The future of wealth advisory: new tech and deeper relationships

Owen O'Neill, Partner with PwC Canada Strategy&, explains how banks and advisors are balancing the benefits of technology with the needs of an aging client base

The future of wealth advisory: new tech and deeper relationships

This article was produced in partnership with PwC Strategy&.

Talk to Owen O’Neill about the Canadian investment landscape and you will cover a lot of ground. But even as the conversation moves quickly from banks and insurers to advisors, estate planning and so much more, he keeps it all tied together with a few simple yet powerful themes.

The first is that technology is rapidly transforming how we manage wealth. Next is the enduring importance of personal relationships for both clients and advisors. And finally, there’s the understanding that while technology must support these relationships, it can never fully replace them.

“There’s a big push to digitize everything – to leverage the power of technology to make life easier,” says O’Neill, a partner at PwC Strategy&. “But many clients prefer personal relationships. Our surveys of Canadian investors find that even younger investors still really value high-touch engagement.”

O’Neill says resolving the push of new technology with the pull of human needs is just one of the challenging yet fascinating questions he faces as a consultant to some of Canada’s largest financial institutions.

Speaking with Wealth Professional during a recent interview, O’Neill explains how this challenge and others are impacting banks, insurers, advisors, and their clients across the country.

Digital service with a human touch

Technology is transforming how people manage their finances. Almost 8 in 10 Canadians now use digital channels for most of their banking while financial institutions are deploying AI, data analytics and other technologies to streamline operations and improve customer experiences.

O’Neill says many of his discussions today revolve around the need to digitize services – with the success of the online investment firm Wealthsimple just one example of the real and growing demand for the convenience of digital transactions.

“Consider the onboarding of clients,” O’Neill says. “Do we really need to collect 20 different signatures for what should be a very simple digital process?”

There’s a strong demand for Canadian institutions to introduce new technology. But, O’Neill says, this drive to turn everything over to technology inevitably reaches a point where it meets resistance from clients.

“Two-thirds of wealth is held by investors over the age of 55. And a lot of these digital solutions aren’t going to address the evolving needs of older investors.”

As these older investors shift their attention to the transfer of wealth to other family members, implications of potential declining health, or the passing of a spouse, they need to make very personal and emotional decisions. While technology can help with signatures and other details, it can’t replace a relationship with a trusted financial advisor that may go back years if not decades.

This deeply personal characteristic of wealth management is particularly important today -- because Canada is on the cusp of the biggest intergenerational transfer of wealth in the country’s history.

About 70% of private business owners will sell or transfer their companies in the next several years, while the total value of inheritances could top $1 trillion in the coming decade.

This unprecedented transfer of wealth is a pointed reminder that financial services are fundamentally dependent on relationships. And O’Neill says both large institutions and individual advisors are acutely sensitive to the risk of losing these relationships, especially when wealth moves from one family member to another.

For example, when wealth moves from a client to their spouse, the spouse may decide to go with another advisor. “Then the advisor faces the same challenge all over again when wealth is transferred from that spouse to the next generation,” O’Neill says. “It really speaks to the importance of having meaningful relationships where an advisor is able to earn the trust of the entire family.”

Banks versus advisors

O’Neill makes a compelling argument for the enduring importance of relationships in an increasingly digitized world. It’s a theme that resonates beyond the relationships between an advisor and their clients.

It also applies to the relationships between advisors and large institutions.

“We’re seeing a bit of a war for advisors,” he says. “The banks want advisors to be good corporate citizens and to collaborate with partners from other lines of business, while many advisors value their independence and freedom.”

It’s an interesting struggle for influence and both sides have reasonable claims. The institutions provide a trusted brand along with considerable resources to satisfy the end-client’s needs, while independent advisors often excel at cultivating a more personalized relationship with their clients.

O’Neill and his team at PwC spend a lot of time helping institutions and advisors find a common ground.

“Managing these relationships with advisors has long been a tricky dance,” he says. “So we work on building a value proposition that brings out the best of the bank and the best of the advisors in a way that ultimately provides the most advantages to their clients.”

Interestingly, a generational transition of wealth is at play between advisors and institutions in much the same way it affects the relationship between advisors and their clients. That’s because an aging cohort of financial advisors is facing many of the same questions.

“There’s a rising concentration of advisors who are 45 to 55 years old,” O’Neill says. “And much like older Canadians who are thinking about transferring their wealth, these older advisors are increasingly looking to monetize their books before they retire.”

This puts big institutions in a similar position to those advisors who are trying to navigate the transfer of wealth among family members. How does a bank retain the clients of an advisor who is selling their book?

Other themes

Along with the broad themes like technology and an aging population, O’Neill touched upon some other trends that are having an impact on the industry.

Banks for example are increasingly focusing on improving collaboration across different lines of business. This might involve getting some of their commercial banking clients to consider using some of the firm’s wealth management services as well.

Insurers, meanwhile, are in more of a build phase when it comes to attracting the attention of high-net-worth investors. While insurers may not have the most established or mature capabilities at this point, they do have highly developed access to a large pool of customers using their insurance solutions.

Despite the current economic uncertainty, O’Neill says many clients remain focused on growth.

“People seem very optimistic about growth prospects in wealth. Many of the discussions we have with clients are around expansion; whether geographically or into new asset classes and client segments.”

It’s not surprising that discussions about wealth advisory sometimes have more questions than answers.

Influenced by a wide range of factors from across the economy, demography, and human psychology; it’s an industry that faces unrelenting pressure to keep changing in order to keep growing.

However, as O’Neill explains, some things like the importance of trust and meaningful relationships never change. And balancing this desire for continuity against the constant pressure to change will be a challenge for both independent advisors and big institutions for years to come.