Street signs for Wall St. and Broad St. hang at the corner outside the New York Stock Exchange

Wealth managers must adapt or be left behind: report

A new white paper from Roubini Thought Lab in partnership with a group of financial institutions lays out in detail why investment advisors and wealth managers need to adapt on several fronts if they wish to remain relevant.

Wealth and asset management 2021 – Preparing for transformative change was prepared in partnership with Cisco, Bank of Montreal, Broadridge, the CFA Institute, eToro, Schroders SEI and State Street. It surveyed 2,000 investors and 500 wealth management firms in 10 world markets.

Respondents were quite clear that technology will play a key role in their future activity. Of the top five external forces of change cited by investment providers, three – the rise of mobile, analytics and social media, a greater range of competitors including fintech firms, and cybersecurity threats, are directly related to technology.

There’s plenty at stake in the next decade. Emerging markets such as Poland, China and Mexico along with developed markets like Canada, Israel, Australia and France are forecasted to see large gains in household wealth. By 2021 the United States will see the largest single increase in household wealth of any nation, with a $44 trillion influx bringing total assets to $152 trillion.

Much of that increase will come when Generation X and millennials receive their inheritances and that’s when the fun starts. Younger generations have different expectations of institutions and won’t hesitate to switch providers if their needs are not being met.

Street signs for Wall St. and Broad St. hang at the corner outside the New York Stock Exchange
Street signs for Wall St. and Broad St. hang at the corner outside the New York Stock Exchange

Many of those expectations come from a different relationship with technology, as younger generations expect personalized service, more knowledge and greater professionalism.

But not all professionals are prepared. While 63 percent of investors expect their advisors to have strong knowledge of cybersecurity measures, only 48 percent of advisors say they are well prepared for a breach.

Millennials and Generation X want to interact with their financial planners at any time from any device while paying reduced commissions and enjoying increased transparency.

Many investment advisors think they have a handle on which changes are coming but will be surprised by which ones actually come. While 55 percent of advisors expect a stronger demand for socially responsible investing, only 29 percent of clients expect it. More than half of advisors also expect clients to use them more than self-directed measures but only 32 percent of clients concur.

While younger generations may be more comfortable with technology, older generations and the wealthy want greater technological access.

New expectations mean new product and marketing approaches, and the ability to provide good advice in the midst of this change could be the deciding factor on who survives and who does not. Expect a shift from index-based funds to products focusing on absolute returns. Behavioral segmentation, correlation identification and increased data analysis will identify both customers and the products best suited to their needs.

While fin-techs get most of the attention as disruptors, institutions should be more worried about the threat coming from Apple, Google and Amazon, who have the best command of, and access to, data and technology. Three quarters of full-service banks and 67 percent of mutual fund companies say they are actively building out their technology through a combination of in-house development, partnerships, and acquisitions.

In the future, successful wealth advisors will need to pick up their games by being more tech savvy, responsive and empathic to their clients’ needs. They must be able to illustrate and in some cases quantify their value.

Clients will still want a personal connection to their advisors but are happy to interact more often via Skype and other technologies.

The future of wealth management will look dramatically different. Many respondents expect virtual reality, artificial intelligence, web analytics and sentiment analysis to play key roles.

So will the blockchain. Those firms that generated a majority of their revenue from intermediary services are most at risk. Banks could save as much as $20 billion annually by 2022 on back office tasks made easier by blockchain technology.

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