A decade ago, critics claimed no one would ever trust new digital banks with their money. Today, there are more than 15mn digital bank accounts in the UK with brands that did not exist 10 years ago.
Monzo, Starling, Revolut — meaningless names in 2014 now hold billions in customer deposits. The illusion of trust being earned over decades is dead in the banking industry. Wealth management is next.
The three phases of financial trust
Trust boils down to three core principles. It is the same repeated pattern of testing, then validation, and finally expansion.
Show me exactly what I pay, when I pay it, and what I get for it. But transparency alone is not enough if you are still treating every customer like they are the same person.
But wealth managers tend to misunderstand what customers are actually evaluating at each phase. Let me break down what it typically looks like:
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Testing: This is the customer checking if something functionally works. In my experience, our high-net-worth customers would often only deposit £20,000 — not because they are testing our investment strategy, but because they are testing whether we will give it back. Some literally withdraw money just to see if the process works.
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Validation: This is the customer checking a platform does what it says on the tin. There is the temptation to classify this as a performance assessment. It is not about performance — it is about clarity: “Can I understand what is going on with my money?”
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Expansion: This is the customer deciding if they trust you with more of their net worth. This is where traditional wealth managers completely lose trust. They think it is purely about return on investment over x number of years. It is not — it is about whether you have proven you understand me as a customer.
Trust is best when it is transparent
Tom Blomfield at Monzo helped to begin the radical transparency competitors then copied. The wealth management equivalent would be not to just publish your returns — everyone does that — but rather publish your real costs.
British fintech company Wise does transparency brilliantly: “If you’re sending £1,000, there’s a charge of 12p, we’re taking this much on the FX rate, your recipient gets this.”
A plus B minus C equals D. That makes me feel good. Others slip 4 per cent under the carpet in things nobody really understands.
Wealth managers could learn from this — show me exactly what I pay, when I pay it, and what I get for it. But transparency alone is not enough if you are still treating every customer like they are the same person.
One size does not fit all
Wealth managers imagine their customer as a single person. It is entirely wrong. Even if you give four advisers the same clients, they will put them in completely different buckets with completely different assumptions about the exact same people.
What shocked me when we started customer research was how incredibly different people’s viewpoints are about investment. Some literally think their mortgage is a savings instrument.
You do not tell them it is not — you listen and learn a lot of people completely misunderstand the mechanism that drives financial products.
Here is the opportunity: rather than forcing people into high/medium/low risk buckets, you can actually construct instruments to give customers exactly what they want if they say: “I need 2 per cent income annually, I want 10 per cent growth if possible, but I hate it when it goes down more than 10 per cent because that freaks me out.”
It is incredibly valuable information, and you can build portfolios around it.
Trust is changing in wealth management. Traditional firms clinging to relationship lunches and prudent corporate bonds are about to discover what bank bosses learned a decade ago: convenience and transparency beat golf club memberships every time.
The wealth management industry is about to get its Monzo moment. Traditional firms are completely missing that customers are actually testing whether you will give their money back, then checking if they can understand what is happening to it, and finally deciding if you actually get them as a person.
And when they finally get around to doing the maths — which they will — those annual overpayments are going to look pretty expensive for a bit of small talk about the weather.
Ricky Knox is executive chairman and founder of Prosper
