Over the past decade, wealth management service has undergone profound changes. New consumer preferences and digital models, as well as demographic, macroeconomic, regulatory, and competitive trends, have come together to completely change the wealth management experience for clients and advisors. Every wealth management service, wealth management company, and wealth management firm has experienced disruptive trends that have changed its outlook and operating model.
Some wealth management trends have caught on faster than expected, like digital proliferation and goal-based planning. Others, like the impact of big data, and widespread access to new assets and investment opportunities have moved slower than anticipated. These trends have caused a disruption in the way every wealth management firm, advisor, and company handles wealth management. Advisors have had to get to grips with disruptive new trends in technology, like the ongoing rise of automation, such as electronic distribution platforms and “Robo-advisors”.
Any wealth management service, wealth management firm, and wealth management company that prepares for disruptive trends in wealth management well in advance and seizes the opportunity to innovate, will survive. Others will perish.
Here are some of the most significant disruptive trends in wealth management
The rise of Robo-Advice in wealth management services
“Robo-advice” is the use of automation and digital techniques to build and manage portfolios for investors and clients of a wealth management company, firm, or service. These automated virtual advisors have gained significant importance within the wealth management industry even though their share of AUM(Assets Under Management) so far has only been small.
Young investors are more comfortable with technology and expect their wealth advisors and companies to have the same technological prowess as them. They expect their wealth management service, firm, or company to be up to date with recent technological advancements like Robo-advisors. Robo-advisors have shown the value of quantitative analysis, where asset allocation or fund choices can be dissected by technology.
Technological advancements in wealth management services
Social media is routinely used in client relationships. It is thus necessary for every wealth management service and wealth management company to manage social media disruption, understand social risks and regulations, and learn the steps that should be taken immediately to improve their social media presence.
When it comes to technological advancement, numerous wealth management firms and companies leverage their client data into complex algorithms. These complex algorithms offer customized financial plans, services, and asset allocation. Once the models and algorithms are built and tested, the various investing tools are made available to the customers. These tools work with the least human intervention and include science-based and model-driven advice.
Demographic and regulatory trends have caused disruptions in wealth management, but technological developments are now injecting more urgency into the pace of change.
Change in client demographic: Young clients and investors
Younger clients and investors have different goals than retiring clients and investors. They have their own goals and preferences and expect to receive advice that is tailored to their unique circumstances. They need to understand the advice they receive so that they can make their own decisions. They are comfortable doing their own research and more reluctant to buy discretionary services. They’re also more skeptical of authority than earlier generations so they may seek several opinions from various wealth management firms, services, and advisors. Young investors and clients feel entitled to receive the same investment strategies and products as UNHIs (Ultra-High Networth Individuals), even if they don’t have the same volume of assets. Younger clients and investors will influence the industry as they proceed.
Forced customization of wealth management services
Wealth management services have opened their doors to a wider base apart from just UHNI (Ultra High Networth Individuals) and HNI (High Networth Individuals). The on-ground competition between every wealth management service, firm, and company has intensified. Some wealth management firms are offering retail investors access to services like sophisticated and institutionalized strategies, automated trading, and investment strategies developed by expert hedge fund managers. Some wealth management firms are also offering the facility for investors to diversify their portfolios into exotic asset classes. The innovation in wealth management is shifting to the democratization of investment solutions. Many wealth management services, firms, and companies have already started providing holistic advisory services, but more will need to provide holistic services as the younger generation begins to form the bulk of the new client base.
Aging wealth management advisors and clients
Many advisors and their clients are approaching their retirement age. UNHIs (Ultra High Networth Individuals) and HNIs (High Networth Individuals) have begun funneling their assets to the next generation. Both of these trends have massively disrupted the advisor-client relationship. Seasoned and traditional advisors have not geared up to address the changes that the younger generation expects them to. New technologies and Robo-advisors may ease some of the anticipated advisor shortages.
Most retiring clients are concerned that they may outlive their assets if they continue at their current standard of living. Planning for retirement is incredibly complex and is based on many assumptions that can change over time and thus impact a client’s retirement plan. With the significant amount of new advances in the world, advisors will require new products, tools, and services, that go beyond traditional retirement products.
Big Data and Analytics
Leading wealth management firms are rigorously investing in building advanced analytics and data management tools. They can now access key business insights about client segments, advisor books, product penetration, and training program effectiveness. Many aspects of wealth management, like sales, advice, and portfolio management have been affected by Big Data and Analytics. Not all wealth management firms would be financially able to invest in this trend. Those firms and companies that do will develop new capacities and have a decisive advantage.
Rise in regulating and operating costs
The industry is already seeing it, but there are increasing costs as the industry’s regulation increases. These rising regulating and operating costs include more cyber security and consumer protection, more product analysis, no conflicts of interest, and more oversight of potential outsourcing.
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