10 key trends for wealth management in 2018
Meeting the challenge
An in-depth study from Capgemini highlights the key pressures facing the wealth management industry.
The report, titled
, states: 'The wealth management industry is faced with challenges such as intense competition, fee compression, stricter regulations and evolving customer needs.' The Top Trends in Wealth Management 2018
It also notes that clients are becoming more astute and are seeking better digital propositions.
'As technology continues to change rapidly, firms must be agile to enhance the overall experience of both their customers and wealth managers.'
The study also says the 'myriad compliance mandates that wealth management firms face can seem quite complex'.
Here are the 10 trends for 2018 highlighted in the study.
1: Cognitive computing, machine learning and AI
Advances in technologies such as artificial intelligence (AI), machine learning (ML) and cognitive insights have started to make wealth management inroads as the industry realises the ability to extract value from big data is a key differentiator.
As technology advances become key differentiators. competition between non-traditional and traditional firms may heat up, with firms finding ways to distinguish themselves through better service and operational efficiency with applications of AI, ML and cognitive analytics across all significant wealth management stages.
2: Robotic process automation
There are many basic, logic-based and repetitive procedures which can be replaced by automation in the wealth management industry. These sort of processes are ideal for using robotic process automation (RPA).
RPA can enable firms to do things in a faster and better manner, bringing efficiencies into the system. Additionally, there is enhanced security compared to human-driven processes.
Other participants in financial services retail businesses are way ahead in product innovation than wealth management firms. As high net worth individuals (HNWI) become more financially savvy, they are demanding more sophisticated and customised services. To improve HNWI satisfaction, product innovation is essential.
With firms aggressively pushing digital technologies into the current value chain in wealth management, the industry is likely to see higher penetration of automated advisory and digital marketplace platforms.
Firms and wealth managers are expected to increasingly use social media and leverage data analytics for prospecting clients. Firms are expected to strategically focus on big data and advanced analytics to enable differentiated services and product solutions for HNWI.
4: Better products
With fintechs coming up with great ideas for better products and higher returns along with improved customer experience by leveraging ML and AI, wealth management firms need to decide if they want to become a product creator or also become a broad product distributor, in order to provide customer-centric holistic financial solutions by offer in-house as well as third-party products.
To stay ahead of the game, even after setting up in the marketplace, the incumbents will have to attract fintechs and collaborate with them to build better products and solutions to sell via the marketplace at higher margins than third-party products.
5: Enhanced customer experience
Customer experience in wealth management holds higher weight for clients compared to other products they use, as this relationship has far-reaching implications on the client's financial and life goals. Clients are open to switching to other wealth management providers in search of better user experience, thus forcing firms to innovate to keep up with their demands.
Firms need to train their wealth managers on digital capabilities to ensure that all customers, can have the best possible experience during their interactions. Firms need to identify customer needs and identify behaviour patterns better to keep up with evolving clients needs and offer a more collaborative, individualised wealth experience.
6: Cybersecurity concerns
Wealth management firms hold huge amounts of highly sensitive information, which makes cyber-defence very essential as data theft can lead to significant reputational and financial damages. Increasing digitisation, outsourcing and reliance on emerging technologies such as the internet of things and the cloud increase exposure risk.
Demand for advanced threat protection products using big data analysis to detect and neutralise possible threats will grow at a much faster pace than demand for traditional enterprise security products.
Wealth firms will need to strengthen their cybersecurity capabilities to prevent cyber-attacks that might risk client information.
7: Increase regulatory costs
As an aftermath of the global financial crisis, the wealth management industry came under much scrutiny. The uncertainty around the sheer number of ever-evolving regulations coming up in domestic as well as international markets has resulted in a paradigm shift for wealth managers, resulting in an increase in the cost of compliance.
Firms have to be up-to-speed with the latest regulations leading to increased compliance and operational costs, which is putting a downward pressure on margins. This could spell trouble for smaller firms and consolidation may be the only answer to survive in such a situation.
In the short term, with growing expertise required to keep up with complex regulations, outsourcing of the back-office and the middle-office may be an obvious solution for many firms.
8: Hybrid advice solutions
In the US automated advisory services like Betterment and Wealthfront have disrupted the wealth management industry. This shortfall can be met by a hybrid model, combining self-service and wealth manager-led advice, which has evolved to become as popular as the wealth manager-led path.
Advisors will likely ease out direct interactions in the mass affluent client segments while providing customised services at the higher end.
Wealth management firms may have to adjust to slimmer revenue margins in core areas of business as fee structures will be revised to accommodate higher self-service capabilities.
9: New client segments
Traditionally underserved segments which were out of the ambit of the traditional wealth management industry are getting attention as digital tools and technology make it possible to serve complex investment needs, which were once deemed to be economically unattractive.
For example, the global wealth of women is expected to grow from $13 trillion to $21 trillion by 2021, about 1.6% faster year-on-year than that controlled by men.
It is critical for firms to customise their approach and engagement to attract women investors. Firms need to retrain and improve wealth manager capabilities to help understand the distinct needs of the new client segments.
10: Evolution of fee models
Wealth management fees have primarily been charged as a percentage of assets under management. With HNWI demanding better transparency around fees, alongside competition from fintech, wealth managers are having to assess their pricing strategies and consider better fee models to acquire and retain clients.
Wealth management firms are likely to devise transparent fee models in line with what clients want - they need to move towards client-friendly models such a fees based on performance, a fee-by-service module, fixed yearly fees, or a combination model.
Share of fees as a percentage of assets is destined to go down, though not completely, but fees by performance and by module will likely be the most popular models in the near future.