The wealth management industry of 25 years ago probably wouldn’t recognize the industry of today.
In 1994, exchange-traded funds were just a year old and collectively held just $100 million in assets. Equity and fixed income trades settled in five days. Financial plans came from human beings and consisted of spreadsheets and Microsoft Word documents. Cash transactions were processed manually. Just 16 million people used the internet.
Fast forward to today. More than $4.5 trillion of assets are held in ETFs. Trading settlement is down to two days. Investment advice and allocations are made by advisors — both human and digital advice solutions — that have transformed how investment accounts are opened, managed and tracked.
At the heart of these changes are technology and data. Financial technology has pushed wave after wave of change in the last quarter century. Here’s what the next 25 years will hold.
Same Money, Younger Wallets
The next generation of wealth is coming of age as baby boomers shift billions to younger generations, namely Generation X, who are already amassing significant savings of their own.
This transition will usher in a shift in banking priorities. Millennials, who came into their financial prime during the Great Recession, have generally low levels of trust in traditional banks and of the stock market. Gen Xers aren’t much better. According to the 2019 FIS PACE Report, Gen Xers have the lowest overall satisfaction with their primary banking provider and low rates of relationships with financial planners.
Meanwhile, a whole new set of customers, that of Gen Z, threaten to further disrupt the industry with their embrace of the next wave of wealth management products and non-traditional providers. These younger investors care as much about social causes as investment growth. To serve their needs, wealth managers will need to go beyond income and net worth. They will need to gain a deep understanding of their clients’ interests, causes, principles and passions.
In this brave new world, data — not money — becomes a wealth professional’s most important “asset” under management. With the velocity and volume of data flowing across the enterprise continuing to increase, the banks and wealth managers that will succeed will be those who hold the richest pool of data and do the best job of mining it to provide personalized, micro-segmented services and investment advice to their clients.
To get there, a lot of modernization needs to get done. The technology infrastructure underpinning most traditional wealth management firms today isn’t ready for the task ahead. Banks and wealth management firms that hold back on major technology transformation due to cost, or time constraints, or other reasons risk being left in the dust by the competition.
The fintech sector can discuss AI, robotic process automation, and the future of technology until they are blue in the face, but the undeniable fact is it all comes back to data. As we enter the next 25 years, banks and wealth management firms need to be sure they’re in the best position to process that data — and win the future.
Luke McCabe is head of Global Wealth at FIS.