What lies ahead for wealth management in 2017

Kathryn O'Brien

Wealth management as an industry is in a phase of transformation. The need for digital services becomes more and more evident due to changing client demands, expectations and the subsequent evolutions within financial technology. Wealth managers are having to adapt to these changes and this is resulting in a number of trends arising that are likely to become increasingly strategically important for firms as we move forward into 2017.

One of these trends, according to the Capgemini top 10 trends in Wealth Management 2017, is growing demand for digital tools by wealth managers. For decades, the industry has been resistant to transformative digital technology, but now, driven by changes in client behaviour, wealth managers are demanding digital capabilities. Digital tools can aid in improving distribution and collaboration with clients, supporting compliance and reducing paperwork and providing insightful analytics. Additionally, they allow wealth managers to automate or eliminate low-value back-office, operational and administrative tasks, and focus more on client-facing activities.

These benefits are becoming more and more obvious to wealth managers, as evidenced by the fact that, according to the 2016 World Wealth Report, over 80% of wealth managers now recognise the positive impact digital tools can have on client interactions, and their overall ability to do their job. Additionally, 72.9% of HNWs say digital maturity is very or somewhat significant in their decision to increase assets with their wealth management firm over the next 24 months. This highlights the importance for wealth management firms to evolve with their digital technologies if they want to maximise asset acquisition/retention and consequential profitability. Firms will need to make progress on all aspects of digital maturity to ensure they remain relevant to clients and reap both top-line revenue benefits and bottom-line gains.

This increased demand for digital tools by wealth managers is driving another trend of increasing collaboration between incumbents and Fintechs. HNWIs and wealth managers have been looking for services that allow them to leverage the convenience of digital technologies. Most incumbents did not have services in place that could allow access to client portfolios in real time or manage them online. As a result, there is an opportunity to jump-start their Fintech offerings by collaborating with start-ups who have built market-ready solutions.  

New Fintech offerings, including automated advice platforms, open-investment communities, and third-party capability plug-ins are increasingly being embraced by HNWIs. Nearly half (47.5%) of HNWIs tap into peer-to-peer networks at least weekly to find out about investment ideas.  As these Fintech services gain traction among customers, the incumbents have started looking for means of collaboration. According to the 2017 World FinTech Report, 76.7% of executives see opportunities for partnerships with Fintechs, allowing traditional firms to leverage Fintech expertise without engaging in expensive in-house development. Investing in developing Fintech capabilities is a trend we expect to see more of over the course of 2017.

Additionally, intergenerational wealth transfer remains a significant opportunity for growth.  Over the next few years, the older generation of HNWIs will be transferring their wealth to their heirs. This transfer will entail the need for financial and legal expertise, implying that there is a huge opportunity for wealth managers to be a part of these transactions.  These younger heirs are part of a generation whose demands have been determined by the digital era and different investment philosophies in the face of changing global economic dynamics.

Therefore, going forward, it is necessary that wealth management firms align their services with these expectations as the next generation of HNWIs is likely to shift their newly inherited wealth to wealth management firms that provide innovative digital services. Many of the next generation owners are expected to sell their businesses and set up family offices. This would lead to a demand for professional managers to run private investment groups as well as releasing large amounts of cash to allow the HNWIs to look at alternative forms of investment and spending. In 2017, it is likely that we will see more wealth management firms taking advantage of and profiting from these opportunities.  

It is clear that we are witnessing a time of transition in wealth management as the importance of digital tools increases and client expectations change accordingly. If wealth management firms wish to stay relevant, it is imperative that they adapt to these changes by differentiating their offerings and working with incumbents to provide cutting edge digital technologies.

Information sourced from Capgemini Top 10 Trends in Wealth Management 2017 Report. Link here https://www.capgemini.com/resources/top-ten-trends-in-wealth-management-2017

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