december 07, 2023
Wealth advisors are navigating uncertain economic times, shifting demographics and changing client needs. Standing still isn’t an option, and those organizations leading the pack are exploring and implementing innovative ways to future-proof their businesses.
Over the last decade, many organizations have invested in expanding their digital footprint to add value and simplify customer journeys. But digital transformation and modern platform offerings are table stakes. It’s no longer enough to be a digital business — firms must focus on strategic, intentional and customer-centric use of technology to capture a greater market share.
By delivering meaningful client experiences and enabling scale, technology can help bridge the persistent innovation gap in wealth management. And the rewards could be impressive. The global wealth management market size was valued at $1.25 trillion in 2020 and is projected to reach $3.43 trillion by 2030.
Want to build a case for transformation? We dive deeper into the forces driving industry change and the reasons wealth management organizations can’t afford to stand still in an evolving market.
An emerging wealth segment
As the UNHW (ultra-high-net-worth) and HNW (high-net-worth) markets become increasingly saturated, growing affluent and lower HNW segments are becoming targets for wealth managers.
According to research by Oliver Wyman's Wealth and Asset Management, these segments — representing those with more than $300,000 and less than $5 million in wealth — account for a revenue pool of $230 billion, with only 15 to 20% of this group being served by wealth managers today. These segments are expected to create $45 billion of new revenue and account for about 60% of the total wealth advisory revenue pool by 2026.
Forward-thinking wealth advisory firms must tailor their offerings to a new (and often younger) audience who expect seamless digital experiences and a more self-directed investing experience. This means reevaluating traditional wealth management journeys and investing in digital tools that meet the needs of a new generation of customers.
The rise of the female investor
Another fast-growing group of investors, according to Oliver Wyman, is women. Female investors currently make up more than 40% of high-net-worth individuals, and this proportion is expected to grow in coming years.
The research also found that women are more risk-averse and more focused on long-term investments than men. In a traditionally male-dominated industry, wealth management firms must work harder to cater to a wider range of needs, with a focus on unique and personalized experiences.
A demand for new investing opportunities
Rising interest rates and inflationary pressures are resulting in increased demand for alternative asset classes and specialized products that provide higher returns. Investors are turning to alternative investments such as hedge funds and private equity.
Demand for specialized products such as IPOs, tax-exempt investment, commodities and derivatives, REITs, and structured products is also rising. Meanwhile, an aging population means pensions, annuities and whole-life products that offer longer-term, tax-sheltered returns are moving up priority lists. The jury is still out on cryptocurrencies. While a small percentage of investors see them as the future, many are concerned about regulatory, market and cyber risks.
ESG (environmental, social and governance) factors are also shaping investment trends. An HSBC Life report found that 72% of advisors have seen an increase in demand for ESG and sustainable investments to be held in onshore bond structures.
Similarly, the success of fintechs like OpenInvest — the value-based investing company acquired by JPMorgan to meet its goal of facilitating more than $2.5 trillion in ESG investments by 2023 — reflects a growing shift toward ethical investment.
Competing in an increasingly disrupted market
The next generation of digital wealth providers are riding waves of change and challenging incumbents by offering targeted personalization and better digital experiences at a lower cost with improved efficiency.
These providers are more agile than legacy firms, enabling them to adopt new technologies such as generative AI and big data faster and more effectively.
Beyond direct competition from fintechs, wealth management services are also becoming embedded in third-party environments, such as personal finance, management apps or accounting services.
Gusto is an example of an embedded wealth management experience. Gusto launched Gusto Wallet, a free app for employees to manage their savings, leveraging its existing customer base, capitalizing on its network effect and lowering customer acquisition costs.
Transforming to stay ahead
Customers — both new segments and traditional client profiles — are becoming more digitally savvy and expect frictionless, personal, convenient user experiences from all service providers. This is fueling a new era of digital-first or hybrid business models that aim to win market share, notably among the mass affluent and lower HNW individuals.
Wealth advisors must embrace digital transformation to keep up with evolving needs and to deliver new products. The market and customer expectations are moving quickly, and organizations that hold onto legacy processes and ways of doing business will be left behind.
How to get started
We can help to ensure your organization is ready to serve the next generation of wealth management clients:
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Align your strategic and technical roadmap. Close the gap between innovative thinking and results. Valtech experts can empower you to build a pathway to success.
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Turn up innovation impact. In a constantly evolving technology landscape, it’s tough to know what to focus on first. Whether you are exploring generative AI, cloud transformation or other solutions, we can identify the most impactful technologies to meet your business goals.
