The Future of Wealth Management

AN INDUSTRY STRATEGIC FORESIGHT TRENDS REPORT

Analyst Perspective

The wealth management industry is in the middle of the largest transfer of wealth in its history. Parents are transferring their wealth to their children and grandchildren. This process is rapidly reshaping the wealth management industry and the stakes are high. The firm's "new" customers have very different expectations and needs and if they are not met, they will take their accounts and assets elsewhere.

The wealth management industry has serviced their customers with traditional products and services that were largely segmented by the amount of assets in the account and often with a single decision maker. Engagement was heavily focused on in-person calls or meetings. Client assets were invested according to model portfolios based on customer assets, intake forms, and know your client information.

In contrast, younger customers expect robust digital/mobile tools that deliver highly optimized processes, products, and customer experiences. One common point between both groups is the desire for in-person engagement. While the investing process is becoming increasingly digital, personal contact is still an essential part of the wealth management process.

Info-Tech's approach focuses on an analyst's investigation of strategic foresight. This methodology helps the IT department, and the business, process what is happening in the organization's external environment in a way that guides ideation and opportunity identification. As a methodology, strategic foresight flows from the identification of signals to clustering the signals together to form trends and uncover what is driving the trends to determine which strategic initiatives are most likely to lead to success on an industry level.

DAVID TOMLJENOVIC MBA LL.M. CIM
Head of Financial Services
Industry Research
Info-Tech Research Group

Executive Summary

Your Challenge

• Older customers are beginning to transfer control of assets to their kids. This is the largest transfer for wealth in history. Wealth management firms need to pivot their products and services to meet the very different demands of their new customers.
• Younger customers have very different expectations compared to their parents. Digital and mobile first service delivery is essential. Younger customers also expect access to new/alternative asset classes.
• Competitors are using digital technology to offer new products and services. Highly streamlined, automated processes such as account opening/transfer are an essential competitive capability.

Common Obstacles

• Core systems are siloed and many are legacy based. The wealth management industry has been built using outsourced service providers/systems as well as bespoke internal systems that were not designed for the deep integration required to deliver modern mobile/digital products and services.
• Data is embedded in legacy systems. With siloed legacy systems often comes siloed and inaccessible data that is needed for modern products/experiences.
• IT capabilities aren't setup to accommodate a high velocity of change. IT's relationship with the business is typically support focused not as a business partner. IT needs to build its relationship and update its approaches that align closer to the business.

Info-Tech's Approach

• Take a multidimensional approach to evaluating and solving your technology challenges. The deep transformations that need to occur in wealth management touch many dimensions of IT.
• Build a solid foundation of core IT practices to deliver better digital experiences. The inter-related nature of the modern wealth management industry means IT must address many capabilities at the same time.
• Close alignment with the business is essential. Mature approaches to business alignment focusing around agile and DevOps as well as right-sized and effective IT governance are critical for long-term success.

Info-Tech Insight

The wealth management industry is undergoing a period of intense change driven by competition from new products and services. Customers are also experiencing challenges with costs, regulations, and changing end-customer preferences. IT must embrace change and support business innovation.

Demographic trends are reshaping wealth management

US$30 trillion of assets to be transferred by 2030 to younger and increasingly female investors (McKinsey & Company, 2022).

Demographic shifts are driving demand for new investment approaches and products. Older investors use a very different approach to investing. Their kids are much more sophisticated and engaged in the process. They want greater access to non-traditional assets like cryptocurrencies and non-fungible tokens (NFTs).

Firms must expand their service delivery and product offerings. Specifically, wealth management firms must elevate their online customer capabilities. Mobile has rapidly become the preferred engagement channel. Firms not delivering in these areas may find that younger customers have little brand loyalty.

Wealth management firms need to consider more segmented customers. Traditionally, customers have been placed into categories based almost exclusively on the amount of assets they have. Regulation of certain products contributed to this approach. Customers increasingly are being segmented around actual investment sophistication and interest and they expect much more personalized products and services. Wealth management is being democratized through this process.

