The Future Of Wealth Management: Trends And Innovation

By Shantala Sadananda

It is an understatement to say that the Wealth Management (WM) industry faces converging megatrends that came together to upend the industry like a perfect storm, driving massive disruption and transformation. The demand to go digital is growing across generations and wealth tiers, which is driving the demand for seamless user experience in financial services. On top of that, the rise of affluent, high net worth, and very high net worth customers, has introduced goal-based planning as an industry standard, making financial planning accessible through digital applications.

At the heart of this transformation is the question, "How the evolving technological landscape is reshaping the wealth management industry, and what strategies are firms using to capitalize on emerging opportunities while addressing the challenges of cost-effective tech investments?"

A Strategic Approach to Transformation

Based on our research and customer interactions, we anticipate that technological advancements will drive a 40% increase in global wealth by 2027. As the domestic wealth grows, the solutions to address the emerging demands of investors become the primary concern. The preference for digital applications will drive 60% of investors to prefer digital interactions for managing their investments. Today, Wealth Managers are investing in new approaches such as:

1. Hybrid-advisory offers personal touch of Human Advisors combined with the efficiency of digital tools by using omnichannel solutions to deliver tailored investment options.

2. Direct Indexing facilitates tax-efficient replication of indices within individual portfolios to match the unique financial goals of customers.

3. Managed Portfolio Services provides professional services by optimizing return on equity portfolio while lowering the risk factors of investors.

The new investors want their personal values, such as sustainability and low carbon footprint, to be reflected in their investment choices, making the demand for transparency a priority.

While wealth and asset management firms have either absorbed or integrated fintech innovations and have profited from them, nevertheless, they must consider upgrading the existing operating models to manoeuvre the challenges of the future cost-effectively.

Tech-Savvy Millennials and Zoomers of the 2000s

The millennials and the zoomers raised with smartphones and social media are driving the future of customer expectations in the WM market. Born and raised in the digital age, this tech-savvy generation expects convenience and personalization like their digital experiences. In five years, 80% of new investors will prefer seeking advice through a hyper-personalized, data-driven model.

Wealth Management Megatrends

1. The big wealth transfer from Baby Boomers to Millennials and Zoomers will transform how the assets are managed and further invested. The movement of generational wealth is an opportunity to build service capabilities that align with the aspirations of digitally savvy and ethically conscious young investors while offering solutions to meet regulatory and tax challenges.

2. Investors seek digital experiences similar to those of tech-native companies; such high customer expectations are met by establishing strategic business goals to blend innovation, adaptability, and investment in building long terms relationships with clients.

3. Integrating Artificial Intelligence, Digital Asset Management (DAM), and Decision Science to build innovative and research-backed solutions is on the rise.

- Managing assets using Al-enabled digital platforms is expected to reach approximately US$6 trillion by 2027. Firms are already employing generative AI to offer enhanced trading insights from unstructured data.

- Integrating digital assets to diversify investor portfolios and gain exposure to emerging assets (cryptocurrencies, tokens and digital securities) offers a secure way to manage, track and preserve their values so that they can be easily traded or transferred while minimizing the risk of theft.

- Employing advanced data intelligence tools to predict client-specific market trends, investment risks, and customer behavior enables better and quick decision-making.

Risks and Challenges

Businesses globally will face demographic, regulatory, technological, competitive, and economic shifts, mounted by the expectations of emerging investors for seamless digital experiences and bullet-proofing against cyber threats. This will be accompanied by the pressure to build new operating models and offer affordable pricing. However, the severity will depend on location and institution type.

For example, family offices and independent advisory firms are most affected as they fall short in digital engagement. On the other hand, robo-advisors and online trading platforms are most vulnerable to cyberattacks.

To navigate the tectonic shift, companies must focus on several key areas:

- Perform market analysis by assessing macro and micro-environments, keep an eye on the market landscape and track changes in emerging markets.

- Build customer engagement by understanding people, culture, and product to predict appropriate pricing for value. Develop appropriate advertising and marketing strategies, a keen sense of customer choices and financial behaviour and incorporate ESG processes.

- Identify different market segments to target specific audiences and position and reposition financial products until strategies align.

- Build and foster long-term relationships with stakeholders to optimize distribution channels.

- Streamline customer onboarding while offering training manuals and documentation to enhance customer retention.

From Hi-Tech to High Touch

Over the next five years, a new generation of investors will enter the market focus - younger and highly diverse by gender, geography, generational wealth, and lifestyle preferences. Making hyper-personalization a prerequisite to ensure WM firms meet the new investors halfway by understanding behaviour and tailoring solutions that fit their goals.

(DISCLAIMER: The author is President of Banking & Financial Services and Emerging Markets at Innova Solutions. Views expressed are personal and do not reflect the official position or policy of the Outlook Media group or its employees.)