Rules of success drastically change for wealth managers

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Before Covid, success in wealth management was all about scale and fees, which is why we saw so much merger and acquisition activity.

Another important factor has been the diversification of revenue.

Most wealth managers have expanded beyond offering discretionary investment services to high-net-worth private clients to distributing their capability to advisers. In the last decade, the larger players have even expanded their proposition to include a digital offering for self-directed customers. Some now offer goal-based financial planning services, too.

But the industry is in the midst of significant change. There is a new generation of investors to cater for, whose expectations and preferences have been shaped by new technologies and living through the last financial crisis and the market turmoil caused by Covid.

Shifting demographics and an upcoming transfer of wealth from baby boomers to their children will upset many established adviser/client relationships but create opportunities for new firms to grow market share. I suspect that is exactly what Chase JP Morgan is hoping to achieve with its acquisition of Nutmeg and launch into the UK market.

Looking to the future, the advance of technology will be central to the success of wealth managers. Differentiation by delivery matters even more than before.

Best in class companies have well-designed platforms focused on simplicity, speed and intuitive workflows. The technology is client centric, improving their experience.

To further differentiate and break away from the cycle of declining fees, a number of firms are prioritising hyper-personalisation in portfolio construction and product recommendations, where artificial intelligence, data analytics and machine learning are used to create proposals.

It is already possible to offer very detailed risk profiles, personalised portfolio advice and tailored product recommendations based on analysis of each client’s past behaviour and preferences. With the help of APIs, firms can provide more comprehensive client reporting by offering an aggregated view of all their financial relationships in one platform.

While new technologies can make the most of a firm’s data, a critical and often neglected first step is to build a strong foundation of data management and analysis.

There is no doubt the wealth management industry will continue to confront disruptive forces, but it is fair to say the rules of success are changing rapidly, and simply following a traditional model and doing the bare minimum will no longer be sufficient to keep pace.

Janine Menasakanian is investments consulting director at Altus