With more clients switching advice providers, an EY leader underscores why client retention is vital for financial advice firms.
A recent paper from the professional services firm, titled the 2024 EY Global Wealth Management Industry Report, unpacked why wealth managers need to outperform on organic growth strategies.
As market competition heightens and margins fall, sustainable organic growth remains a “key strategic imperative” for wealth managers, the report wrote.
“The goal for wealth management firms should be to develop a multidriver growth model that improves the profitability of existing clients, strengthens client acquisition and retention, and increases levels of cross-sell.”
This is in contrast to advice licensees that indicate their preference for growth via M&A. Recent acquisitions have included the Count-Diverger merger, four Sydney-based advice businesses that merged to create Esencia Wealth, and the merger of two Victorian advice practices.
However, any M&A activity involves time and cost which can be hard to justify at a time when IT and compliance is already causing a hole in firms’ budgets. With M&A out of the question for some smaller firms, this places the focus on client retention and organic growth.
Speaking with Money Management, Elliott Shadforth, EY’s Asia-Pacific wealth and asset management leader, shed more light on why organic growth is so important for advice practices.
“The importance of getting organic growth on track is just as important as going down the path of M&A,” he said.
In particular, Shadforth identified the client onboarding and retention process as an area needing improvement due to clients being more willing to switch providers nowadays.
EY’s 2023 report previously discovered that 57 per cent of wealth management clients in the Asia-Pacific region expect to either move assets, add new providers, or switch outright during the period by the end of 2025.
“The key thing is the client experience and interaction, as clients have really got the taste for changing providers. Historically, the market was that if you found a provider then you’re with them for life. Now, clients are more willing to test the waters with other advisers and other firms. The concept of having a single firm providing all your services is less common.
“What people are looking for these days from their adviser has changed, as they’re now realising they’re unlikely to get what they want across the spectrum of their journey from a single provider,” the EY leader elaborated.
The real challenge for advisers now is providing a positive onboarding experience and retaining those clients over the long term, he believes.
One way to do this is through “hyper-personalisation”, the 2024 EY report wrote. It called for greater customisation when it comes to advisers’ client service models as client preferences shift towards greater personalisation.
Recent recommendations from Business Health have also unpacked how to strengthen client satisfaction and ensure a successful onboarding experience post-M&A activity.
Shadforth continued: “The key thing for advisers is understanding where you fit in your client’s needs and then really focusing on how you can retain that client long term.”
Implementing a balance of digital assistance through technology alongside human interaction will be vital, he added.
“I don’t think digital [tools] in isolation can transform the client experience, but it plays a really valuable role.”
Advice M&A expected to continue
Looking ahead, the EY leader projected further merger activity in the Australian advice market among existing larger players will continue nonetheless as they seek to reinvent themselves.
“We expect continued M&A as the old brands reinvent themselves due to the new advice market.
“Post-royal commission, we’re seeing the next phase of new players in the market who have started fresh with new technology, new fee structures and new client relationships. These new players are looking at organic growth,” Shadforth observed.
In other cases, smaller practices are “more palatable” and easier to integrate than another large financial advice firm, and use less capital and resources.
