While waiting for the birth of my first son, I prepared the room that would welcome him. When I had finished putting together a chest of drawers bought at IKEA, I was seized by a mood of satisfaction mixed with pride that led me to wonder: “How is it possible that I am so happy to buy furniture in a box that I need to bring home and in addition build too?” Reflecting on the distinctive features that convinced me to be an IKEA customer, I might mention:

• fair pricing
• the perception of a good level of quality
• simplicity of instructions
• modern and attractive design
• the satisfaction of always being able to successfully complete the task and a wonderful catalogue that allows you to view the result in advance.

I therefore asked myself what ingredients Mr Kamprad used to change the competition within a sector that is highly mature and saturated. We can clearly see an analogy with wealth management: a very mature market with players who have to reinvent themselves in order to remain competitive. In addition, the disruption is coming from other sectors – technological innovation in products, processes and channels, combined with the dissatisfaction of the end customers and the reduction of margins.

In the following paragraphs I will try to identify the ingredients that made it possible for IKEA to move to a different competitive level and apply them to a business model in the wealth management industry.

The proposed approach allows us to move away from the current selling proposition to a new way of service that creates real customer involvement and engagement through contributing to the process of value creation and minimizing, at the same time, the typical cognitive and behavioural mistakes of relationship managers, which often give sub-optimal results.

The model outlined below could be used for a single goal, multiple objectives or a holistic approach, with a focus on the real needs of customers with an adequate time horizon, an educational involvement that explains step by step what and why something is done, with related check points during the life of the relationship. The ingredients replicable from the IKEA business case are as follows.

Stripping Out the Basic Elements

IKEA decomposes single items of furniture into their essential elements. This system allows them to check the quality and consistency of each single element that contributes to the construction of the overall result. In the same way, an advanced approach to wealth management should start from the client’s needs, focusing on important goals, each one with the essential characteristics well identified as follows:

1. Time horizon.
2. The financial objective connected to the goal:
   • minimum acceptable
   • optimal target.
3. Available capital:
   • initial capital
   • periodic in/outflows
   • the debt to service the objective.
4. Prioritization among other goals.

The ongoing monitoring will be done through the probability of reaching the goal within the relevant time horizon. The value added of this kind of approach, such as for IKEA, is modularity (i.e. you can use it for a single goal or may implement a holistic approach, considering pension plans, succession, long life cycle and insurance coverage). In addition to all the above mentioned, you can have an upstream optimization between objectives with different time horizons and different grades of priority assigned, thanks to an asset and liability management (similar to that used, for example, by pension funds).

Do It Yourself and Education

Another winning and discriminating element in IKEA’s recipe is the DIY mechanism and educational approach, a sort of gamification. This has three main aspects and implications:

1. High level of engagement and satisfaction for the client, who is able to successfully finish the task.
2. Impact on pricing – for IKEA, in terms of cost reduction of logistics, transportation and assembly and for the client, due to less return costs of products.
3. Loyalty, through a process of education and involvement that leads clients to feel they are part of the production process and aware of the constructive logic and quality (experience).

It is possible to achieve the same benefits in wealth management by applying DIY involvement, fulfilment and satisfaction, putting the client at the heart of a goal-based approach. Using a goal-based investment model has the positive collateral effect of minimizing the typical errors identified by behavioural finance, such as overconfidence and unrealistic optimism. This kind of approach confirms the client as the primary actor in the process and enhances the traditional approach twofold. First, the approach anchors each goal to the correct time horizon, minimizing anxiety and temporary volatility. Second, financial literacy and education have to be a focus, helping clients understand different scenarios and their probabilities. Finally, the benefit in terms of pricing is transferred to the client thanks to the platform that allows setting goals based on transparent pricing/fee models. For the wealth manager this means having a process which is extremely scalable, with a grade of customization and support on demand, increasing as a function of complexity (existing modularity in IKEA, from total DIY to a personal assistant who helps you plan your purchases up to transport and assembly).

In terms of education, it would be useful for a goal-based wealth manager to visualize the goal and best practices similarly to the famous IKEA catalogue. This could be implemented through scenario analysis by empirical experiments on specific objectives achieved by other clients.

Pricing

As outlined in the previous points, economies of scale due to automation of the process allow the limiting of costs for clients. In fact, there are only the platform and service to remunerate. Investments are chosen with transparency in terms of maximum efficiency and it becomes immediately clear to the client that his first gain is in the fees saved. When a wealth manager achieves the breakeven point, all additional revenues go straight through to the bottom line because the approach is highly scalable and all the bespoke services are charged to the client on demand.

Quality, Sustainability and Risks

Linked to pricing, there is always the issue of quality and of the optimization of the price/quality ratio. IKEA has strong minimum standards for quality and sustainability. This can be applied to the wealth management model which needs high risk management standards, not only for the market, but also for other risks, providing clients with strong processes of selection and monitoring of counterparties and suppliers (management and continuous monitoring of the operational risk, credit risk, counterparty risk, solvency risk, concentration risk, etc.).

Credibility and Trust

Another key ingredient from IKEA is the credibility and confidence built during decades. The Scandinavian brand has been able to create and maintain these for the long run. Credibility and trust were created not only with the quality of the products, but also with the high level of attention during the post-sales process. In the same way, in a goal-based approach, such credibility is the result of being a partner of clients along the way to correctly set and achieve their goals. Loyalty passes through the fact that this model is not based on selling products or services, but as a partnership along the whole customer life cycle.

Conclusions

This is just a simple example of an innovative model that can be obtained by mixing a series of ingredients of a successful business model within a mature sector. Now try to imagine a traditional financial operator who wants to change their competitive position by combining some of the ingredients mentioned with the experience of a tech giant. In addition, big data and artificial intelligence (AI) can be deployed to set, manage and monitor goals, rather than the ability to manage the customer experience, post-sales and loyalty of a big e-commerce brand. Combining wonderful ingredients (1, IKEA’s way of changing the competitive perception) with an innovative business model for wealth management (2, goal-based investment approach) and a disruptive platform, in terms of client experience, channel and use of AI to support decisions (3, tech disruption) it will become possible to deliver a global WealthTech unicorn.