The key hooks of a wealth management service that is crafted around technology are the lower costs and transparency it can offer for many - rather than the technology itself – says Kyle Ryan, executive vice president at Personal Capital.

The second part of this series about new wealth management businesses aiming to create a “high-touch” service for the mass affluent discusses new ways of communicating with clients, and the potential this has on the value chain. The first part can be viewed here.

The key hooks of a wealth management service that is crafted around technology are the lower costs and transparency it can offer for many - rather than the technology itself – says Kyle Ryan, executive vice president at Personal Capital.

“Everything else – everything – has shifted towards electronic interaction,” says Ryan.

Because of this he doesn't think clients should be pigeonholed as “young” or “Silicon Valley-esque”. “I have a client who’s 76 years old who only uses the iPad,” he adds.

“In that spectrum what’s unique is we have multiple clients in their seventies who are all retired plus we have employees of Facebook and a number of the other tech companies… We’re very pleased by the broad appeal of what we’re doing.”

The relationship

However the ease of communication facilitated by the technology will be a pull for some. One study by Cisco Internet Business Solutions Group, released in January 2011 and called Winning the Battle for the Wealthy Investor, found that some 63 per cent of the younger investors surveyed said they were interested in video meetings with multiple experts – moreover, these respondents indicated that a lack of these capabilities could prompt them to move assets to another firm.

The study also found these younger investors were an important segment, with under-50s representing 29 per cent of total wealthy investors in the US and holding 37 per cent of assets.

These sentiments were echoed by the World Wealth Report 2011, which said that younger HNW individuals are likely to be more demanding of firms and advisors “in terms of transparency, efficiency, technology and convenience in everyday interactions, as many favor predominantly real-time digital media for communications and transactions.”

 “Our service is no less personal. We’re able to show you what we’re doing with your own data, rather than just telling you face-to-face,” says Ryan.

Personal Capital uses video conferring and screen sharing as ways of talking to clients. In terms of  contact, “you have multiple chat functions on your dashboard, like Apple iChat, non apple equivalents, screen-sharing and video conferencing, so that you don’t have to go into an office.”

However, Ryan concedes that “not everyone understands the appeal of leveraging technology,” and there will always be clients who “want to sit at the mahogany desks.”

Bo Lu, co-founder and investment professional at FutureAdvisor, puts it in terms of a cost/luxury trade-off, saying: “Because of the way financial services are structured today, an advisor has maybe 12 clients and makes enough to support him/herself – then yes you have the luxury, but you also have the cost structure and those who don’t make it [in terms of asset minimums].”

An online personality

There are of course challenges these firms face from being relatively small in the financial services industry, although there has been a notable trend, industry commentators have told this publication, towards a boutique/RIA-based approach to wealth management that gives smaller competitors an advantage. With this said, when targeting the lower-end of the market volumes will be key.

Understandably, both firms intend to leverage their tech savvy when it comes to marketing. FutureAdvisor has an “extensive social media strategy, an extensive blog, original research by our internal team, guest posts and an online ‘notebook’ of the latest financial research,” says Lu.

Its website provides links to writing on matters such as index investing and the historical performance of mutual funds, with links to works by investors and finance professionals such as John Bogle, Robert Arnott and David Swenson, inviting clients to engage with their portfolios.

Personal Capital, meanwhile, is just about to go on its marketing drive and plans to utilize “all different channels available to go directly to consumers.”

Fitting in the wider wealth industry

Lu says his firm sees itself both as a competitor and partner to different sectors of the wealth industry.

“We have met with many financial advisors and the good ones – fee only, no conflicts of interest – are big fans of us,” he continues, “because their clients have huge networks of friends and families who don’t have the asset minimums, so they end up doing ‘pro bono’ work. They are actually recommending us.”

He strikes a more fighting tone on other fronts, saying: “But to advisors who sell loaded funds, annuities, and are ‘product pushers’ then we absolutely are competitive – because we lay bare the fees you’re already paying and [they’re] not often in the client’s interest.”

He believes in many cases, people are paying five-to-six times what they could be paying.

Its clearly very early days but Lu says the feedback is encouraging. In terms of what it aims to deliver for the market, he draws on searches for flight tickets as an analogy. Once upon a time customers had to search a number of different providers’ offerings, whereas “today you can find every single ticket price” in one place. “That kind of transparency, that kind of empowerment we’re really excited about,” says Lu.

“What we see ourselves doing is pushing everyone higher up in the value chain,” explains Lu, an ambition that, if fulfilled, raises the bar even higher for the wealth management history as a whole.