Analysis: Great opportunities for wealth management firms
By Rob Griffin
11:49, 30 November 2021
There could be great days ahead for the global wealth management industry, with a new study predicting tremendous opportunities on the back of an ageing client population.
Trillions of dollars are expected to be passed on in the most significant intergenerational wealth transfer in history, according to consultancy firm Capgemini.
Here we take a look at its report, ‘Top Trends in Wealth Management: 2022’, to identify how this industry can benefit over the next few years.
Background
The report found that wealth advisers and planners across the globe were beginning to help their ageing clients start to think about legacy and estate planning.
However, it suggested firms must be able to offer products and solutions that better resonate with younger clients.
“High-net-worth individuals who will be inheriting wealth have different investment preferences and are more sustainability-driven than previous generations,” it stated.
How can wealth managers prepare?
Capgemini believes a better understanding of clients, encouraging financial literacy and offering holistic financial planning services will all be essential for wealth management firms.
While accepting advice was the cornerstone of baby boomers’ wealth management relationships, it warned that this is no longer the case.
“In contrast, millennials tend to be wary of a lone voice of authority, and they conduct independent research to bolster decision making,” it stated.
Exploring consolidation
The report also highlighted how industry consolidation had been on the rise for two years, with significant developments within – and between – wealth management firms.
“Many are exploring synergies with retail banks or insurers to promote themselves as a one-stop-shop that caters to the full spectrum of clients’ financial services needs,” it noted.
In addition, organisations are considering mergers and acquisitions to broaden offerings by developing products and implementing new technologies to enhance efficiency.
Resurgence of family offices
Another trend that’s been noticed is a return of the so-called family office model, with the number estimated to have risen from 7,300 in 2019 to around 10,000 in 2021.
“Today, approximately two-thirds of family offices are in North America, about one-quarter in Europe, and the remaining 9% are in Asia and the rest of the world,” it stated.
For ultra-high-net-worth families, the advantages of family offices include consolidation of wealth-related services in one place and the ability to make bespoke investment decisions.
Digital strategy is important
As sources of wealth evolve, high-net-worth individuals are also exploring new strategies – including assets being developed in the digital world, according to the report.
“Speculative investors are sinking money into everything from virtual art to digital homes and virtual baseball cards – thanks to blockchain-powered non-fungible tokens (NFTs),” it noted.
It also pointed out how advancements in enabling technologies, such as distributed ledger technology (DLT), were making way for the efficient management and transaction of digital assets.
Cybersecurity is a priority
Cybersecurity is another key trend within the wealth management industry, particularly given the vast amount of client data collected and financial transactions made.
Capgemini warns that investment in technology and collaboration with FinTechs and other firms are increasingly critical for firms to fraud-proof their infrastructure.
“Proactive steps that encourage an organisation-wide security-centric culture will help reduce the chance of potential breaches,” it stated. “Firms can train staff to be more vigilant.”
Human element will be critical
Although firms are stepping up their digital operations, they will still need to combine a human touch with technology-driven efficiency, according to the study.
It suggested that a user-centric model was crucial for an enhanced experience, product innovation and solution development.
“Wealth management is a dynamic business in which success depends on the agile delivery of tailored advice and services,” it stated. “The post-pandemic world requires digitisation and hyper-personalisation to generate positive emotions in clients.”
Unlock new revenue streams
Hybrid advice that combines automated self-service and human-assisted approaches were found to have become more relevant than ever before.
Capgemini suggested that these models can enable firms to cost-effectively engage with a broader client base to boost revenues amid rising margin pressures.
“Wealth management firms are leveraging hybrid advisory models to better serve existing clients and tap into the growing mass affluent segment profitably,” it stated.
Measuring ESG factors
Of course, an increasingly popular trend within investment circles concerns environmental, social and governance (ESG) factors.
The report noted how growing concerns related to environmental risks, further augmented by the pandemic, has led to a paradigm shift in investment choices, gravitating towards sustainability.
“Interest in ESG is taking centre stage as investors channel more funds into vehicles that deliver societal impact along with financial returns,” stated the report.