In this piece, I would like to focus on the changing population within wealth management. The affects the client’s and advisor’s side as well as services demanded by the client and opportunities to sell services for advisors active in the wealth management industry.
Within this context, let’s look at what wealth management actually means. In my view, it’s not to advise how a client can plan asset income and expenditure during his own life, but to find ways to protect and build wealth in order to pass it down to the next generations.
With this in mind, the pool of clients involved will grow over time, family trees and structures will be built and new generations will take over management from older generations.
Currently in the developed markets, the average wealth management client is in his/her 60s and by 2024 this number will rise to 70. This group represents approximately 50% of total assets managed, which will lead to a tremendous wealth transfer with a new and younger generation taking over.
On the other side is the advisor who guides the clients through the process of managing wealth. The average age of a wealth management advisor in developed markets is in the early 50s, where already 25% of the advisors have reached retirement age. These advisors manage approximately 25% of total wealth management assets.
Let’s assume the wealth transfers are being made and look at it from both sides.
First, when a generational wealth transfer takes place, an advisor is at risk and therefore the wealth management firm as well. They need to reposition in order to achieve that the advisor / wealth management firm is still in touch with the views on investing, risk tolerance and the way the new generation wants to communicate.
Second, when an advisor retires, without a proper succession planning at the wealth management firm, clients will switch wealth management firms, or even more radical, switch their wealth model altogether.
Looking at this from a macro point of view, the asset base within wealth management is likely to grow, whilst at the same time the number of advisors shows a downward trend. This sum means that wealth management firms need to embrace and leverage on technology to be able to achieve the scale required to meet clients’ expectations.
Zooming deeper in on the expectations of the younger generation, one can see that their expectations differ quite a lot from the current generation. Younger generations aren’t looking for as much one-to-one attention, however if they want attention or answers to their questions, and they want to have it now, and preferably in a self-directed way.
The outcome of this is that almost two-third of the younger generation would switch wealth-management firms for a better technology platform. In itself this is not surprising given the above outcome of younger generation interaction preference, but this is also strengthened by the fact that 90% of millennials owns a smartphone and that 89% of them is checking their smartphone in the first 15 minutes after waking up. Being on the radar as wealth management firm in these 15 minutes is key, without the need of a personal advisor.
The expectations is that millennials will prefer to be self-directed advisors who can call on expert advice if needed. In combination with the fact that they are much more comfortable with technology, robo-advisors and AI, it’s no wonder that Millennials and gen-Xers are likely to prefer a computer algorithm over a financial advisor.
This is partly driven by the fact that almost 50% of millennials and gen-Xers would rather not pay for personal services.
One thing is expected however that all generations have in common: as life becomes more complex, all investors become more interested in speaking with an advisor, but mainly on the expert topics, not for regular easy-to-do-yourself matters.
What is it the clients want to speak with advisors about?
It’s mainly about their total wealth, clients do not want to speak with four advisors on 25% of their wealth each. Further they want to have market data and client data to being combined in order to be able to see what certain data means for their exact situation.
This means that they need to bring data from different sources together. This is becoming increasingly important because it gives much more computing power to provide a much better view on the universe and its investment opportunities and threads.
One key task for an advisor and wealth management firm is to be able to obtain the total client data and to identify the most relevant market data and to filter out the noise.
The above means that for an advisor and wealth firm to be able to function in the near future, based on the technological advances and client changing demands, the opportunity arises for a wealth management firm to function as a marketplace rather than as an individual vendor radar in the total client scheme.
A wealth management firm can choose to be the centralised place of data (also known as primary data platform) and then collaborate to provide a wider range of services to attract and to retain clients. These services can be in-house and external services, all depending on client wishes and demand.
This will result in an enormous attractive option for potential clients, because instead of choosing an individual vendor (or multiple) they simply can leverage on one data platform with possibility to incorporate the full suite of services by the data platform and all other third parties.
Creating such a platform within the WealthTech space will create a diverse ecosystem and there is no reason why a wealth manager would limit the potential access to this. The added value comes from having an open view on market developments and binding the content and workflow together, all with client centricity in mind.
In short, the biggest trend in wealth management is in my view the evolvement of wealth management data technology and the value it can bring to clients and advisors. It enables advisors / wealth management firms to operate outside of their own comfort zones.
Ultimately, the outcome is operating more efficiently, linking multiple solutions from multiple sources all on one wealth management platform which is the central point for client and market data.
On the client side it’s clear that they will be looking for opportunities and information beyond the current traditional investment strategies and the current qualitatively obtained and interpreted data. Being digital natives, the clients of the future will be aware of data, news and events that present investment opportunities. Successful advisors of the future will be able to filter the correct market information to clients, being able to analyse the full client data and demonstrate that they have access to investment solutions which clients are demanding, whether it is in house or offered by third parties.
Check6 is the party for advisors and wealth managers who enable the first step to wealth management as a platform. This is done by connecting to different sources of client data -- funnelling it all into one source with market data. All data can be combined in order to provide clients with context and the best possible analysis on their investment position, succession planning, advisor interaction and filling of third party systems so a client can benefit from the current technology, advisor expertise and best investment solutions available in the market.