Younger customers still value Personal interaction

Source: “Power of Personalization,” Publicis Sapient, 2023

The wealth management industry is being democratized

Asset-based segmentation is being replaced by personalization based on investor sophistication and interest

Traditional high net worth products are becoming available to all investors. As market returns have declined and volatility of returns has increased, 43% of ordinary investors are considering active strategies.1 The shift marks a change from passive (exchange-traded funds [ETFs]/index investing) to active strategies (hedge funds). Mass affluent investors want access to alternative investment strategies,(2) with 69% looking for alternatives.

New asset classes are gaining popularity across all investor groups with 42% of investors increasing the number of wealth management providers, and 57% of them believing that innovative investment ideas are an effective way to attract them as a customer.(1)

Investors want more personalized products and services with 71% of investors willing to provide more detailed personal information for them to receive more personalized services.(3)

(1) "Wealth and Asset Management 4.0," Publicis Sapient, 2022;
(2) ThoughtLab, 2021;
(3) AIMultiple, 2022

Existing and New wealth management products and services

Existing Products/Services

• Stocks
• Bonds
• Registered Accounts
• ETFs
• Mutual Funds

Alternative Products/Service

• Cryptocurrencies
• NFTs
• Commodities
• Private debt
• Initial Public Offerings (IPOs)
• Robo Advisory

Top Wealth Management IT Trend technologies to Explore

1. Focus on mobile and online engagement and tools.
2. Use intelligent automation to eliminate effort in low-value activities to free advisors to deliver personalized service.
3. Rearchitect products, services, and journeys.
4. Replace legacy software that is siloed and inefficient with an integration friendly ecosystem.
5. Mature internal data practices to drive deeper client insight from large internal data sets.

"Wealth and Asset Management 4.0," Publicis Sapient, 2022

Younger customers are redefining digital expectations

Younger customers expect enhanced digital delivery and will leave if they don't get it

• Younger customers have different expectations than their parents and wealth management firms need to adjust and augment their products, services, and processes. Younger investors are decidedly digital in orientation, and they want access to new/broader range of product offerings and engagement options.
• Fees are more of a concern for younger customers. Digitally savvy customers can get many of the benefits of a traditional wealth management firm for lower cost from new fintech providers. As a result, lower fees and greater transparency throughout the process are required.(1) If they don't get it, they will switch providers.(2)
• The desire for in-person/live consultation with an advisor is consistent among parents and children.(3) While digital tools are clearly the choice as the primary engagement channel in the future, investors of all ages clearly express their desire to have in-person or phone-based consultation as part of the complete process.

Customers will move firms to get what they want

(1) ThoughtLab, 2022
(2) ThoughtLab, 2021
(3) "Wealth and Asset Management 4.0," Publicis Sapient, 2022

"Wealth and Asset Management 4.0," Publicis Sapient, 2022

Wealth management firms must take a multidimensional approach to technology transformation

The importance of a multidimensional approach to technology challenges

The technology challenges facing wealth management firms are complex. Market dynamics are rapidly changing and require significant step changes that span across the entire organization, from front to back office. As a result, deep technology transformation touches many elements at the same time which makes successful execution more challenging.

The areas of change can be grouped into three key dimensions that each having four components. The three-dimension/twelve-component framework can be applied to business challenges to better understand their complexity to produce better outcomes.

Organizational Dimension
Collectively, these components govern how IT organizes itself and aligns with business needs to drive deep and effective delivery. This dimension is comprised of innovation, enterprise architecture (EA), agile, and DevOps methodologies.

Experience Dimension
These are the key capabilities that are required to drive the extensive user experience transformation that wealth management customers are demanding. The experience dimension includes data, artificial intelligence (AI)/machine learning (ML), automation, and security.

Infrastructure Dimension
Organizations need to master these capabilities to support current customer demands to effectively deliver an open, integration friendly, and ecosystem-based customer solutions. Infrastructure is an essential part of the transformation process. The key components are ecosystem,cloud,integration, and digital.