Wealth management is under attack like never before as a growing band of investment innovators disrupt and democratise the industry.
Investors are increasingly moving their portfolios to online platforms which are using digital tools that, in some cases, cut out the need for wealth managers altogether. These investors are not just the younger ‘millennials’ who have grown up in an online world, but also experienced investors seeking a more personalised service from their wealth managers and value for money.
Wealth managers are having to reduce fees in order to respond to this new climate, yet at the same time the regulatory cost of providing face-to-face advice is rising too, putting even more pressure on their cost base.
In short, technological advances and regulatory change are bringing a whole new transparency to the sector. Against this backdrop it is little surprise that small to mid-sized players realise they must form alliances in order to survive. At the same time private equity, attracted by the consolidation trends within the industry, is showing an increased willingness to invest in the sector.
Analytics which give easy and immediate access to performance metrics, and which give customers the tools to digest complex data, are reshaping and revolutionising the wealth management industry.
Robo and virtual advisers such as Nutmeg and Swanest can today offer a vast range of algorithm-based portfolio management recommendations, while blockchain – the transaction database technology that underpins the bitcoin currency – is now used by hundreds of investment companies and wealth managers.
Larger players are showing increasing interest in these new kids on the block. For instance German insurer Allianz recently took a stake in robo-adviser MoneyFarm, showing how low-cost automated online investment services are transforming the market.
Research1 has found that almost half of asset managers are already using blockchain which allows transactions to be verified electronically with no central ledger. The technology is attractive as it means there is no intermediary to pay for certain transactions, therefore offering cost-cutting opportunities. The report concluded that technology was a “tsunami” that will radically change the face of financial services. The World Economic Forum has estimated that by 2027 assets equivalent to 10% of global GDP could be held on blockchain.
The increased use of such technology will become more important in generating efficiencies and future proofing business models, while it can aid regulation and compliance as well. Analytics also allow players to formulate specific investment strategies for their clients, and can be used to gain new insights into customers.
1 Roubini ThoughtLab: Wealth and Asset Management 2021