The old glossy image of financial consultants conducting business on the golf course followed by a glass of champagne at the club, as an excuse to chat about investments, may now only exist in the metaverse. Today, the work of financial consultants and private bankers is more challenging than ever. We have experienced over two years of a pandemic that has affected the way we work and interact with each other, but at least the financial and stock market landscape was relatively calm. And now, as if that weren’t enough, between the aftermath of the pandemic and the war in Ukraine, we are also facing what appears to be a bear market.
Recent geopolitical events and the macroeconomic environment add concerns for the future and have begun to erode the gains made by portfolios that have benefited from stable growth and low volatility for over a decade. The scenario is so uncertain, and the changes of such monumental scale, that even the best analysts struggle to envision the contours of the near future. Since there are no vaccines or masks to protect our financial health, the support of a good consultant becomes more necessary than ever.
Perhaps it no longer makes much sense to talk about Wealth Management; today, it is more accurate to speak of financial wellness. Savings are just one component of a broader aspect that influences people’s overall well-being. Money and wealth are part of a general condition that allows us to live well or face an uncertain future, but they alone are not enough to make us happy, and their value differs for each of us. Some people prefer to live peacefully and focus only on the future of their loved ones, while others, despite being very wealthy, think about launching rockets into space and buying social networks.
We all know that it is not the best financial or insurance product that influences the dynamics of the industry, but rather the ability to be close to the client, build loyalty, and establish a long-term trust-based relationship that makes a difference. This is why networks compete to secure the best professionals.
There are different ways to measure people’s financial well-being. For example, in Singapore, OCBC Bank built a Financial Wellness Index in 2019 to assess the financial health of its customers based on 10 indicators, ranging from savings capacity to protection from financial and health emergencies, as well as retirement planning, including aspects such as a speculative approach or gambling tendencies.
The Dutch financial giant Aegon also launched a study in 2021 that evaluates the behavioral and psychological impacts on people’s financial well-being. From this study, it becomes clear that everyone’s financial well-being is crucially dependent not only on the size of our wealth but also on our values and life goals.
In the era of customer-centricity, it is evident that the old customer segmentation based on wealth or demographics is no longer sufficient to provide the level of personalization and customer understanding necessary for advisors to make each client feel special and satisfied.
The approach we have chosen at Wealthype is straightforward: our Financial Wellness Index involves a simple (yet sophisticated) profiling that transforms existing data into a detailed “customer identity card”. This card includes not only the traditional wealth and economic characteristics and the most relevant financial and insurance product needs but also more psychologically and lifestyle-oriented aspects such as digital inclination, psychological risk perception, sensitivity to ESG issues, or propensity for cultural events and charity. If we were to express it in a mathematical formula, we could say that the Financial Wellness Index is calculated as follows:
By applying this formula, we can “map” the client’s current situation in terms of products based on their profile attributes. A periodic portfolio check-up is by far the most requested service by clients. To what extent does the current portfolio meet the specific needs and characteristics of each individual client?
The level of Financial Wellness for each client can be measured on a scale from zero to 100, and the next step is to demonstrate how adding specific bank products or services to the current portfolio can enhance the client’s financial well-being.
For example, we can simulate how the absence of a specific financial or insurance product would impact our wealth when specific events occur. Think about products such as long-term care policies or the opportunity to invest through a systematic investment plan (SIP) for a slightly anxious client who fears market fluctuations. Or consider how important it can be for someone deeply concerned about climate change, like many women and young people, to have certain ESG-focused products in their portfolio. Our investments should reflect our values, who we are, and who we want to be.
Our Financial Wellness Index is the core of an advanced portfolio construction engine that combines personalized and dynamic portfolios with investment and insurance products. This approach can be combined with traditional portfolio optimization from a lifecycle perspective.
Over time, the strategy performs rebalancing based on trigger events (regularly, for example, every n months) or during check-ups with the relationship manager.
The positive effects of such an approach are manifold, both for clients and for the bank or network as a whole:
Tools for personalizing advice based on data analytics offer the opportunity to build closer relationships with clients based on trust, transparency, and quality of service. They also improve the work of networks with highly positive economic consequences. In essence, the focus is on the long-term value of the client rather than short-term commissions.
And it is worth remembering that satisfied customers are always more loyal customers.
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