War for Young Rich Could Be Won by Webcam

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Joe Mont

More than $2.2 trillion in assets could be in play among wealthy investors under 50, according to Cisco’s Internet Business Solutions Group, the company’s global consultancy. Its advice for financial services firms that want some: a renewed focus on video technology and social media.

There is no denying Cisco, with its focus on video and conferencing technology, has a horse in the race. But it makes the case that advisers need to make a better value proposition to younger generations that grew up amid constantly evolving technologies.

“Success with the wealthy under-50 segment will require a new strategy involving tighter, more valuable interaction,” says Jorgen Ericsson, a Cisco Internet Business Solutions Group vice president and global lead for its Financial Services Practice. “The battle for the wealthy investor has only begun.”

“Wealthy under-50 investors expect that the technologies they are already using in their everyday lives will be available to help them better manage their financial lives,” adds Robert Waitman, director of the Financial Services Practice.

IBSG recently surveyed more than 1,000 wealthy U.S investors — those with at least $500,000 in investable assets. It found that, of these respondents, 63% said they were willing to move some of their assets to a firm “that provides enhanced capabilities, such as high-definition video meetings in the office.” Additional technology-enabled capabilities include home-based video (such as webcam and high-definition video conferencing), tablet PC and video messaging.

Technology alone won’t attract investments, the study found, but can help return confidence to skeptical investors.

With the hangover from the financial crisis lingering, Cisco found that wealthy investors of all ages remain concerned about their financial future and are more skeptical about the efficiency of the financial markets. Fifty percent of wealthy investors who have not retired expect that they will be forced to delay their retirement due to the poor performance of their investments, with 18% expecting to delay by five years or more.

“One thing that surprised us was that 37% of this wealthy population felt that markets were not a level playing field, where an individual investor really had a fair chance at succeeding,” Waitman says. “How much money do you actually have to have now to buy a piece of Facebook from Goldman Sachs? There is certainly a sense that the individual investor doesn’t have the chance to participate in the kinds of investments that others can, and I think that is reflected in the fact that over a third of this group of investors feels that this is not a fair place to play.”

Wealthy investors under 50 tend to spread their assets across multiple firms and financial advisers: 80% of those surveyed by Cisco have their assets at more than one firm, with more than a quarter spreading investments to four firms or more. In general, 30% said they have doubts about the fundamental value proposition of an adviser; 49% said the fees charged by financial advisers are too high and 40% said they believe they can get better results on their own.

“It was surprising to us to see the number of people who have no financial adviser,” Waitman says. “They don’t think the adviser can necessarily beat the market, so what are they paying for?”

Wealthy investors under 50 constitute a significant opportunity — and a potential challenge — to financial services firms, according to Cisco’s study. They represent 29% of total wealthy investors in the United States, and their importance to financial services firms will continue to grow as wealth is transferred from older generations. Sixty-seven percent expect to get a substantial gift or inheritance in the next 10 years; 27% have switched advisers in the past two years (vs. 10% for older clients) and 32% are likely to switch financial advisers in the next year.

“These people are only going to get older, so they are really moving into the sweet spot, the most wealthy portion of their lives, and they are going to be more and more important,” Waitman says. “This age bracket tends to be more involved and spend far more time managing their investments than older clients. Thirty eight percent want to interact with heir financial advisers at least on a weekly basis, compared to 7% of older clients. That’s a huge difference in the amount of interaction and attention that they want from a financial adviser. They are not in the position of a retiree who has largely a fixed-income portfolio, where it doesn’t matter too much what the market does. These are people who are pretty much in it, and they are demanding more.”

This demographic is also more likely to switch financial advisers than older investors and are technologically savvy and “demand faster and more convenient ways of interacting” that go beyond in-person meetings, phone and email.

“Being Cisco, we obviously wanted to explore how open they were to new technologies,” Waitman says. “All of these people have money, that’s not the issue. The issue is that they are comfortable with, and using, technology in their everyday lives and therein lies something firms can take advantage of.”

“The idea of an investor going into their wealth manager’s office and sitting down with their adviser and using high-definition two-way video capability to connect with other experts — their accountant, their lawyer — as well as other experts at the firm,” Waitman says. “Sixty-three percent of the group were interested in that and, furthermore, they said that if a firm had that capability that they would move their assets.”

More than half also said they would like to get video messages relevant to their investments on their PC or mobile device; 55% are interested in using a tablet PC to interact with their financial adviser or firm; 66% are interested in joining social investor communities and 55% have used social networks for investment advice.

The willingness of wealthy under-50s to move assets to access technology-enabled capabilities translates into a $18.6 billion revenue opportunity for North American financial services firms, the Cisco study concludes. When older investors are included, the figure jumps to $28.6 billion.

“These investors don’t want to always go and have a sit-down meeting with their adviser, or even a phone call [that] is somewhat time-consuming,” Waitman says. “These are people who are used to using these technologies every day. They are used to getting short video clips on things that matter, and if they not getting it from their adviser they will get it from someplace else. This is something that firms need to think about.”