The Mind Of A Wealth Management CEO -Three Challenges They Must Address

getty As wealth management CEOs and executives come up for air after an insanely volatile and unpredictable start to the year, many would do well to reflect on the challenges ahead. While wealth managers should be commended for quickly shifting their workforce to a remote environment at the onset of […]

As wealth management CEOs and executives come up for air after an insanely volatile and unpredictable start to the year, many would do well to reflect on the challenges ahead.

While wealth managers should be commended for quickly shifting their workforce to a remote environment at the onset of the pandemic, rapidly engaging clients in new virtual ways and safeguarding clients’ portfolios during these uncertain times, we see three larger challenges they must address:

1.      Succession

Succession is a tale of two halves. It’s a set of optimism for the future but also a real set of challenges for wealth managers, as they expect to lose 32% of their wealth assets as a result of intergenerational wealth transfers, which equals over $40 trillion of assets in motion over the next 30 years and $1.25 trillion each year. The expected losses are simply staggering and clearly shows that wealth managers aren’t yet doing enough to engage with their clients’ families.  And yet most wealth managers have no clear strategy for how they will turn the tide.

2.      Outside competition is approaching

There’s no denying it; wealth management is where everyone in the capital markets space wants to be and you can look to recent wealth acquisitions by Goldman Sachs
, Morgan Stanley
and others as proof of this. Our capital markets research has shown that the consistent and steady revenue streams are more on the wealth and asset management side and not across investment banking.

Beyond the investment banks, we see insurers, asset managers and even retail banks trying to jump into the wealth space. Even the powerhouse technology giants are slowly dipping their toes into the water, building the digital infrastructure required by wealth managers, and no one knows for sure whether they will stay in the shallow end or wade into the deep to compete with the incumbents.

You can bet that the recent M&A boom in wealth management will continue and wealth managers are watching for the next shoe to drop.

3.      The current wealth digital experience is subpar

The current digital wealth experience is simply not meeting the expectations of today’s investors who want holistic, on-demand and integrated financial advice.

In addition, a generation of younger clients who are used to getting an Uber
with the touch of their phones wants the same experience out of their financial advice. The days of relying on a regularly scheduled yearly or quarterly check-in to communicate with clients are over. It’s got to be on-demand and multichannel engagement.

So what’s the solution?

First, firms need to scale up on technology to help transform the digital wealth experience and the very nature of advice. The next generation of wealth only engages on a technological dimension. Wealth managers should harness the insights and capabilities from AI to enable advisors to bring better insights to clients and engage their full wealth and capabilities rather than the fragments they serve today.

Beyond the digital experience, advisors can’t skimp on the human element. Technology is not a panacea, nor are robos a replacement for human engagement: It’s about technology and humans together. A recent survey about changing financial habits as a result of the pandemic revealed that 65% of respondents prefer human expertise when receiving financial advice.

Financial advisors still see themselves as portfolio managers when they are increasingly playing the role of investment strategist, relationship manager, life coach and even family therapist – sometimes all in the same breath. Moreover, clients are demanding it. Advisors need to become the central nervous system for their clients’ well-being and too often they don’t even know their clients’ basic everyday interests and hobbies, let alone their thoughts on retirement and estate planning.

They’ve also got to give them unique, differentiated products. The standardization and commoditization of product lines have long ailed the industry. The wealth manager of the future should be able to offer more product diversity while adjusting to more compelling advice and pricing models – such as outcome pricing.

Advisors in our most recent North American survey also homed in on a few other areas where the client experience needs to be improved, including the ability to e-sign documents and allow for online document uploads (digital onboarding overall remains woefully behind other industries), and improved digital content provided by their home offices, as this content is increasingly critical to clients as they shift to more online engagement.

And in creating a truly digital wealth experience, firms can’t skimp on security. Cybercrime and the cyber capabilities of adversaries at large is a real issue that the pandemic has only compounded with staff working remotely. Wealth records exposed on the dark web would be a fundamental existential issue for most wealth managers, yet at the same time the willingness of wealth managers to invest in cyber defense technologies is quite limited.

While investments are critical, digital alone won’t address the industry’s high costs. Wealth managers will need to fundamentally bend the cost curve and reconsider their current real estate footprint and staffing levels.

In addition, wealth managers have to branch out and look at the opportunities that exist in non-bankable asset classes, 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 $78tn and $68tn, respectively according to our research. Their competitors, including those outside of traditional wealth management, can’t beat them there first!

The forces for change and the size of the prize is clear, but the dynamics of the industry, in particular the C-suite among world-class wealth managers, has yet to fundamentally embrace change.

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