Achieving Financial Wellness Through Digitization and Personalization with Nalika Nanayakkara

Jack Sharry: Hello, and welcome to WealthTech on Deck. Thanks for joining us. I have the privilege of speaking with industry leaders each week around issues that inform and advance financial advice, wealth and asset management, retirement insurance and annuities, and technology. These leaders are working on strategies to help advisors investors, participants in firms enjoy better financial outcomes. All around the confluence of digital and human advice. Our conversation centered around challenges and opportunities our guests are grappling with each day, what’s new and exciting where the industry is headed. Today we’re speaking with someone who works with firms, and enabling them to create more efficient and effective wealth management platforms to provide better advice and outcomes for their clients. Nalika Nanayakkara is EY Americas Head of Financial Services, which includes wealth and asset management. She’s the consulting leader there now. Welcome to WealthTech on Deck,

Nalika Nanayakkara: thank you, Jack, appreciate the invite.

Jack Sharry: Now. Okay, let’s start with you telling our audience about your role at EY. I know, it just changed. Congratulations on your promotion. Tell us about what you do and the clients you serve.

Nalika Nanayakkara: Thank you very much. So yeah, I was the head of wealth and asset management until very recently, actually two weeks ago, we work with some of the largest wirehouses. Even banks and insurance firms converging into the wealth and asset management space. Our focus is really helping our clients acquire new clients retain the existing clients, and deliver cost effective service in this using the latest technologies and enhance client experience. So it’s sort of everything that touches the advisor and the clients that were we focus on.

Jack Sharry: That’s great. So how did you get into all this talks more about what you do day to day, or what you will be doing a little bit about? How did you wind up in this field?

Nalika Nanayakkara: You know, I graduated from business school, I joined EY but at the time, if I just had just sold that consulting practice to Capgemini. So I was really with Capgemini. For the better part of my career. I ended up working on the first Advisor Platform at Merrill Lynch as a junior business analyst. So I you know, I was basically writing business requirements and fell in love with the industry and then from there, just continue to stay in the industry work with pretty much all the large wealth and asset management firms have seen the industry go through many interesting twists and turns. And obviously, we had one of those pivot points today. I just think that this is one of the best, most fun industries to be in.

Jack Sharry: I happen to agree with you. I think it not only hasn’t been fun for at least for me for a very long time, multiple decades, I hate to say the actual number. But what I’m especially excited now is how digital and human advice are coming together and know that’s an important part of what you focus on. So what are you excited about now? What are the sorts of things that you work on? Fill us in on? What has you excited to get up each morning?

Nalika Nanayakkara: Yeah, I mean, exciting is definitely the right word, a lot of changes happening in the industry. And I think it’s a lot of opportunities for people who are bold, but also threats for the status quo, right? So it’s really important, I think, to look to the future, and not so much worry about defending what you already have, I would say, you know, a couple of the big changes, it’s even the concept of wealth management is changing, right? So 10-20 years ago, it was traditional asset allocation advice, then it was you know, managing wealth, but now it’s more around wellness, right? So wellness means working with lots of different products, services, third parties bringing sort of financial peace of mind for the client. So that has an impact in how clients look at financial services firms and what they expect from them. And the second is I think digitization. That’s also having a lot of impact. You just mentioned the sort of the meeting point between digital and human. I would say two questions to ask what is sort of what’s the next gen client look like? What do they value? And what will they pay for? Right? I think that’s the ultimate question. So digitization, it’s been great for clients, you know, more convenient, more access, price point has gone down. Competition has gone up, switching costs have gone down. So it’s benefited clients in many different ways. But there are trade offs. I mean, there’s a level of depersonalization, that’s coming, clients are becoming a little bit more self directed, but doesn’t mean the value of advice goes away. It’s really how the advisors role change from sort of the financial advisor to life coach. Our research shows that more than 50% of clients are actually willing to pay more for personalized advice. And what’s interesting is that 80% for next gen clients, right? And so the question is why those advisors who are more self directed, and who are those advisors that are more willing to engage with the advisor build a trusted relationships. And there are interesting micro segments within this group to, for instance, clients who tend to think of themselves as more risk averse, prefer to rely more on the face to face and the human advisor. Same thing with clients who consider themselves lower in financial acumen. And by the way, there’s tons and tons of very successful people that Floyd, you know, belong to those categories. So the question is, as the industry changes as your client profile changes, who are the clients that you want to go after? What are they willing to pay for? And how do you want to build relationships with them? So that’s on the client side. And then on the adviser side, it’s, what is the future of the advisor look like? Right? So number of financial advisors have been declining for years, it will continue to decline. In fact, some of the big buyer houses don’t even disclose the number of advisors anymore, this just happened over the last few months. But the top advisors will thrive, they’ll grow, they’ll figure out how to scale their businesses, how they serve clients using technology, but those at the bottom will struggle or go away. In my mind, this is sort of akin to the travel agent, right? It’s not an extinct break, people think travel agents don’t exist anymore. In fact, there are lots of travel agents. And they’re very good. For instance, we went to Africa right before COVID. And it’s very complicated to kind of figure out your plans over there. Because different countries have different rules, vaccination requirements, you take small planes within countries or you know, in between countries, it’s very complicated. So our traveler, by the way, we could not have done it without our travel agent, you have to be a lot, but they not only kind of handhold you. So when you’re in between countries, you take this six seater small planes, and you have to bring very small soft bags. So our travel agent actually sent us the bag saying, Okay, here’s what you need to pack in, right? To me that kind of value add services I’m willing to pay for. So that’s kind of how I think about advice in general, whether it’s financial services, consultants, travel agents, or financial advisors, you really have to kind of figure out what is your value prop because the good advisors will continue to grow and thrive,

