With everything going on — the COVID-19 pandemic, working from home with children and pets, and global economic uncertainty — it can be a struggle for advisors to maintain and grow their businesses. As Capgemini acknowledges in its recently released World Wealth Report 2020, advisory firms have been “tossed” into “unchartered waters” this year.
But after reading the report and listening to the related virtual discussion on the state of the wealth management industry, which I had the honor to help create, I am at the same time optimistic for advisory firms.
Amid the global uncertainty, there are three trends that advisors need to focus now to not just maintain, but also grow their businesses in the months and years to come:
One of the key takeaways from the Capgemini report is that high-net-worth individuals (HNWIs) want more from their advisory firms in return for the fees that they pay.
Around one-third of the HNWIs surveyed for it said they were “uncomfortable” with the fees they paid in 2019, and that was for the fees they paid before the pandemic. The report surmises that 2020’s economic volatility may put “enormous pressure” on advisory fees “as gaps between HNWI expectations and reality widen.”
This means that advisors can’t rest on the laurels of investment performance to justify their fees. However, there’s a bright spot.
Advisory firms can provide technology-driven, hyper-personalized advice and reports to address HNWIs’ expectations and lock in future growth, according to the report. And, best of all, these tools for hyper-personalization already exist — which brings me to the next trend.
2. The Blending of Technology and Human Advice
The growth of robo-advising may have given technology a bit of a bad rap in the traditional advisory space. However, the hyper-personalization that I described above requires that firms embrace new technologies, not shy away from them.
Artificial intelligence (AI) and analytics can help firms create, for example, more tailored risk profiles, personalized portfolio construction and advice, and customized client reports, according to Capgemini.
And that’s not all. Advisors’ work processes benefit from these technologies as well.
For instance, firms can use Application Programming Interfaces (APIs) to improve the advisor desktop, so that it provides a more comprehensive view of a client’s investments, rather than an advisor having to move between different dashboards to track a single client’s full portfolio, the report notes.
3. Socially Responsible Investing (SRI) = Opportunity
Amid the volatility and economic uncertainty that characterized the beginning of this year, funds that focused on SRI “have been a rare bright spot,” Capgemini’s report says, citing Morningstar statistics showing that more than $20 billion flowed into funds that invest in environmental, social and governance (ESG) practices.
The results of Capgemini’s global survey of HNWIs also reflects wealthy investors’ hunger for SRI. For instance, the HNWIs surveyed plan to allocate 41% of their portfolios to sustainable investment (SI) products by the end of this year and 46% by the end of 2021, according to its analysis.
Altogether, this means that SRI is crucial for advisory firms to build business. Indeed, the report calls the growing interest in SI a “high-potential product opportunity” for firms. “As firms look to bolster revenues amid uncertainty, sustainable investing and value-added services are the way forward,” it states.
Of course, for years, experts have been saying that wealth managers need to avoid a one-size-fits-all approach, and to embrace technology and SRI to remain successful. But what’s different now is the urgency of it.
When the COVID-19 pandemic forced in-person events to cancel left and right, Capgemini and The Rudin Group had to quickly pivot and move online the global event planned to correspond with the release of the World Wealth Report 2020.
Similarly, for the wealth management industry to succeed in what the Capgemini report refers to as “unchartered waters,” advisory firms have to spring into gear and embrace new ways of doing things.
As Anirban Bose, CEO of Capgemini’s Financial Services Global Business Unit and its Latin America operations, sagely writes in his preface to the report, “Your firm’s response to the events of 2020 and the ability to effectively engage with clients whose priorities may be shifting can define the future of your business.”
Brooke Worden is president of The Rudin Group, a wealth marketing strategy firm specializing in creating actionable plans for financial services’ firms, non-profits and others who seek ultra high-net-worth and high-net-worth clients.