Capital Markets

Wealth management: Reframing for growth

January 15, 2021

Undoubtedly many wealth management senior leader discussions and decisions in 2021 will be centered around the immediate business impacts of the COVID-19 pandemic, the speed of vaccine-enabled recovery and firms’ ability to ensure their businesses emerge stronger. Given this, we believe it’s worthwhile to also take a step back and look at a broader picture of the wealth management landscape in the wider context of major current and emerging trends.

In our Wealth Management C-Level Survey, participants identified six global megatrends they expect will make their businesses become more dynamic and deliver higher client value going forward:

The emergence of new technologies
Ecological and environment concerns
Hyper-personalization
A shift from support to value generation enabled by technology
The paradox of personal data
The rise of platform ecosystems

Some of these are continuations of previous trends. Others are new and bring a heightened degree of uncertainty about the future. While some of these trends are converging globally, others may have a more regional impact, but all are expected to require a response on a local level by industry players.

In this perspective, we lay out three key areas these trends will likely impact and what that could mean for the three big regional wealth management markets―North America (NA), Asia Pacific (APAC) and Europe. We asked our wealth management leads for their perspectives so we could deliver relevant global insight and foresight. Those views are incorporated into the narrative.

Impact area one:

Advice and experience will matter to clients more than ever

Advice is progressively becoming the wealth management industry’s core offering. The pandemic merely accelerated this trend. In addition to amplifying in importance, we’ve seen advice evolve along a continuum that ranges from pure product-based advice to more goal-based advice. Advice is now further evolving toward what could be described as broader holistic advice across assets, liabilities and client experiences that includes intangibles such as trust, security and access to exclusive networks. New technology is creating opportunities to engage with current and new clients in a more scalable way, regardless of the size of a client’s personal wealth. This is broadening the market to include underserved less affluent segments, who have an increasing need and demand for affordable advice. All three big markets are generally at different stages of evolution on this growth continuum.

NORTH AMERICA
APAC
EUROPE

North American firms continue to be at the forefront of the advice evolution, with the next wave of innovation catalyzed by the convergence of all segments around holistic advice. Firms are reenvisioning new offerings and seeking strategic mergers and acquisitions to scale channel and client expansion. Key blockbuster tie-ups have structurally consolidated the brokerage sector—retail and investment banks are using acquisitions to gain their fair share of the wealth market.

With diverse markets and cultures, and in places a faster rebound from COVID-19, players find themselves gearing up for continued high growth across both emerging and established markets. Firms are looking to expand out from the traditional transaction-led trading offerings by strengthening portfolio management offerings and developing data-driven innovative services that deliver more personalized experiences. At the same time, a diverse set of foreign firms, strong local players, large-scale affluent banks, insurances, innovative big tech players, fintechs, wealth platforms and ecosystems and cross-industry competitors are often competing for the same prize. And while APAC tends to follow North America’s and Europe’s leads, there remains a strong desire by clients in many economies to maintain a level of independence and use available tools to be in control of their wealth.

European financial services players of all types are beginning to reframe and anchor their businesses around their wealth and advice offerings. They’re also managing a regulatory landscape focused on data protection and oriented toward providing suitable client outcomes and more transparent pricing. As clients become more informed, they’re demanding and expecting more from the wealth management industry. It’s not surprising that competition has been increasing, as traditional wealth managers consolidate and banks reposition their advice and affluent offerings, sometimes through asset management or insurance joint ventures. Cross industry players, such as insurers and asset managers, are adding additional pressure by moving into the affluent wealth space via platforms and ecosystems. Some players are buying or partnering with new fintech entrants, such as robo-advisors, on a B2B basis to scale new capabilities faster.

Interaction is expected to evolve towards a blend of face-to-face and remote, providing more personalized and higher value interventions with advisors, enabled and supported by digital tools to better scale the delivery of advice.

Impact area two:

Client interactions will focus on higher value advisor interventions supported by digital tools

Advisors are increasingly under pressure in an evolving "always on" working environment in which client demand for more proactive, frequent and "better" information and ideas is reshaping how the industry works―and how advisors need to adjust their workload by removing unproductive administration time to free up more time to meet these client needs. Additionally, data and analytics are enabling advisors to create personalized investment recommendations, which makes advisors more relevant and allows them to work the often-neglected bottom half of their books to further accelerate growth. Conversely, digital tools also allow firms to circumvent the advisor and bring content and ideas directly to the client, when that’s the right move for the client. Interaction is expected to evolve towards a blend of face-to-face and remote, providing more personalized and higher value interventions with advisors, enabled and supported by digital tools to better scale the delivery of advice.

NORTH AMERICA
APAC
EUROPE

The digitization of client relationships to date has largely been completed and has delivered on automation and ease of experience. The next wave of digital is focused on making these digital interactions "personal" by truly delivering a contextual experience and the quality advice that clients need. While leading firms are achieving this with cutting edge, client-focused technology and data, ongoing challenges in middle and back office efficiencies are critical enablers that are ripe for disruption. The industry continues playing catch up to its retail financial services counterparts.

