The wealth management industry is undergoing massive change, as any financial advisor working today can attest, but the transformation may be greater than many advisors think.

A survey of 2,000 investors and 500 investment providers worldwide, conducted by the Roubini ThoughtLab, found that “many investment producers … do not appreciate just how fast these changes happen—and the profound impact they will have on their business,” said Lou Celi, chief executive of Roubini ThoughtLab. “These are hardly normal times.”

In the report, “Wealth and Asset Management 2021: Preparing for Transformative Change,” the authors describe a “convergence of technological, economic, demographic and consumer trends” globally that “will turn the wealth profession on its head by 2021, reshaping customer expectations, disrupting business models, and altering advisor roles.”

The study was produced in conjunction with several sponsors, including Bank of Montreal, Broadridge, Financial Solutions, CFA Institute, Cisco, eToro, Schroders, SEI and State Street. 

The Changing Profile of Investors

By 2021 household assets will surge to $89 trillion in the top 25 global markets, with the biggest gains in emerging markets such as China and Mexico, and more than half of those assets will flow into the wealth industry, according to the report.

In North America, the majority of wealth in 2021 will be managed by women because of inheritance and their own asset accumulation, according to Amit Sahasrabudhe, Head of Wealth Management Strategy and Digital Solutions at RBC, one of 30 firms consulted for the study.

And over the next 30 to 40 years, $30 trillion in wealth assets in North America will be transferred from older generations to millennials, according to projections from the Bank of America.

With this shift comes changing expectations. More than half of investor respondents (52%) surveyed—including millennials, Gen Xers, and baby boomers—expect to expand their use of anytime, anywhere, any device access to their accounts, while close to half (43%) will desire personalized services.

How Wealth Managers Should Respond

Wealth managers need to respond to these changing customer demands or risk losing clients.

Kevin Barr, Executive Vice President of SEI Investment Management Unit, a sponsor of the study, said, “There’s no denying the monumental shift taking place in financial services technology. It’s being driven by investors and embraced by service providers who understand that the industry’s technology evolution is only speeding up.”

Close to half of investors surveyed indicated they are ready to switch from their current providers if those providers fail to meet their rising expectations. Millennials and women especially are more likely to jump ship if dissatisfied.

switching advisors

Adopting new technologies will be key to the staying power and success of wealth managers, and not just because of millennials and the wealth they will inherit.

While 32% of millennials expect their investment providers to use the latest digital technology, 41% of Gen Xers and 40% of boomers said they expect the same.

Technology-related issues accounted for three of the top five forces of change cited by both investors and investment managers who were surveyed.

Investors listed digital access to their accounts; investment managers listed new technology, including mobile analytics and social media. Both groups cited cybersecurity and fintech competition in the investment management industry.

“Technology may endanger many existing players. But it will also provide great opportunities to those who embrace it correctly,” said Andrew Wilson, senior vice president and head of AssetManagers Solutions EMEA at State Street.

digital leadership“Across all generations, all demographics; all segments, digital and omni-channel interaction will be mandatory for our clients in the very, very short term,” said Rodolfo Castilla, global head of Wealth Management Products and Platforms at Citi Consumer Bank.

Clients, however, may be more optimistic than investment management providers about the abilities of investment management firms to thwart cybersecurity attacks. Sixty-three percent of investors believe their providers are well-prepared for such attacks but only 48% of providers believe they themselves are.

Millennials Are Key

An important challenge for investment management firms is the changing mix of the types of clients they will be serving in the near and distant future as a result of the growing number of millennials, who will eventually be the primary source of the money many will be managing.

“The money will come from a more diverse set of consumers that are going to have much higher expectations, and millennials will be the real game changer,” Celi told ThinkAdvisor.

They are more diverse—about 50% are nonwhite—more urban, more female and very tech-savvy. And they have more complex feelings about advisors.

“They expect much lower fees and greater transparency [and want] advisors to truly add value because they are much more self-directed and reliant on their social groups. They will pay for advice, but it has to be advice that will do better than the S&P 500 index.”

In addition, Celi said, millennials “want a much more personalized service and customized service…and a lot of choice—not just equities but alternative investments such as hedge funds and real estate—and more socially responsible investments.”

millennials wantsThey value financial advice so long as it’s “holistic, personalized and tech-savvy,” said Celi.

His advice for advisors: rethink your role and adjust to a growing millennial audience.

How Investment Managers Can Stay Competitive

In addition to making adjustments to serve more millennials, and adopting new technology to serve them, the Roubini ThoughtLab survey lists several other strategies investment managers and advisors should pursue, such as making customers more central to their approach and bringing the right talent on board as they transform their business.

Ultimately, the most successful and competitive firms will be those that have transformed themselves digitally into an omni-provider, which Celi defines as a firm that provides access to its services via any channel—be it online, face-to-face or mobile—in a seamless, integrated fashion so that the client has the same experience no matter what channel they use.

Such experiences will be particularly important to millennials and other digital natives who want “anytime, anywhere, any device” access, according to the report .

Most digital leaders (59%) are still in the early stages of developing their omni-channel capabilities, but by 2021, 57% plan to be fully integrated omni-providers and 30% expect to be almost there, according to the report. 

In the meantime those firms in advanced stages of digital transformation, which the report calls “digital leaders,” reported that last year they increased assets under management by 7.2%, profitability by 6.8% and productivity by 9.4% through the use of technology.

They are firms like Citicorp, UBS, Fidelity, Schwab and Vanguard who have their own internal robo-advisor, are developing one or have partnered with another firm to provide that service.

Ultimately the winners in the digitally and demographically transformed wealth management universe will be “the large full-service institutions, mutual funds companies and trusted names in wealth management,” according to the report. “These organizations may be better equipped to meet the rising demand for specialized expertise, responsive 24/7 service and wider investment and financial services.” They will not be the standalone fintech firms.

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