2022 could be a critical juncture for the wealth management industry. Conditions that pushed markets to record highs are poised to slow and may reverse, with interest rates ticking up, fiscal stimulus tapering off, and asset purchases by central banks starting to moderate. This weakening of the tailwinds that helped drive performance could force a reckoning for wealth managers that delayed structural reforms to their business models. Nevertheless, while working extensively across the industry in 2021, we have seen most wealth managers capitalize on ever larger wealth pools and march ahead with enhancements across client propositions, delivery, and operating models. In a bid to stoke inspiration as our clients continue this journey into the new year, we have set out ten big ideas for wealth managers to stay on the front foot and position themselves for continued success.
Ten Ideas for Wealth Management in 2022
1. The need is growing for intelligent, personalized advice at scale
Some 70% of clients believe the degree of personalization is one of the most critical factors when deciding on a wealth management advisor. Automated and timely client recommendations are a material differentiator for advisors as they look to reinforce their value propositions. Clients also expect more personalization of advice over time as systems as well as advisors learn and adapt to their preferences. While in the past wealth managers had to make trade-offs between personalization and scalability, the ability to aggregate and analyse data across disparate systems (including CRM, financial planning, portfolio construction, and other third-party tools) is forming the backbone of the effort to provide personalized advice at scale. Investments in data analytics infrastructure and partnerships with third parties are often required, but firms that have implemented data-driven personalized propositions have achieved up to 20% net new money growth.
2. Hybrid advice is required to meet evolving client expectations and tap the affluent opportunity
More than 60% of clients who would consider using fully automated advice believe it is vital to also have access to human advice. COVID-19 underscored the importance of hybrid advice models. Throughout the unprecedented market volatility of the pandemic era, clients have leaned on advisors for counsel. In most instances, fully digitized advice was not sufficient. As leading incumbent banks in the retail space learned, without human activation digital channels tend to go stale. Wealth managers need to accelerate construction of hybrid advice propositions to ensure they meet these developing client expectations for omnichannel engagement. The benefits at stake for wealth managers are substantial, including tapping the lower-high-net-worth-investor and affluent-investor revenue opportunities, achieving lower costs-to-serve, and improved client advisor productivity.
3. Private-markets offerings are becoming a must-have rather than a nice-to-have
High net worth investors are still under-allocated to private markets vs. institutional investors, in part due to various supply and demand barriers (lack of access, regulatory complexity, lack of education, perceived liquidity needs, and so on). These barriers are easing, and high-net-worth investors are expected to significantly increase allocations going forward, from 3% to 5% portfolios now to 8% to 10% by 2025. Wealth managers need to find a way to offer clients attractive private markets and broader alternative investments at lower ticket sizes. Access to first- and second-quartile managers will become a differentiator over time and will offer a balance across sleeves (private equity, private debt, real estate, infrastructure, hedge funds, and so on.) However, not every wealth manager can or should build the required capabilities in-house. Partnerships with alternatives platforms or other third-party providers can act as a shortcut to access and distribute attractive private market products, while also helping deal with the regulatory and operational complexity.
4. A digital assets strategy and proposition will be indispensable
Digital assets have evolved into a $2 trillion to $3 trillion asset class with exponential growth in wallets and demand, increasingly driven by high-net-worth investors, family offices, and institutional investors. More than 50% of high-net-worth investors are already investing or intending to invest in crypto and expect their wealth managers to facilitate access to and advise on it. Many wealth managers and banks have started to build out propositions (especially in the United States, but increasingly also in Europe, Asia, and so on) in collaboration with a growing ecosystem of firms that provide core components such as market access, custody, know-your-customer and anti-money-laundering compliance, and tech stacks. Regulations and central banks are further speeding up mainstream adoption by creating regulatory regimes and exploring central-bank digital currencies. Given the pace of adoption, wealth managers without a relevant offering are increasingly making an active bet against the asset class and its global financial and wealth infrastructure.
5. Shifting from ESG products to ESG experiences
To date, wealth managers’ primary focus has been on developing and launching ESG products to satisfy the burgeoning demand for all things ESG. This is going to change as clients recognize their needs are not being fully met by purchasing undifferentiated products. While all products will have to continue satisfying clients’ basic financial needs, leading firms will take a “customer first” approach to enable ESG across the entire client journey, where product design is just one aspect. Clients will seek offerings that satisfy higher-order needs like sparking joy, building trust, fostering community, and finding purpose. To differentiate their ESG propositions, leading wealth managers also will help clients choose where and how to generate impact and provide high-quality impact reporting.
6. A will be a catalyst for growth, profitability, and capability improvements
Despite consolidation picking up over the past year, wealth management continues to be one of the most fragmented segments of financial services. The case for consolidation is clear in theory: it allows firms to foster growth, close important capability gaps, and mitigate increasing cost pressures via economies of scale. In Europe, large wealth managers have a 10 percentage point and 20 percentage point cost/income ratio advantage compared with their midsized and small peers, respectively — a fact that is increasingly attracting financial investors to explore buy and build strategies in the space. M&A must move further up the agenda of management teams, even if in practice execution is difficult and only those that create a modular operating model or platform that can easily absorb M&A flow will succeed.
7. Firms need to embrace clients’ holistic financial wellness via partnerships as ecosystems become more mainstream
To preserve their economics and meet client demands, wealth managers need to offer more holistic solutions. The best way to extend their offerings to non-traditional assets and services is to partner. New marketplace solutions and ecosystems allow wealth managers to connect with partners that provide access to insurance, banking, health, and other services. Such ecosystems that enable wealth managers to provide a 360-degree financial wellness proposition will become increasingly mainstream in 2022.
8. It’s time to redesign the coverage model and the role of the advisor
Given the greater prevalence of remote client engagement, increasing client preferences for omnichannel and digitally supported interactions, and significantly deeper discretionary mandate penetration, traditional front-office coverage models and advisor roles are ripe for re-design and evolution. The redesign should consider digital up-tooling (such as prospecting and client service management), relocation of advisors to centralized hubs to drive scalability, and reviews of performance measurement and incentive schemes to reflect the new normal. Roles and responsibilities will likely need to (re)position relationship managers as guides to a breadth of capabilities, given that many traditional activities will be digitized and automated. Leading wealth managers doing this will improve organic growth and reduce reliance on unsustainable advisor hiring-driven growth.
9. We are entering a new paradigm when it comes to managing revenues in a dynamic way
Following several years with increasing margin pressure linked to higher fee transparency, changing regulation, new and digital competitors, and increased client attention, wealth managers need to reinforce a systematic approach to manage revenues in a dynamic way. Firms that have addressed this have achieved revenue uplifts of 15% to 20% and sustained them over time. In order to succeed, firms must possess a profound understanding of the revenue potential linked to better pricing and sales management, identify tailor-made improvement actions on a client level, and align the interests of the firm and its advisors with a more revenue-oriented incentive scheme. Wealth managers can turn to new tech solutions that apply data analytics and artificial intelligence to support them in exploiting this opportunity.
10. Brace for the increased risk of cyber-attacks as the industry is increasingly shifting to digital
Cyberattacks represent a growing risk for wealth managers as they continue to shift to digital. The increased interconnectedness, including through API integration of the wealth manager ecosystem and work-from-home setups, creates risks for client data, intellectual property, and other components. Implementing additional measures for extra protection will be paramount to protect against financial and reputational damage. Demonstrating these measures to new and current clients will become more important to secure the “return of money” that is so important to wealth managers.