Profitable opportunities exist for wealth managers who can develop unique, personalized services and products and explore untapped opportunities in alternate asset classes outside of stocks and bonds
Despite growing external threats to wealth managers’ businesses, including losses from intergenerational wealth transfers, nearly four in five wealth managers (78%) in Europe and Asia don’t plan significant changes to their traditional business models, according to a new report from Accenture and Orbium, part of Accenture Wealth Management.
Specifically, while many wealth management executives understand that successfully addressing industry challenges will require new business models, the report found that they are hesitant to move forward with bold strategies for business model transformation that capitalize on emerging technologies.
The report, “Survive and Thrive to 2025: Insights from the Wealth Management C-Suite,” is based on a survey of 51 C–suite executives at leading private banking and wealth management firms in Europe and Asia.
Wealth managers surveyed expect to lose, on average, nearly one-third (32%) of their own wealth assets under management through intergenerational wealth transfers, which Accenture predicts will be US$40 trillion of investable assets over the next 30 years.
The report notes that to address this challenge, large wealth managers will need to serve multiple generations of investors who are looking for tailored, digital services that align with their social and personal values, including impact investing and environmental, social and corporate governance (known as “ESG”). To do this effectively, firms must address their inflexible business models and talent and capabilities gaps so that they can better engage in multi-firm ecosystems, platforms and partnerships.
“Wealth managers must ensure that their advisory models are ‘fit for future,’ as the one-size-fits-all approach to client servicing no longer works,” said Ian Woodhouse, head of Strategy and Change at Orbium, part of Accenture Wealth Management. “A younger generation of socially active clients is demanding new products and ways to be served, including timely, multichannel interactions. This level of client engagement will require significant investments in technology around data and analytics so that wealth managers can restructure their business models to enable advisors to deliver personalized advice at scale.”
The report suggests that key growth areas for wealth managers could include non-bankable assets — e.g., private assets such as direct equity, residential and commercial real estate, family businesses, art and passion assets — as well as non-investable assets like life insurance and pensions. These asset types represent growth opportunities of US$78 trillion and US$64 trillion, respectively.
Just 17% of wealth managers surveyed expect that the traditional approach to client segmentation — such as by age, region and investable assets — will still play an important role five years from now. At the same time, the market will likely evolve toward a “segment of one” to reflect the individuality of clients’ wants and needs. Slightly more than half (53%) of respondents believe that personalization will be driven by traditional investment needs and evolving client choices. Succeeding in this environment will require wealth management firms to maintain or reduce servicing and operating costs.
“If wealth managers want to survive and thrive beyond these unprecedented times, they must focus on differentiation and innovation while maintaining their core mission of safeguarding clients’ assets,” said Michael Spellacy, a senior managing director at Accenture and global capital markets industry lead. “Their resiliency is certain to be tested, so they must overcome organizational inertia to reinvent the client experience and products for future generations. The leaders will make customized digital interactions more personal, with wealth advisors supported by artificial intelligence, automation and analytics to make better, faster decisions for clients.”
Wealth managers understand that they must invest more in attracting and retaining the right talent to better serve clients and offer new products, with a majority of respondents citing talent as a top-three investment priority over the next five years. Whether firms have the appropriate cultures to do so is uncertain, as two in five respondents (40%) said that they have difficulty adopting a strong culture for change and embracing new ways of working.
While the survey was conducted just before the COVID-19 pandemic disrupted global markets and economies, wealth managers in Europe and Asia were already pessimistic about the future of financial markets, with 70% expecting the economic outlook to deteriorate and 55% expecting volatility to increase over the near-term.
The full report can be accessed here: https://orbium.com/c-level-survey/