Jack Sharry: to start at the upper end, and also talk about newer investors and how best to serve them. You’re in the C suite talking with the senior level execs at various firms trying to map out their strategy. And it does seem to me that not seems to be I see it every day, that as people have more assets and more complexity they need the kind of currency or service that you just described, and they’re willing to pay for it, frankly, as your studies and others have, have indicated that. So when you’re working with the C suite level, folks, what are some of the things they’re grappling with? What is it that they’re trying to figure out? In a minute, I’ll talk about more the DC, 401k, more entry level, call it investor. I know there’s a whole lot of activity going on there. But let’s start at the upper end with a wealth management firms. One of the things that you have a pretty good idea, but I’d love to hear your perspective on what they’re grappling with, what are they trying to figure out as we enter this new age of digitization and continuity of service? And a much higher degree of complexity?

Nalika Nanayakkara: Yeah, yeah, no, absolutely. Great question. So overall, I would say the industry has benefited from market momentum, which is sort of hidden the lack of organic growth. Right?

Jack Sharry: Really, I didn’t notice that.

Nalika Nanayakkara: Clients new assets, right, it’s easy. So I think top of mind is it’s kind of what I mentioned earlier, what is the true value proposition to clients? Right? So let’s say you’re moving from financial advisors to this planning and wellness world, right? It’s short term cash needs long term goals, philanthropy, trust in estates, and you will may have baby health, right? All these a lot of products, solutions, third parties, they need to come together. So what firms need to figure out is, you know, what is our role in that value chain or ecosystem because it’s a lot of choices for the advisor, and the client, which makes it complex, confusing, but at the end of the day, that’s the value right? If it were easy, you would not need to pay, you know, 50 or 100 basis points to an advisor, right. So what are firms what our clients are grappling with is how do you create a scalable, repeatable process and a great client experience right because this so much product solution, confusion, complexity, But how do you sort of rise above the clutter? Right? So that’s definitely something that our clients are working on. And as part of that is, what is your role in this new ecosystem? I think that’s important. Another thing that keeps popping up is the whole idea of personalization at scale. It’s a great buzzword, right. And but there are now tech platforms that have come a long way and makes it easy to embed, you know, experience, even integrating these multiple third party platforms. So digital marketing, for instance, right. But in order to use these platforms, you have to understand client behaviors, what are clients looking for? So behavioral science has also come a long way. Direct indexing, right? It’s essentially a personal mutual fund, but it’s tax optimization, fractional shares. ESG. Right. So there are platforms that help you streamline this experience and make it very much personalized to an individual client. The other thing we shouldn’t forget about within sort of this personalization team is moments that matter, obviously, you know, you have to kind of prioritize where you invest in one way to invest is, are those moments that matter? What are the moments that really matter to a client where assets can either stay with the firm leave the firm grow the firm, an example I like to use really is that processing, you know, when a client passes on, we’ve seen research over and over again, that 78% of the time, the assets don’t stay with the firm, they end up leaving, right, because advisors CSAs, they only do this once in a while. So they’re not really equipped to do everything efficiently. And you know, the way that benefits the entire family or the entire next generation that’s receiving these assets. So that’s one area, that’s kind of an obvious mistake in the industry, but the advisors who’s able to kind of figure out these platforms figure out how to match their clients behavior with these platforms will be able to scale, right? If you have 1500 clients today, you can probably double or triple that. But the advisors need to embrace technology, I think that has been a bit of a challenge in the industry. And the last thing I will say is consolidation. I mean, there will be mergers, acquisitions, partnerships, driven by a few factors. One is convergence, banks, insurance firms entering the wealth business, everybody wants to get close to the client, increase wallet share. So that’s obvious. And then this scale, right, you need to be a certain size to be able to compete and be profitable. And then I think the continuing threat from big tech, right? I mean, you see partnerships now between big tax and financial services firms, obviously, there’s a lot of regulations that the financial services almost have as a moat. But all that may change in the coming years. Right. So to me, I would say, it’s really what is the true value proposition to clients? How do you personalize that scale, and then the competitive environment and consolidation. So those are a few of the things that our clients are working on.

