The redistribution of wealth
Demographic changes will begin to redistribute wealth amongst underserved subsegments. Baby boomers transferring wealth to younger generations will require holistic legacy planning and emerging groups such as tech-savvy younger investors, may value a different kind of experience from the established wealth management model. Enhanced digital and customer expectations have increased across all groups, meaning that as well as adapting to diverse client needs, the underlying technology and data insights being used will become increasingly important if wealth managers want to prevent losing potential market share to Robo-Advisors or emerging players.
Sustainability and Impact Investing
Environmental, Social, and Governance (ESG) investing has become increasingly important to clients who are more frequently looking to align their investments to ethical, socially responsible, and sustainable practices. In the long-term, this trend will continue, with clients becoming increasingly discerning on true sustainability, and with wealth managers needing to both integrate but also validate the sustainability angle within their portfolio construction.
The Data Revolution
The wealth management industry is in no rush (compared to other industries) to adopt a modern data infrastructure and embrace 'big data'. With high initial costs and a 2–3-year timeline for implementation, main players are reluctant to be the first. This will become increasingly problematic, as customers become accustomed to personalised services and digital distribution platforms for other services they use. It is important that wealth managers have a clear data strategy which incorporates new, non-traditional data sets into their single customer view. It’s critical that the individual relationship managers then weave this information both into their recommendations and suitability reporting.
Data must become central to the overall business strategy. With the right data infrastructure in place, wealth managers can maintain competitive edge and retain a modern version of the traditional ‘white glove service’ by leveraging not only client data, but “open banking” data (e.g. current account transactions) and external data sources, such as pricing and products. This kind of information will enable them to develop true insights, deepening the client relationship, facilitating improvements in the targeting of products and services, and ultimately improving retention.
Enhancing customer experience and moving towards ‘Wealth Coaches’
Advisors are already seeing their role as investment managers adapt as customers demand more personalised services. Advisors find that they are increasingly acting as ‘Life/Wealth Coaches’ providing holistic financial advice, including investments, banking, insurance, wealth transfer and taxes, helping their customers to set realistic goals and timeframes, and coaching them to maintain their financial strategy.
The customer experience when using digital services is paramount. In 2010, the increase of online digital platforms becoming available to the public, by companies such as Amazon and Netflix, changed the way that customers interact with digital services. This change raised expectations across all industries engaged in digital distribution. The even bigger shift we’ve experienced in the last 2 years is the fast-paced development of cognitive Artificial Intelligence solutions, allowing for mass customisation and personalisation. This will be transformative to the industry, allowing relationship managements to be able to quickly assess customers’ needs and provide goal-based advice. This includes better product recommendations, as well as continuously monitoring changes, and scenario planning, as needs and circ*mstances change.
Mass Market becomes more feasible
Traditionally the wealth management industry has been reluctant to service the non-affluent general population due to un-scalable processes that are not cost-effective without the high initial fees. The general population has been poorly served by the sector, and consequently this has opened a gap in the market, which has since been filled by FinTech firms, known as Robo-Advisers (e.g. Nutmeg, Wealthify and Moneyfarm), who offer extremely innovative products and platforms in comparison. However, with the hyper speed development and adoption of AI, this is set to change. Utilising AI with hybrid human invention will allow the mass market to be more easily serviced and with the customer experience trends we’re seeing in parallel; this will likely be viewed as the gold standard of service in preference to a human only approach.
Market Consolidation and Value Segmentation
There has been a step change in the structure of the value chain across organisations delivering wealth management services. Wealth managers now have the option to choose which elements of services they offer to their clients, to focus on their core business and unique offerings to drive a competitive advantage and utilise professional outsourcing for the remaining elements of non-core processes. It is likely we will also see increased market consolidation with an eye on cost savings, as well as increased distribution and investment capabilities, similar to what occurred during Rathbones and Investec’s recent merger.
This article was co-authored by Ed Adco*ck, Lokeshwari Mohan, and Sarah Carver. Get in touch to find out more about how our expert team can support you.
