: the study of 3,477 respondents from across the world found that on average HNW individuals expect their internet useage to have risen by 21 per cent in five years’ time.