Jack Sharry: So you just laid out a very complex maze of things to consider if you’re sitting in the C suite, and a term I’ve I’ve embraced and used to describe this trend that we see and you see it across the landscape, particularly the big firms and names in the news that we see Edward Jones, Goldman Sachs, JP Morgan, Morgan Stanley, Merrill, UBS, Orion Envestnet, you know, just they’re all moving toward what I described as comprehensive advice platforms, to enable the adviser to give a better quality of advice, given the complexity. And that’s sort of we’re going to pick an enemy, we’re going to pick complexity as our enemy. I’m assuming you spend an awful lot of time about how to coordinate all the things you’ve just described, not only the individual elements, whether it’s called direct indexing, or it’s called, you know, models, or whatever the products are, we do have an annuity, we do have a tendency in our industry for many years, decades, really, to focus in on one thing at a time, but now, it’s about how you combined it all. So that experience is more efficient for the adviser and more effective for the client. But talk about that. I’m sure you spent a fair amount of time on this topic.

Nalika Nanayakkara: Yeah, complexity is a threat. But it’s also an opportunity, right? Because I think if things were easy, then everything could be automated, and everything would be free. So I think you have to see the opportunity in terms of Yes, it is not easy to integrate everything right? You’re gonna have to make trade offs. I think that’s the key. Every firm has a certain amount of investments that they can make, and they have to prioritize where it goes. I would say the one area where we see I would say the vast majority of our clients investing is in data. So if multiple ways right so one is just having consistent data, right? I mean, it’s interesting, but I was probably saying this 10 years ago, it was trying to figure out, Okay, what’s the definition of a client? What’s the definition of a household? Right? There’s still a little bit of that going on. But now because it’s complex, and there’s lots of product solutions coming from different third parties, now, the consistency is even more important, right? So consistency, integration. But once you have that, then that’s where the value is, right? It’s the insight. So it’s how you take information and change that to insights, and then to practical advice. So you brought up financial planning,

Jack Sharry: if I may, Anelka, and add the critical element, in my view, of implementation. So it’s one thing to have insights, and the advice we have to implement across all the rest of the household portfolio and all that that’s evolved. But by interrupt, I apologize.

Nalika Nanayakkara: No, absolutely. That’s the complexity, right? I mean, small example might be so people, obviously, well, what does that mean? Right? A small example is, let’s say you have children, and you put a certain amount of money into the 529. Every month, right? The information is, hey, you put x percent of your earnings into the 529. Right? That’s the information. But then if you could say, oh, but you know, compared to other people like you, you put x percent less than what is typically put into this, right, so that would be inside, then the practical advice is, well, what should I do about it? Right? Hey, you need to, you know, move assets from here to there, you know that that’s the advice. And then the last piece, as you say, is implementation. What does that look like? How easy is it? Right? Actually, one of our clients said it beautiful. It’s like, yes, you know, we all want, you know, motherhood and apple pie, wellness, all that. But because there’s so much complexity, instead of being a experience, it ends up being a Frankenstein experience, right? So you’re actually, you know, it’s counterproductive. You want to do all of these things, maybe you’re better off just figuring out what are the two or three things you want to do versus all this stuff, and, you know, having a really poor planning experience.

Jack Sharry: So one of things I’ve been observing, I’m sure you’re not only observing, but actively involved with is the retirement defined contribution, business was always sort of over there, its own separate thing, largely dominated by fidelity, of course. And then we saw in power come in, buy up a lot of the other record keepers. And we also see players like Financial Engines, combining with Adelman they receive in power combining with Personal Capital, we see Morgan Stanley not only having a obviously strong wealth management business, but now very decidedly in the 401k business. And as one of my colleagues points out that the whole 401K DC is sort of the waiting room or the lobby of financial services. In other words, that’s where people start. And as you look at some of the firms I mentioned, and many more, they’re working, really doing, I think, excellent work around this topic, broadly called financial wellness, where they’re making making it easier to make good decisions early, so you’ll have more money later. So I’d like to have you talk a little bit about what you see happening in this phenomenon, which seems to be emerging of not only the defined contribution, space being doing a better job of inviting people into financial wellness or financial literacy or what have you. And then how does that then combine with wealth management over time? Because it clearly seems to be the direction where there’s this convergence between the retirement business and the wealth management business?

