A multi-generational wealth transfer, the implementation of digital and hybrid business models, the introduction of digital assets, and the increasing concern for environmental and social issues are reshuffling wealth managers’ approaches to daily business. This is why we collected the most intriguing developments and are presenting them followingly in the form of wealth management trends 2023.
The great generational wealth transfer accelerating digital transformation
According to some predictions, a staggering US$84 trillion in wealth transfers will take place through 2045. Capco pointed out that these wealth transfers will unfold in a multigenerational manner, meaning that both Gen Zs and millennials are set to inherit enormous amounts of wealth.
That said, according to Forbes, the silent generation is trying to bypass the baby boomers in the great wealth transfer, and for various reasons. High divorce rates, which may complicate wealth transfer plans, are a likely factor. Others include retribution for adult children deemed as lazy, undeserving, or irresponsible.
As such, grandchildren become the main beneficiaries of inheritances. Capco’s whitepaper also states that only 13% are expected to retain their relatives’ advisers, which is why it has become increasingly important for wealth managers to provide hybrid business models that guarantee a smooth transition meeting the needs of younger clients—especially to the digitally native ones.
What does this mean? Wealth managers currently find themselves in a position in which they need to come up with client experiences that match the expectations of digital natives. Especially highly-personalised offerings that build on seamless BigTech constructs are highly sought-after. In fact, a lot of high-net-worth (HNW) individuals voice their dissatisfaction with personalised offerings or digital interfaces provided by their firm.
Digital or hybrid models for wealth management advisory journeys?
It is no coincidence that providing digital tools and channels for communication has been mentioned as one of the key factors in gaining new-gen clients. Younger clients prefer digital business models delivering personalised and intelligent financial advice at scale.
In fact, as much as 70% of Oliver Wyman clients believe the degree of personalisation is one of the most critical factors shaping their decision when choosing a wealth management adviser.
Considering that wealth managers’ trade-offs between personalisation and scalability have slowly vanished, personalised advice at scale is becoming much more realistic. As such, self-service banking channels are as popular as never before.
In fact, around 60% of their clients believe that it is also vital to upkeep a human-centred design. Meaning that one has access to human advice when needed. The pandemic has underscored and amplified this evaluation, making more clients seek human counsel from wealth managers.
Therefore, wealth managers do not only need to consider fully digital advisory journeys, but rather incorporate hybrid models of wealth management advice through omnichannel engagement.
Rising need for environmental, social, and governance (ESG) products
Investors are increasingly using non-financial factors as part of their analysis process to identify risks and opportunities. Considering ESG issues as part of financial analysis is an important motivation for investment professionals to gain a more comprehensive understanding of the companies in which they invest.
The increasing importance of younger generations in the distribution of wealth has brought ESG to the centre of attention for wealth management firms. Wealth management firms are now expected to cater to younger generations’ demands for greener and cleaner investment opportunities, which has also become one of the key factors for expanding their client databases.
Oliver Wyman believes that ESG-related issues will play a significant role in the performance of many global companies in the near future as investors are increasingly looking to align their assets with environmental and social goals. This means that clients will seek offerings that satisfy higher-order needs like sparking joy, building trust, fostering community, and finding purpose. Meaning that wealth managers will need to help clients locate and identify the main ways to generate impact.
Digital assets on the climb
A very evident trend that has taken the investment world by storm is ETFs focused on peripheral industries. The demand for digital counterparts to conventional assets such as cryptocurrencies grew enormously in the last couple of years, according to Temenos.
For the younger generation, direct investments in cryptocurrencies, purchases of website domain names and non-fungible tokens, virtual assets in virtual worlds, and security tokens have become their new normal.
Yet, the slow adoption of digital assets in the wealth management industry has restrained it from a complete breakthrough. This can be traced back to the fact that advisers remain sceptical of the asset class, and firms continue grappling with regulation uncertainties and volatility. When the regulatory path becomes clear, however, firms will need to weigh an extension of their current capabilities.
Digital compliance for wealth management
Rising costs of risk and increasing regulatory burdens will be one of the main disruptors to wealth management in 2022. In order for wealth managers to circumnavigate these disruptions and navigate freely through advisory processes, digital compliance is needed.
Superior compliance processes are a competitive advantage for many wealth management firms. Therefore, it is no surprise that investments in regulatory technology are skyrocketing. According to industry analysts, the RegTech market is predicted to grow from a US$6.3 billion market in 2020 to a US$22.2 billion market in 2027.
Thereby, alternative and digital compliance solutions will become more important for wealth managers. By embedding compliance into their existing processes and systems, wealth managers are able to get instant answers to regulatory questions and concerns when and where they need it, focus on customers and have quicker turnarounds.