Sharp, savvy, self-directed: the rise of the digital wealth investor

Information is moving at breakneck speed today, pushing financial services and wealth management assuredly into the digital age. 

Today’s digital wealth investor has more at their fingertips, from global news developments to 24/7 access to trading platforms. 

So what defines digital wealth investors, and how will the rise of these individuals redefine the wealth business? 

As we celebrate the success of the inaugural Endowus Wealth Conference held recently, we take a closer look at their profile and their needs in this latest published Endowus-KPMG WealthTech: Looking Ahead report.

DOWNLOAD THE REPORT HERE

‍Autonomy: the digital wealth investor is free to be 

The breathless pace of information transmission means that every individual is now better empowered to make financial decisions. Best of all, more and more information is becoming free to access. 

With the proliferation of online investing platforms, the time it takes for a digital wealth investor to come onboard has been reduced in dramatic fashion. Personal finance is also seen as an integral aspect of everyday life, with mobile apps and features motivating individuals to track how much they spend, save, owe, and invest. 

With more tools and information at their fingertips, the digital investor is comfortably self-directed. This ease of access has cut some of the inertia behind investing. 

That said, the everyday investor will now have more to digest and make sense of. 

Self-directed investors want curated information and expertise that inspire trust. As busy executives, these digital wealth investors are time-pressed and cannot devote hours to analysing information. 

There also exists a large amount of misinformation online, which may be difficult to sieve through without prior knowledge or comprehensive research.

Increasingly, wealth managers will have to provide learnings and insights as an expanded part of their value proposition. By ramping up financial literacy, wealth managers can build customer loyalty and retention by being a trusted resource for investors. 

If done right, digital wealth players will gain greater wallet share from digital wealth investors, who will consequently rely less on paid advice. That’s especially as investors want to avoid the sales pressure and awkwardness often present in traditional channels.

Transparency: the digital wealth investor rejects hidden fees

For a long time now, pricing approaches in wealth management firms have been obscure. Wealth investors have to swallow excess charges embedded in hidden brokerage fees, which in turn result from complex pricing structures. 

As it is, 27% of high-net-worth individuals (HNWIs) surveyed in 2021 said that prevailing high fees and a lack of transparency made them uncomfortable with the fees charged by their wealth managers.

With the rise of the digital wealth investor, wealth managers will face greater pressure for fee transparency, seeing as higher-than-usual fees need to be justified by a tangible value proposition. The advent of digital wealth platforms is injecting urgency to overhaul existing pricing approaches, especially as more matured platforms pivot to a fee-only model. 

Notably, when it comes to mutual fund investors, embedded retrocession fees within retail share classes — known also as trailer fees — contribute to unnecessarily high costs of investing. These commissions breed a misalignment of interests between distributors and investors, as the banks and wealth platforms are driven to promote funds with high retrocession fees, even though those funds may not necessarily deliver profitable returns to the clients or suit them best.

The introduction of MiFID II (Markets in Financial Instruments Directive) has banned such fee arrangements in the European Union. But in Singapore, wealth managers offering retrocession-free institutional share classes in Singapore are few. Endowus is one rare breed that returns retrocession fees back to customers if any is levied on them. Trailer fees make up half of the average total expense ratio of funds available; consequently, Singapore is ranked below average among global markets in terms of fees and expenses.

Digital wealth investors will not hesitate to switch providers if the gap between expected value and high fees remains unaddressed. Just over half of millennials reportedly switched their primary advisory firm in the past year. Of these, 46% did so due to perceived high rates. 

To prevent client churn, wealth managers need to act quickly by either reducing costs to compete effectively or ramping up pricing transparency to illustrate the value-add behind their services.

Personalisation: the digital wealth investor wants a tailored experience

The expansion of digital services means that personalisation is about to get turbo-charged. 

The current convention is for investment advice to be tailored by wealth tiering and other forms of blunt customer profiling. These create pigeonholes for investors, who in fact have unique motivations, circumstances, and experiences. 

At the same time, relying on advisors to provide personalised service and recommendations requires significant time commitment and crafting advice based on an understanding of each individual client. That also makes it difficult to replicate and scale.

With the use of technology, wealth managers can create customisable portfolio views, curated news feeds based on selectable options, and recommendations via push notifications. The pressure will come from digitally savvy investors who are used to the hyper-personalisation in financial services that they have grown accustomed to as part of their daily lifestyles. For  example, streaming services curate recommendations based on media content the user has viewed and liked. The algorithm behind such personalisation is constantly refined, with more data accumulated over time to more accurately predict each user’s preferences. 

Beyond offering curated news feeds, digital wealth platforms can recommend types of investments that are similar to or complement a client’s existing portfolio, with the advice timed to coincide with when the client usually interacts with the app.

Portfolio dashboards can not only curate key information based on the user's activity and behaviour, but also tailor the entire look and feel to the individual’s preferences for the level of detail and presentation style.

There is clear demand: more than 60% of millennials today are willing to pay a premium on personalised products and services. 

With the use of data, digital wealth investors are no longer just defined by age, income levels, wealth, and risk tolerances. Their profiles can be characterised by archetypes — a summation of motivations, preferences, and demographics.

With these archetypes, wealth managers can better profile clients and shape recommendations that are far more likely to appeal to digital wealth investors, who are a clear force to be reckoned with in the investing space. Their dominance is not a matter of if, but when.

With digital wealth platform Endowus, you can plan and manage your money — by investing in globally diversified, intelligent, low-cost portfolios seamlessly. Click here to onboard in less than 10 minutes and start your investment.

<divider><divider>
Risk Warnings

Investment involves risk. Past performance is not an indicator nor a guarantee of future performance. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Rates of exchange may cause the value of investments to go up or down. 

This article is not intended to be relied upon as a forecast or research or investment advice, and should not form the basis of any investment or other decisions. The information contained herein is not intended, and should not be construed, as any legal, tax, regulatory, accounting or financial advice. If you would like investment, accounting, tax or legal advice, you should consult with your own professional advisors regarding your individual circumstances and needs.

The information in this article may not be suitable for all investors. You are responsible for any action that you take or decision that you make in reliance on any content in this article, and you agree that Endowus HK Limited (“Endowus”) is not liable under any circumstances.

No invitation or solicitation

Neither the information, nor any opinion, contained in this article constitutes a recommendation, offer or solicitation  by Endowus or its affiliates to you to buy or sell any securities, collective investment schemes or other financial instruments or services, nor shall any such security, collective investment scheme, or other financial instruments or services be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction. 

This is not intended to be an invitation or offer made to the public to subscribe for any financial product or to enter into any transaction.

Accuracy of Information

Whilst Endowus has made reasonable efforts to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies or errors in any such information. Endowus does not warrant or represent that the information in this article is correct, accurate or reliable. 

Opinions

Any opinion or estimate above is made on a general basis and none of Endowus, nor any of its affiliates, representatives or agents have given any consideration to nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Opinions expressed herein are subject to change without notice.  

Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this article are subject to market influences and contingent upon matters outside the control of Endowus and therefore may not be realised in the future. 

In presenting the information above, none of Endowus, its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances.

This article has not been reviewed by the Securities and Futures Commission of Hong Kong.