The wealth management industry has had a paradigm change in the last few years driven by changing demographics, more and more millennials joining the investing wagon, and rapid digitalisation. The year 2021 has been nothing less than a Midas Touch for investors. The equity market continued to soar to new highs, drawing a large number of first-time investors. Testimony to this fact is that demat account openings hit a record of 14.2 million in FY 2021.
Investors of today are more informed, have access to expert knowledge and tools and are actively planning for their finances. There is a growing trend towards being self-reliant rather than being dependent on parents for meeting lifestyle needs. A new generation of investors thinks differently about advice, brings new attitudes and expectations and also influences how older investors purchase and consume wealth services.
Increasing Need For Advice
Financial markets have become complex due to a wide variety of investments options available in the market today. Investors are often left confused regarding which products to invest in and how to determine the suitability of these choices based on their own risk-return profile. The need for an unbiased wealth manager, who can handhold and guide the investor suitably, has, therefore, increased manifold. Investors value holistic advice on how to achieve multiple, often conflicting, goals through a range of investment and funding strategies.
While this means new opportunities for the wealth managers, excessive competition has also posed new challenges to sustain, grow, and strive in the market. This is a challenging macro environment for investors and their advisors to find the right return-risk combination. Increasing regulatory burdens and rising costs of risk pose new challenges to wealth management firms and their parent companies.
Easy-To-Use Advisory Platforms
The rise in smartphones and internet penetration has exposed investors to the world of technology. Investors are now increasingly moving toward platforms that have easy-to-use interfaces where investments can be made with the click of a finger.
The urgency of digitalising the wealth management infrastructure has never been stronger. Digital wealth management is not limited to offering digital channels for transacting; it extends to using technology to offer greater value, professional service and improving the customers’ investment experience all in an unbiased way.
The rise of digitalisation has also given rise to robo-advisors, which are automated, algo-based systems that provide wealth management advice. These easy-to-use platforms have made the whole investment process accessible and affordable to a large section of people, thus bringing science and human combination in advisory models.
Big data and advanced analytics are transforming the industry with new ways to engage with new clients, manage client relationships and manage risks.
Collaborating with wealth tech providers can help the traditional wealth advisory firms expand their capabilities and enhance digitalisation faster and in a cost-effective manner.
Goal-Based Financial Planning
Investors are becoming more and more conscious of milestone-based planning and want to invest for them well ahead. These goals may be either short term like buying the next iPhone or a vacation to the Bahamas or longer-term goals like child’s education, retirement, etc. Wealth managers need to rethink their wealth management strategies beyond wealth maximisation and offer financial planning solutions that cater to these goals. Longevity concerns are increasingly or should be at the heart of client advisor conversations, even years ahead of retirement.
Moving Away From Traditional Asset Classes
Investing is no longer the privy of high networth or ultra-high networth individuals (HNIs and UHNIs). More and more retail investors are moving beyond traditional asset classes like fixed deposits and bonds because of sub-optimal real returns. They are demanding access to the same asset classes and investment strategies as HNIs and want to explore alternative assets like structured debt, private equity, commodities, hedge funds, cryptocurrencies, etc. Wealth management offerings are thus going to change drastically and move beyond the usual run of the mill to more sophisticated products.
Moreover, wealth management solutions will no longer remain a one-product-fits-all strategy and will move towards customised advisory based on the risk appetite, goals and time horizon of the investors.
Two demographic trends to note are that advisors are aging and leaving the industry faster than firms are replacing them; and wealth is about to change hands, upsetting the established client advisor relationships.
The customer has and will continue to play a key role in designing wealth management strategies. An in-depth understanding of the customer journey, the challenges they face, and the solutions they are looking for will go a long way in improving the user experience at every touchpoint.
Technology is going to play a pivotal role in understanding customers’ data and enhancing their overall client service. Various data analytics and artificial intelligence tools can empower the advisors get more insights into the client’s savings and investing pattern and will help in customising the offerings accordingly. After all, customers want it all; personalisation, low fees and high returns.
In a nutshell, the wealth management industry is at the cusp of a transformation and most of the future trends are related to accessibility, technology, and customer-centricity.
However, the time-tested fundamentals of investing still remain the same and should be kept in mind when building and managing investment portfolios.
The author is CEO, Tavaga Advisory Services