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A major overhaul in wealth management – trends and opportunities

The wealth management (WM) industry is experiencing a dramatic change with various factors redefining the market.

The instability of the global market, civil unrest, climate crises, and the emergence of a new client base have together raised questions regarding purposeful investment opportunities as well as the profitability and future of wealth management firms.

While the US and Europe will continue to be primary markets, emerging economies will present new opportunities for wealth managers. At the same time, wealth managers must address increased competition, compliance, and client demands for transparency.

Dealing with these changes proactively is essential for WM firms to remain relevant to customers and to stay in the race. To navigate these turbulent times smoothly, wealth management companies need to gain sharp business acumen and become fintech savvy; this will help them strategically map out the course they should take.

On the agenda of retail brokerage and wealth management firms, there are three priorities.

  • Focus on technology for a superior, differentiated client experience
  • Invest in compliance and controls
  • Reduce operational costs through process excellence and the right outsourcing strategy

Three game-changing wealth management trends for 2020 and beyond

Some trends are gaining momentum in their ability to shape the future of this industry. They fall mainly under three categories.

1. Technology

  • Automation and related technologies are re-shaping value chains across industries, thereby changing the nature of work performed by humans. Digital technology is increasing in prevalence as it fuels productivity, effectiveness and adeptness in wealth management processes.

    This year, most wealth management companies will embrace latest technologies to provide virtual engagement, seamless app experience, omni-channel support, and instant payments - aimed at delivering greater customer experience.

    Technology start-ups are now offering customized APIs that can be modified and upgraded according to unique enterprise specifications.

  • Artificial intelligence: Every customer is unique in their decision making, based on their understanding, calculated risks, and choices. There is an increasing demand for customized portfolios among high net worth individuals (HNWIs), and this is becoming a challenge for WM firms to acquire and retain customers in the digital age.

    By leveraging the power of AI, wealth management companies can predict consumer emotions, sentiments, and behaviour, and better analyse, research, and build risk-proof profiles of clients. Relationship managers can benefit from a tech-driven leg up in the ability to create holistic, personalized interactions, both virtually and personally.

2. New investors

  • Millennials: Millennials and GenXers are gaining more control over their assets through digital technology and solutions. The old structure of the WM industry hardly matches the new-money millennials’ proclivity towards all things digital; hence, the future of WM firms strongly depends on digitalization.

    Millennials are shaping wealth management processes as they demand fast and seamless on-boarding. They are career-oriented, tech-savvy potential clients who are socially active. It is thus imperative for wealth management companies to scale up their social media strategy and presence.

  • Women: Women’s earnings continue to rise as their share in the workforce increases. More independent women now want to support themselves and their families. Notably, women could control $72 trillion worth of global wealth next year. This paradigm shift in the customer base should not go unattended by wealth managers.

    A survey shows 72.5% of British HNW women admit they think men and women have different investment attitudes. Hence, many wealthy women admit they do not trust male wealth managers with their money and would prefer female advisors. Women would expect equally sharp, communicative, efficient and interactive wealth managers to engage with them.

3. Wealth management practices

Wealth managers must actively prepare for the latest developments in banking and technology.

  • Integrated banking: Wealth management ecosystems can deepen relationships with customers by offering them varied banking services such as savings accounts, credit cards, investment options, and loans. These dynamics will continue as customers increasingly demand integrated financial advice across their investments and cash management needs.
  • Operational superiority: It’s essential to achieve operational excellence by hiring new talent as well as developing upskilling programs on advanced technologies. This will help the firm become futuristic as well as transform the mid and back office radically.
  • Alternative investing: This will become more mainstream. As the popularity of alternative assets among institutional and high net worth investors grows, retail access to alternative investment vehicles will also continue to improve. For instance, interest in interval funds and non-listed real estate investment trusts (REITs) is growing, since more investors have been bringing funds to market and distributors have been familiarizing with these products.

    The partnership between investment managers and fintech platforms will strengthen to streamline advisors’ access to alternative investments.

  • Customer insights: Companies will heavily invest in building customer insights engines, developing a comprehensive view of clients at the home-office level, including leveraging third-party data.

How can outsourcing benefit wealth management firms?

The demands on wealth management firms have multiplied, and the cost, quality, and efficiency of their business operations have come under review. Thus, WM firms have increasingly looked to employ solutions and tools to bring greater efficiency and clarity to their processes.

Wealth managers are now improving their processes through better administration, reduced cost, smarter risk management and integrated new technology, using outsourcing solutions.

In recent studies, wealth advisors have statistically pointed out the benefits of outsourcing.

  • 86% stated that outsourcing had made them more successful.
  • 84% concluded outsourcing enabled greater oversight of portfolios.
  • 79% planned to increase the percentage of assets they outsource.
  • 78% wished they had started outsourcing sooner.
  • 71% said they would suggest outsourcing to other advisors
  • 77% said outsourcing helped save time.
  • 66% said it helped increase productivity.
  • 53% stated it allowed their firm to focus on deepening client relationships.

Here are some benefits of wealth management outsourcing solutions:

  • More time for firms to grow their clients and services
  • More time to focus on areas of strength and interest
  • Better operational efficiencies and cost savings
  • Greater consistency and credibility of the investment process
  • Broader range of investment offerings
  • Better due diligence and investment results
  • Greater support and timely expertise

Reduced costs, scalability, and greater operational efficiency are good reasons to work with a third-party vendor, but it’s recommended to know the firm on an intimate level, and then go forth with it.