The wealth management industry is on the brink of massive changes that will transform the landscape in the next five years, and nearly half of investors are set to dump their advisors if they do not keep up, according to a coalition that joined forces to study the future of the industry.
Trillions of investment dollars are at stake, more investors will be created and technology will leave the slow behind, according to Joseph Pagano, financial services lead and head of business transformation at Cisco Systems. Cisco is a lead sponsor of the study, Wealth and Asset Management 2021, released Wednesday.
The report, Wealth and Asset Management 2021, says the shifts in world economics “will unlock tremendous global wealth, but also raise investor expectations for new advisory and digital solutions that many investment providers are not yet prepared to offer. If their new needs are not met, 48 percent of investors declared that they will switch providers.”
Currently there are $160 trillion globally in assets under management. The number will increase by another $50 trillion in five years.
“The expansion will force advisors to improve service levels,” he says. The report is based on a survey of 2,000 investors and 500 investment providers. The data was analyzed by Roubini ThoughtLab, a consulting firm for the financial industry based in New York City.
Household assets will rise by $89 trillion over the next five years with the biggest gains coming from emerging market countries such as China, Mexico and Poland, the report says. These changes mean investors will expect more from wealth managers including more customized solutions (72 percent), access to wider investment options (64 percent), greater cyber security (63 percent), and the use of the latest technology (62 percent).
At the same time, clients will want access to advice 24 hours a day (51percent), advice that delivers high returns (40 percent), digital proficiency (37 percent), broader financial and life-planning advice (36 percent), and lower fees (35 percent).
“The big winners in this massive shift will be the full service wealth managers, if they can keep up,” Pagano says. “A new demographic is emerging because anyone with discretionary income can now invest. Technology will bring hundreds of thousands of new investors into the market and if all an advisor is doing is allocating assets, then fintech can do it faster and cheaper.”
The report shows only 48 percent of advisors say they can ensure cyber security and only 47 percent say they can offer investment options across asset classes and global markets.
“The winners in this new playing field will likely be large, full-service institutions and mutual fund companies,” says Lou Celi, CEO of Roubini ThoughtLab. “These financial giants may be better equipped to meet the rising demand for specialized expertise, responsive 24 x 7 service, and wider investment and financial services.”
However, 45 percent of investors say fintech solutions are valuable when used with traditional investment services. Most wealth firms say they are developing new digital capabilities, such as account access anytime, anywhere on any device (55 percent), technology-enabled planning tools (45 percent) and improved performance analytics (41 percent).
The research indicates that wealth companies will transform their strategies, products and business models to become fully integrated, digitally driven businesses by 2021. Firms currently in the advanced stages of providing digital transformation report that last year they increased assets under management by 7.2 percent, profitability 6.8 percent and productivity by 9.4 percent.
“Crucially, the research reveals five key pathways to success used by today’s digital leaders,” the report says. “They are investing adequately in new technologies (41 percent), making the customer central (37 percent), nurturing an innovation culture (33 percent), developing an effective transformation process (32 percent), and bringing the right talent on board (31 percent).
“Even in normal times, wealth executives face a complex set of global economic, market and regulatory challenges. But, these are hardly normal times,” says Celi. “Many investment providers in our survey do not appreciate just how fast these changes will happen, and the profound impact they will have on their business.”
