Wealth management firms are increasingly turning to end-to-end outsourced investment solutions as portfolio complexity and market volatility ramp up, according to the 2023 Capgemini report on the sector.
The Capgemini analysis says the global ‘outsourced chief investment officer’ (OCIO) industry – better-known as implemented consulting in Australasia – virtually doubled over the five years to the end of 2021 from almost US$1.3 trillion to just under US$2.5 trillion.
And the OCIO sector is poised to rise above US$4 trillion by 2026 including about US$1.2 trillion of non US-sourced funds.
“Demand is up for OCIO services because investment strategies are becoming more complex,” the Capgemini study says. “OCIOs are conveniently available and attractive as the post-pandemic environment sparks an uptick. Firms that bring in external chief investment officer support receive custom decision-making advice without giving up authority.”
Investment consultants such as Russell and Mercer pioneered the implemented model in Australia and NZ but other advisory and research firms also offer similar services.
“Major firms such as State Street, BlackRock and Vanguard have established OCIO business lines,” the report says. “Meanwhile, several niche OCIO players also exist. For example, Boston-based Cambridge Associates specializes in helping endowments, foundations, and pension plans manage custom investment portfolios.”
The drift to implemented consulting is among a raft of trends expected to flow through the global wealth management sector this year including technology upgrades, enhanced cybersecurity, ESG standardisation, growing demand for alternative assets as well as a stronger focus on the ‘mass affluent’ and female markets, according to Capgemini.
But the industry is also expect to consolidate further in the wake of feverish activity last year that saw almost 120 investment advisory firm mergers and acquisition deals in the US completed in the first half of 2022.
“The consolidation trend is likely to continue, driven by firms’ interest in achieving scale, operational efficiencies, and diversification through new capabilities,” the paper says.
Anirban Bose, Capgemini financial services strategic business unit chief, said the global wealth management sector is facing a “paradigm shift” as various forces of change align.
“Financial advisors are challenged to drive client portfolio performance within an investment climate marked by risk and uncertainty – and exacerbated by ever-expanding regulations, new business models, and dynamic competitive forces,” Bose says in the report. “And so the overriding question for relationship managers in 2023 may be the following: as more offerings are commoditized, and more clients expect greater convenience, self-directed digital platforms, and a la carte fees, how will wealth management firms distinguish themselves, continue to grow, and justify rates?”
Established 50 years ago, the Paris-headquartered Capgemini reported annual revenue of about €18 billion in 2021 and was on track to exceed that last year: financial services represents close to a quarter of total group income.
The business consultancy firm boasts a “diverse collective of over 340,000 strategic and technological experts across more than 50 countries” on its payroll.