The wealth management sector is set for an end-to-end makeover during the next three years as a confluence of trends sweeps through the sector, according to a recent survey tapping both industry participants and investors.
In particular, US marketing business, ThoughtLab, found almost 70 per cent of the 250 senior investment professionals it surveyed from across the wealth value chain expect artificial intelligence (AI) to “significantly change” how they operate by 2026.
But it’s not just AI driving the revolution with about half of respondents also picking ‘born digital’ firms to transform wealth management à la the Amazon effect in retail as most products “become commoditized”.
“Senior industry executives around the world believe that technological, regulatory, competitive, demographic, and economic/geopolitical shifts will have a major impact on their business over the next three years. Impacts will range from mounting investor expectations for digital experiences and rising cyber risks, to new business models and pricing pressures,” the ThoughtLab report says.
“The severity of the shocks depends on the type of institution and its location. For example, investor expectations for digital experience are most disruptive to family offices and independent advisory firms, which tend to be behind in digital engagement. By contrast, robo advisors and online trading platforms are particularly vulnerable to cyberattacks.”
Slightly under 50 per cent of the industry insiders also expect commissions to disappear by 2028 in favour of fee-based models.
Yet in spite of the tech takeover of the wealth management world, almost 60 per cent of those surveyed said human personal advisers will “still be necessary” – although the results of the investor poll are more nuanced.
“While most middle-aged and older investors will still rely on
advisors, there is a generational shift: 60% of young ones don’t believe they will need a personal advisor by 2030. Currently
only about a fifth of young investors use one,” the study says. “This proportion will grow over the next three years, but it will still be less than four in 10—compared with about 7 in 10 older investors.”
The survey also reveals a roughly 50/50 split among wealth management executives about the impact of distributed ledger technology (also known as blockchain) et al on the viability of incumbent investment back-office service providers.
Almost half of industry respondents said blockchain “and related technologies will reduce the need for intermediaries, such as custodians and clearinghouses” during the next three years.
Overall, the ThoughtLab study – produced along with Deloitte, FNZ and co-sponsors global technology firms Genesys and AWS (the Amazon-owned cloud giant) – concludes all components of the wealth management sector will have to adapt quickly or risk extinction.
“Winners may also include private banks and family offices, which are poised to see gains in market share as high-, very-high-, and ultra high-net-worth investors trade up,” the report says. “Asset management firms also may come out ahead as more investors, particularly the young and affluent, graduate from online trading platforms. Potential losers could be independent advisory firms and online trading platforms, which may continue to be swallowed up by larger institutions.”
Louis Celi, ThoughtLab chief, says in the study that all wealth-related business would need an AI and ‘digital transformation’ strategy to survive the coming storm.
“To prepare for the next era of wealth management, investment firms need a clear view of the changing expectations of today’s diverse set of investors—and how competitors are rethinking their products and services, internal processes, go-to-market strategies, value propositions, and business models to keep them happy,” Celi says.
The researcher surveyed 250 senior leaders across a diverse range of wealth management providers as well as 2,000 investors from more than 20 jurisdictions (including NZ) over September to November last year.