New technologies and having lived through the last financial crisis have shaped investors with different expectations and preferences. Creating a shift in the wealth management landscape, it has brought new standards to the industry in terms of how advice and investment products are delivered today.
With increased levels of uncertainty and rising costs of risks, making it really difficult for the advisors to give superior investing advice to their clients. To top it all, the increasing regulatory burdens, new business models and competitive patterns all come together to further compound the level of disruption in the Wealth Management industry.
Top disrupting areas for Wealth Management industry –
- A New Generation of Investors – The new generation of investors include Gen X and Gen Y investors that bring in the new thinking patterns, standards and expectations. Their way of thinking is much more different from those in the past. For example, investors do not want to be treated as a part of the segment, they want to be treated as a unique individual with specific goals and needs. They want to understand the advice but they are more comfortable doing their own research. Accordingly, the wealth management firms should adjust their offerings that caters to the new generation of investors.
- Introducing technology based advice – Technology is self-assured to change the nature and delivery of financial advice in most significant ways, much like it has changed the working for other industries like taxi booking or accommodation for instance. The emergence of robo advisors has really changed the way wealth management firms leverage the client survey data into complex algorithms that generate customised financial plans and asset allocation. Some firms generate real time trade and investment recommendations tailored to individual investors through the use of pioneered tools and methodologies. Robo-advisors are growing in popularity and have gripped the marketplace. They hold the potential for significant market disruption.
- Analytic and big data capabilities – While big data is still in the process of revolutionizing entire industry sector ( Eg. retail, consumer goods, healthcare etc.) With wealth management firms now investing in building more advanced solutions for the investors, the industry is poised to go through a major transformation through big data and analytics. Wealth management firms need to develop more descriptive and predictive analytics that combines structured and unstructured data to create more insightful information available to the clients.
- Holistic approach to advising people – Financial advisors in the past were focused on investment advice (eg. portfolio allocation, stock picking, mutual fund selection) and tried to convince the clients of their ability to deliver the best returns for them. Today, investing advice has become largely commoditised, at least for mass market or emerging clients. At the same time, consumers’ life has become more complex and the investing environment has delved into more uncertainties, which eventually calls for more advice. For instance, the consumer wants to achieve multiple goals, and for that they need advice on how to fund these multiple goals over time, how to make trade-offs between them, and how to use the full strength of their personal balance sheet and manage assets and liabilities over time.
- Standardization of investment advice – The retail investors today expect no less when it comes to investment solution advice from financial advisors and wealth management firms. The new class of investors don’t want to be treated any differently and would like to have access to high yield asset classes and strategies as wealthier, accredited investors, especially in the wake of a low yield environment, following the financial crisis. Innovation is driving a change in a way that is helping the investment solution advice to standardize for all investors from connecting and advising to Investing. It means that WM provides investors access to non-traditional, institutional-like investment strategies and opportunities.
- Planning around retirement income- For advisors, providing advice and planning around retirement income is an extremely complex task. Clients have to make numerous assumptions based on the advice around portfolio returns, spending patterns, future tax rates, costs on housing, increased medical care costs etc. The problem lies in the approach that Wealth Management firms use for retirement income planning services. Many firms are still optimized around offering accumulation advice rather than income planning per say. Planning retirement services is disrupting the Wealth Management sector as clients today need access to a new suite of saving and investment solutions, not just traditional retirement products such as annuities and defined contribution plan.
New forms of advice and new ways to deliver it will continue to emerge, core capabilities will rise and firms need to strengthen and create more winners. While retail investors will likely benefit from all the changes, the firms need to strategically evolve to adapt these critical shifting dynamics.