In some markets that have less legacy technology and a digital-first, digital native client base, managers aren’t as stymied by engagement. Rather, engagement is an uphill journey as advisors inherently understand that digitalized product education and financial planning require different skills than transaction-based models. Still, engagement is a challenge for many. Overall, the goal is to leverage data and analytics to develop more relevant recommendations in support of more personalized and trust-based advice, and drastically increase the productivity of advisors by automating administrative tasks—a critical effort given continued talent shortages in the market.

Advisor adoption rates of new digital tools are likely lower compared with their NA and APAC counterparts. In a story that’s part regulation, part legacy technology fragmentation and part shift to new advice models, advice continues to be consumed along regional preferences and delivered in ways that match these preferences. The region is fortunately positioned to move to overcome these barriers and take advantage of new digital and technology developments to improve client engagement experience, compliance and advisor productivity levels at scale.

Wealth management will likely move from resilience in 2020 to reshaping in 2021 to lay the foundation for reinvention up to 2025.

Impact area three:

The sense of financial "wellness" is expected to progressively reshape how wealth is discussed, positioned and measured

The concept of wellness has broad application. Essentially, it’s a condition where people strive to take proactive control of their financial, physical, lifestyle values and mental well-being. The perception of its importance and increased demand for wellness of all kinds has been accelerated because of COVID-19. We believe financial wellness will progressively become more front and center for wealth managers. Education will play an important role also.

NORTH AMERICA
APAC
EUROPE

Longer lifespans and more complex financial lives contribute to a higher focus on holistic wealth management. Firms have used ventures and partnerships to bolster offerings in insurance, lending and alternative investments that empower advisors. Wellness-led offerings are focused on how endemic matters such as health and eldercare, financial literacy or sustainability matter to client segments and fit into the holistic advice picture.

Admittedly behind NA and Europe with respect to products, the need for more planning and wellness will become even more critical in APAC as client preferences evolve from transactional to managed accounts, especially considering there are limited social safety nets in many parts of the region. Shared through a digital-first delivery model focused on holistic individual needs and goals, there’s a clear opportunity to capture investors’ hearts and minds. The focus on returns is still front and center for many clients though.

Insurance companies and asset managers are increasingly trying to morph into wealth managers as financial wellness is gaining traction. Clients are becoming inherently more informed and will increasingly turn to their advisor for tailored and trusted advice around issues beyond traditional portfolio management.

Where we’re going:

Wealth management will likely move from resilience in 2020 to reshaping in 2021 to lay the foundation for reinvention up to 2025

Across NA, APAC and Europe, we now see more convergence in players adopting a new playbook for 2021 and beyond. This would be necessary, as players transform and innovate to become next generation wealth managers dealing with upcoming events such as progressive intergenerational wealth transfers, serving new wealth creators such as entrepreneurs and women, or tapping into ESG and non-investable assets that could further drive the industry’s sustainable growth perspectives up to 2025. Having achieved largely resilient business activity for rapid and tactical remote digital engagement during COVID-19, wealth managers could now progressively move to more strategically reframe, innovate and differentiate their advice propositions as well as their hybrid advisor interaction models (which combine face-to-face with digitally enabled features) this year.

What this could mean for the different markets in 2021:

NORTH AMERICA
APAC
EUROPE

Firms should continue to innovate on trust with their clients. COVID-19 has proven that quality advice and client interactions can be provisioned remotely, and the pandemic has structurally reset many firms’ advice propositions. Ambitious transformation looks to evolve these propositions for growth in targeted client segments, and requires clear linkages to a differentiated experience, advice and product mix. Technology-led ecosystem plays could be critical enablers, but they should have a clear line of sight to firms’ strategies to provide competitive advantage.

By taking lessons from some of the big tech players’ ecosystem-type platforms now, instead of losing market share to them tomorrow, wealth management firms should continue to focus on innovation and the use of data to deliver richer client products, solutions and experiences. The explosive growth of leading in-region technology firms makes the environment ripe for learning and engagement partnerships with wealth managers. Topics such as sustainable investing are expected to catch on quickly too and need to be incorporated into product offerings and advisory services.

By following the region’s product and advice regulations, data privacy, and advanced ESG and impact investing positioning, wealth managers can reframe and invest in digital and cloud technology platform and ecosystem innovations. This could help them lead in responsible wealth management through adopting higher client reporting, disclosure and outcome measurements.

From these new baselines, firms could further reinvent themselves to become data-driven, smarter wealth management organizations that deliver hyper-personalized client solutions―supported by a more liquid workforce. All this change and transformation would be enabled by new technologies such as cloud, AI and advanced data security, allowing players to become trusted and experience-based next generation wealth managers.

Overall, across all regions, 2020 proved the industry’s resilience and its evolving role in societal and environmental trends. 2021 is expected to see greater innovation that is delivered at scale through new enabling technologies. Let’s watch the progress.