Digital transformations are redefining how clients interact and engage with wealth managers. Increasingly, firms are automating elements of common processes such as client onboarding, data entry, and simple transactions. At the same time, a digital-first approach to client engagement is driving the uptake of new channels and touchpoints as firms find new ways to deliver wealth management experiences.
As the industry evolves, demographic transformation is bringing new client segments through the doors of private banks. While a certain part of this is related to natural generational turnover, the digital revolution has added another dimension. As a result, the who of wealth management is changing just as much as the how.
With these shifts coloring the background of today's wealth management landscape, let's take a closer look at the trends in the foreground.
1. Democratization of investing
Digital capabilities have given rise to a strong mainstream investing market. As a more accessible format than previous wealth management services, digital investment services have had a democratizing effect. Now, industry access is not rigidly defined by age or wealth strata.
Among the new entrants, younger client bases are a formidable force. The Millennial and Gen Z demographic are driving a considerable portion of the demand for wealth management, and they're bringing a new set of client preferences and values into the industry with them. As a general overview, these new investors are likely to be more individualistic, question traditional authorities, and be warier of risk (Deloitte). Thus, wealth managers will need to find ways to cater to a diversified clientele.
A key service offering for the mainstream investing market has come with advances in AI and automation. Robo-advisors are growing in popularity, although reports suggest that robo-advisors still only manage a small proportion of total assets under management (Statista). Whether robo-advisory preferences pick up or slow down, one thing is certain: digital technologies will be critical in capturing the imaginations of new entrants to the wealth management landscape.
2. The Great Wealth Transfer
In financial terms, a pivotal generational shift is on the horizon of the wealth industry. Coined the Great Wealth Transfer, experts estimate that close to $60 trillion will flow from one generation of adults to the next before 2060 (Capgemini). That would make it the most significant wealth transfer in history.
This is likely to spell problems for firms bent on traditional methods. A staggering 80% of HNW millennials will seek a new financial advisor upon receiving the family inheritance (Capgemini). With innovative firms offering mobile-optimized digital experiences, many inheritors see that they can shop around for modern wealth management services. In light of this, firms cannot afford to take family loyalties or long-standing clients for granted.
Since inflation has ceased to be a major challenge over the past 40 years, the vast majority of financial advisors have never needed to tackle it. Today, the economic impact of the pandemic has culminated in soaring inflation, with Forrester reporting a 5.4% rise in the US consumer price index last year.
Consumer morale is at a low point, with many of them anticipating that prices will keep rising (Forrester). Wealth managers' ability to handle inflation and maintain net worth will therefore be the litmus test of client trust among new and old clients alike.
Financial services trends
4. Crypto and digital assets
Digital has not only changed the delivery of advice in wealth management, but the kinds of assets we manage. Cryptocurrencies and digital assets have entered the mainstream as more and more tech-savvy HNWIs add them to their investment portfolios. 72% of these individuals have invested in crypto markets—rising to 91% for HNWIs under the age of 40 (Capgemini).
Firms have consolidated the mainstreaming of what were once alternative investments. Today, a growing number of reputable firms have crypto funds and asset managers who can offer expertise on digital assets. In 2022, the more serious investor has plenty of options for investment in crypto assets and digital asset classes.
5. Sustainable investing
Sustainability is a far greater consideration for investors today than ever before. The heightened awareness around ethical and environmental issues is driving wealth management clientele to demand ESG expertise from their investment advisors. This is particularly pronounced among the incoming generation of investors. Today, 39% of HNWIs younger than 40—as well as 43% of ultra-HNWIs—are likely to ask their firm for an ESG score when deciding whether or not to invest (Capgemini).
6. Personalized stock indices
Like many other industries, the demand for personalization has become an important trend in wealth management. Effective implementations of this include customized investment recommendations and hybrid digital advisory experiences, which empower clients to choose the channels that are right for them.
In response, firms are striving to refine their offering with more personalized products. Made possible by the emergence of fractional share trading (which allows investors to purchase a portion of a stock), personalized stock indices fuse the benefits of passive investing with new customization features. By leveraging advancements in data and analytics, personal stock indices are set to raise the bar for tailor-made investment products.
Customer experience trends
7. Hybrid advice
Meeting client demands and tapping into the mass affluent segment will require a digital-first approach to engagement. While digital engagement has been gaining traction for some years, the advent of the pandemic left many firms with no other choice.