Nalika Nanayakkara: Yeah, I mean, I think you said it’s sort of the waiting room, right for your new clients. And if I look at some of the acquisitions that have been made by some of the larger wealth management firms, whether it’s the foreign key business or even equity options, stock plan type of businesses, it’s really, it’s the value of the customer, right? As we talked about this earlier, right. It’s the overall market momentum has really camouflage that there hasn’t been a lot of organic growth. So the way you’re going after organic growth and new clients is by acquiring, you know, tapping into retirement, stepping into stock plans. To me, when I see what’s happening in the industry, it’s really become the way to acquire clients. But when you think about retirement now, it’s not just the 401k, right. So there’s been some industry movements around building annuities into the plans and longevity, right. I mean, people are outliving their retirement plan. So to me retirement is also it shouldn’t be just a small piece of the equation. I think it’s a huge piece of the equation. What’s always been challenging is everybody is happy to open a Form K because you know, you join a company, the company encourages you to do that, you know, but then no one ever wants to talk about retirement. I mean, I’ve talked to so many financial advisors who say, you know, my clients didn’t don’t want to talk about it, you know, it’s like they don’t want to think about, you know, go into the sunset and spend the rest of your life not doing anything. But now retirement means you might, you know, you don’t just retire and go play golf and you know, move to a sunny location, you’re starting a new business, right? You’re looking for board positions. So I think retirement is also becoming a, it’s part of the wellness agenda, like how do I get financial peace of mind. And retirement is a big piece of it. But when I look at some of the industrial activity that you talk about, that’s driven, really, I think more by about client acquisition than anything else,

Jack Sharry: I happen to agree. But it is interesting to watch, of course, as this converges, as there is mergers and acquisitions as there’s this convergence of retirement and wealth management, that complexity only grows, which I imagine keeps you guys pretty busy. Why? Because that’s a lot of what you’re doing is figuring out how to have a platform and ecosystem that really serves all sides of it. And then particularly as things get more complex over time,

Nalika Nanayakkara: yeah, helping our clients scale, right. I mean, particularly in the record keeping industry, if you don’t have scale, you’re not going to be profitable. I mean, it’s such a low margin business, right. And you see a lot of clients, financial services firms actually wanting to get out of the record keeping business altogether. So they are making partnerships with, you know, consulting firms or tech firms, and helping sort of build solutions together. So we’ve been part of some of those tri-party sort of agreements, but it’s really about helping clients modernize their tech platforms and build scale. 

Jack Sharry: This has been fascinating. I could keep going, I gotta remember, we’re trying to keep this under half an hour. But tell me if you would, what do you see? Where does this go over the next three to five years? Is it more of the same? Does it accelerate? or new entrants? What’s your prediction as to how things unfold?

Nalika Nanayakkara: Yeah, I mean, I think the you know, Fortune favors the bold kind of thing, right? It’s, if you’re too focused on defending what you have, you’re gonna miss the board. So I think the key takeaways is everything sounds good on paper, right? But there will be trade offs to be made. You can’t be all things to all clients. So you have to figure out, how do you balance digitization with the human touch, you have to figure out how to use tech and data to provide a differentiated experience and build trust, right? So regardless of you who you are, you have to build a trusted relationship with the client, I think that’s one. Second is you have to over index on embracing the next generation client versus defending the ones that you already have. The next gen clients will look very different. And not just age, there are more women coming into the fold, what they want will be different from their advisor, you know, how they look at the world will be different. So what’s the hook for that next generation client? And the third is data, data data, right? I mean, you have to use figure out a way to bring data not just to cross sell, right? I mean, it’s not about cross selling, it’s not about the next best action. It’s about figuring out data, turning that to insight, and then practical advice, and implementing that in a fairly simple way for the client.

Jack Sharry: So now, this has been great. I’ve really enjoyed our conversation, and I look forward to our next. But before we go, my favorite question in all of our podcasts, we do it each week as we do be willing to tell us something interesting or unique you do outside of work that people may not know about you or would find interesting or surprising.

Nalika Nanayakkara: I don’t know if this is interesting or surprising, but I love storytelling. I’m a movie buff. I love movies. I love reading and I write short stories. So that’s interesting, but I do have I love I have a mind for fiction, you know, when I’m not working?

Jack Sharry: Are you published? Or is this just something you do for fun now?

Nalika Nanayakkara: You know it maybe after retirement?

Jack Sharry: Well, that’s great. I found it interesting. So thank you for sharing that. And you have been a wonderful storyteller. It’s, I think, a great strength. Now, I really appreciate this conversation really been wonderful. I look forward to next time we have this opportunity for our audience. If you’ve enjoyed our podcasts, please review rate, subscribe, and or share what we’re doing here at WealthTech on Deck. We are available wherever you get your podcasts. Thank you again, Nalika. This has been a lot of fun.

Nalika Nanayakkara: Thank you, Jack. Really appreciate you inviting me to speak to your audience.