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Why 2019 is a Crucial Year for Wealth Management


The fact that the Wealth Management industry is undergoing a deep transformation process is nothing new, and the key factors on which this evolution is based are well known. The impetuous digital transformation that the Financial Services are experiencing, lagging behind other industries, is far to be completed. A disruptive force that is driving this change can be found in the customer base, both for the need of a seamless customer experience and for the generational shift that will consolidate the key role played by Millennials in the concentration of wealth. In this scenario, there’s another important variable that is interestingly mixing all the ingredients together: regulation. If MiFID II marked a radical shift in the industry, introducing a more customer-centric approach in investment services, PSD2 will probably become the turning point of something never seen before in the Financial Services, enabling Open X ecosystems[1], as defined by World FinTech Report 2019 by Capgemini and Efma.

Trying to mark a line at today’s point of this transformation path, the result is that there’s still a lot to do. The areas that wealth management firms have transformed (or are about to) are linked to some aspects of the operational sphere, like contact channels, back and middle office processes efficiency, regulatory controls and selling platforms. Those changes can also be visible, to a lesser extent, in the products and services domain, especially in the protection of clients’ wealth and in the horizontal integration of service models towards clients’ needs value chain.

What emerges from this year’s World Wealth Report, published on July 9, is clearly the picture of a fertile ground for an accelerated innovation process, that requires two other dimensions to be disrupted: Strategy and Management Culture.

Globally, HNWIs’ wealth declined by 3% after seven years of growth. This is mainly driven by a difficult year in the equity market and to a regression in the Asia-Pacific wealth by 1.7%. This last information is particularly meaningful of last year’s singularity, considering that in 2017 the same Region registered a 12.1% growth. As regards wealth dynamics, those owned by the richest people on Earth, the so-called Ultra High Net Worth Individuals, decreased by 6%.

Last year’s declining markets and high volatility have led to a drastic shift in asset allocation, with cash and equivalents now accounting for 27.9%, becoming the most significant asset class in Q1 2019 replacing equities, fallen to 25.7%. Other conservative and tactical assets classes like fixed income and especially alternative investments have been largely chosen by wealth managers and HNWI clients in response to market turbulence.

Clients’ satisfaction in their wealth management providers increased despite declining wealth, mainly thanks to the increased adoption of hybrid advice models. Equipping wealth managers with advisory tools allows to provide better client recommendations. Key factors that determine clients’ satisfaction are related to the perception of service quality, especially in terms of personalization and connections with their wealth manager, and of pricing fairness. Obviously, these two factors are closely linked, since the more I perceive quality on service, the more I’m willing to pay for it.

What emerges from these findings, confirmed by interviews with wealth management executives, is that competition is changing. The new factors influencing the competitive landscape are:

  • the entry of new players like BigTechs
  • regulatory pressure (above all MiFID II and PSD2 in Europe)
  • a new generation of clients to serve
  • the new Open X paradigm (see World FinTech Report 2019)
  • increased innovation through analytics
  • the industry’s looming talent gap.

This last point is very important in today’s competition, because it requires wealth managers to strategically respond with a robust talent management strategy. In an era when clients’ connection with their wealth managers is more crucial than ever and service quality perception is fundamental in the choice to stay with or leave a Wealth Management provider, the way a firm attracts, recruits and retains talents is a critical part of its strategy. In this respect, firms should focus on:

  • simplifying processes and policies
  • enhancing the wealth manager experience in terms of onboarding and retention programs
  • providing technologies and digital tools to serve its clients
  • offering access to high-quality research and advisory support
  • training and industry learning.

Over the next months, technology will play a key role in building successful business models that differentiate by incorporating advanced tools and systems (see our “Hybrid Advisory Approach” below).

There is no doubt that technology will help enhancing both wealth managers’ and clients’ experiences across the whole value chain. Good insights to obtain this competitive advantage are well represented in the World Wealth Report. Some of them are:

  • transform onboarding processes using an omnichannel semi-automated approach, that also covers regulatory and commercial profiling activities
  • augment CRM capabilities by creating a unique view of the customer, combining it with an NBA (Next Best Action) solution for predicting new products that clients will need in the coming months
  • use AI solutions in compliance & audit activities like fraud detection, cybersecurity, automated signature verification and other pre-trade compliance applications
  • use tools to detect key types of clients, like high earners not rich yet (HENRYs), including them in the Private Banking service model
  • integrate Private clients’ value chain through Health and Well-Being service strategy.

In September we’ll come back to this topic with a special article on the Italian Wealth Management landscape, based on the results of a deep analysis carried out by our Transformation Consulting business line that involved Executives and CxOs of the main Private Banking and Wealth Management firms in the country and outlined the factors that are influencing the competition and the status of the transformation path.

[1] Open X represents an evolved banking ecosystem made of Banks, Insurance, FinTechs but also Telcoms, Retailers, BigTechs, Challenger and Neo Banks and Aggregators, resulting in a shared marketplace in which players leverage data extensively and collaborate with other players to provide customers with a seamless experience. Open X will allow the industry to leapfrog open banking principles and foster a seamless exchange of resources, improved experience for customers and expedited products innovation.

The article was drafted by Monia Ferrari and Alessandro Falconi.