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 his or her 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? 

Ahead of the Endowus Wealth Conference, we take a closer look at their profile and their needs in this teaser of the Endowus-KPMG WealthTech: Looking Ahead report.

<medium-btn-link>Download the report here<medium-btn-link>

‍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 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 — whether held in cash, CPF, or SRS — by investing in globally diversified, intelligent, low-cost portfolios seamlessly. To get started, click here.

<divider><divider>

This article is for information purposes only and should not be considered as an offer, solicitation or advice for the purchase or sale of any investment products. It is recommended that you seek financial advice as to the suitability of any investment. Whilst Endow.us Pte. Ltd. (“Endowus”) has tried to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies or typographical errors.

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.  

Investment involves risk. 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. Past performance is not an indicator nor a guarantee of future performance.

Please note that the above information does not purport to be all-inclusive or to contain all the information that you may need in order to make an informed decision. The information contained herein is not intended, and should not be construed, as legal, tax, regulatory, accounting or financial advice.