Now that digital communication has become a permanent feature of wealth management experiences, today’s central CX challenge for wealth managers is balancing automation and digitalization. This way of doing hybrid or holistic advice will offer clients digital channels without neglecting the importance of human-led interactions and personalized services, keeping them accessible to those who want them.
Designing effective hybrid experiences means considering the entire client journey. For instance, it may be that online advice is the initial point of contact for clients who go on to use a variety of in-person and digital services.
8. Client centricity
Client centricity doesn't flow automatically from vibrant digital ecosystems. Leading firms are refining the strategies and design concepts behind their digital platforms, ensuring that any digital deployments work to enhance experiences and client reporting rather than simply cutting costs.
Client-centric approaches should also hone in on the “advice gap” in wealth management. This so-named gap limits access to financial advice so that it is only the wealthiest who can attain it. In the UK, for instance, it has been reported that a mere 8% of adults engage with formal advisory services (FCA).
Forward-looking and challenger firms might seek to lower the barrier to access by targeting audiences outside of HNWIs and corporate clients. Advanced digital tools, like predictive analytics that help to deliver personalized services and offers, may be suitable for the needs and means of a broader audience.
The introduction of digital channels and communications in finance inevitably complicates the security situation. Because wealth management services typically involve handling highly sensitive data, the security risk is particularly pronounced in this sector. Add to that the obligations in a given regulatory environment, and it's easy to see why digital wealth management presents a major cybersecurity challenge.
Nonetheless, a crucial part of next-generation CX will be about assuring clients that their data, digital assets and investments are protected. Today's clients are acutely aware of the threats surrounding data protection and privacy, and they will expect to see it taken seriously by their firm of choice. It will be on wealth institutions to implement robust cybersecurity frameworks and ensure that all their digital tools meet the highest compliance and security standards.
10. Frictionless onboarding
Onboarding is a vital step in the client journey, but it is often neglected by wealth management firms. Many still rely on manual and paper-heavy processes that take weeks to complete.
Given that onboarding involves a lot of personal data and legal data, innovation is required to make onboarding secure, accurate, and efficient. There is no reason why digital tools can't enhance the process, but few firms are taking the steps to do so. None of the banks questioned in a recent survey said that they’d consider their onboarding process to be “very convenient”—but more automation in onboarding is a future aim for 95% of wealth advisors (Deloitte).
Wealth management industry trends
11. Partnerships and acquisitions
Today’s institutions need to advance technical capabilities at an unprecedented speed. Partnering up with digital-first start-ups is a smart strategic move, sourcing high-level digital expertise that can add immense value to a firm's offering.
As major firms look to win their mass affluent market share, new mergers and acquisitions are taking place. UBS’ recent acquisition of digital-only platform Wealthfront is aimed at millennial and Gen Z investors, while Charles Schwab has secured fintech and data science pioneer Motif. With future growth relying on the loyalties of a new wave of investors, major firms are waking up to the fact that digital innovation is a competitive threat.
12. Remote work
The pandemic is causing increasingly less disruption to society as a whole, but its long-term impact has undoubtedly altered the culture of work. The uptake of remote work presents wealth management firms with great opportunities, but it also presents complex questions for compliance, authentication, and employee well-being.
For many firms, hybrid work formats can provide the best of both words, but they can't become desensitized to possible shortcomings. There must be protocols in place to ensure that hybrid working arrangements function as seamlessly as any other way, which includes keeping all digital interactions compliant.
13. Evolving workforce
Financial advisors are an ageing population. 43% of US financial advisors are aged 55 or over, with approximately one-third of the workforce set to retire in the next 10 years (Deloitte).
The loss of experience will be felt by many, but innovative firms are seeing this as an opportunity to refresh their workforces with strengths and competencies that are in demand. Instead of insisting on years of experience and education, HR departments are moving towards a preference for growth mindsets that nurture a resilient workforce. Adaptable and agile employees will be vital to sustained growth—but they’ll also expect their employers to implement hybrid and human-centric ways of working.
Keeping tabs on the trends that matter
As a technology partner of over 160 financial institutions worldwide, Unblu holds a unique position in the wealth management space. Drawing on our experiences and in-house expertise, we regularly publish resources for those in and around the wealth management industry. Our Digital Wealth Management Outlook 2022 takes a more in-depth look at this year's biggest trends in wealth management, available to download now.