In the aftermath of a storm: The reshaping of wealth management

A perfect storm has swept through the wealth management industry. For nearly a decade, the industry experienced significant growth. In 2022, that all changed. Population decline and falling numbers of high net-worth individuals (HNWI) coupled with geopolitical woes and macroeconomic conditions crafted an uncertain future.

Yet, as the storm began to settle, the industry looked to rebound. What had been blown away presented an opportunity for a new approach. This has caused wealth management firms to pivot their business models and accelerate innovative processes, including cost optimization initiatives, that previously had not been a primary focus.

Priorities and innovative pathways

Wealth management, as an industry, finds itself in a unique position among other financial services sectors. Even prior to the storm, this had been an industry in an explosion of transformation. The impending “great wealth transfer,” an earlier growth of HNWI and ultra-high net-worth individuals (UHNWIs), and the emergence of a new client segment, the “mass affluents,” had already pushed the industry into thinking outside the box.

Among other factors, increased regulatory requirements and rising environmental, social, and governance expectations are prompting an industry-wide response. How quickly wealth management firms can adapt to these changing times, evolve with innovation, and overcome the perfect storm will determine the future of their success.

What are some ways that wealth management firms can adapt? What priorities should they be considering and working to implement?

Briefly, there are five areas that need to be brought into the conversation and strategy in today’s industry:

The Five Priorities

1. New AWM capabilities and asset classes
   
   As highlighted in Capgemini’s World Wealth Report 2023, in January 2023, cash and cash equivalents have bumped up to 34% in wealth management firms’ portfolios, from a stable position of around 25% of portfolios from 2018-2022. This requires a rapid shift to creating more cash-based offerings as an attractive investment instrument.
   
   To drive value chain efficiencies and tap into this “mass affluent” segment, democratization of asset classes and new strategies for tax optimization are becoming key. Assets and wealth management are also being swayed by a customer desire for more digital assets, and ESG funds are a drive towards incorporating new capabilities.
2. Drive towards Seamless CX
   
   Customer expectations are looking for connected experiences that work across channels. This omnichannel experience requires the right foundations with augmented capabilities – such as AI or machine learning analytics – which is fueling the drive to Seamless CX.
   
   Mobile experience lies at the front and center of achieving Seamless CX, combined with integration of products and services with behavior-based analytics. This has the power to drive achieving additional value from the client experience perspective.
   
   The combination of evolving wealth demographics, as well as product and experience simplicity, are ways to tap into new segments, like the mass affluents, and drive future growth.
3. Product-based advisory transformation
   
   Democratization of advice and asset classes means that wealth management firms need to ensure that all levels of their client segments are considered. From mass affluents, to HNWIs, and UHNWIs, all require a unified point of advice. Merging advice and non-advice offerings will unlock cost optimization, particularly in the current climate, and lead towards product-based advisory across firms’ client segments.
4. Prioritizing digital capabilities to drive value chain efficiencies
   
   Future-ready technologies are bringing about a true 360-degree transformation across wealth management. Cloud migration, including building cloud native applications, unlocks a new world of digital capabilities. The value in these innovations is seen across all aspects of the business, from improved processes, accelerated services, and more intimate customer experience. Most firms are still in the early stages of their digital transformation, but accelerating this will ease market pressures and open a new frontier of opportunity.
5. Operational efficiencies
   
   Relationship managers have a need to drive value in client offerings, achieve profitable growth, and extend reach to the mass affluent segment. This will unlock untapped value. New operational efficiencies and strategies, such as a streamlined contact center that facilitates resolving of common client queries or automated appointment booking and tracking to name a few, will be at the center of this process. In addition, streamlining costs is becoming increasingly crucial as the cost base of wealth management firms continues to remain high.

The journey ahead

The perfect storm in wealth management has brought a host of challenges, but also presents an opportunity for true transformative growth. Looking towards the future, wealth management firms who are best able to implement these five priorities will unlock new avenues of revenue and drive the industry forward in innovation.

The next few years will be critical, is your wealth management firm ready for the change?