Some of the world's most respected consultants in the wealth management space have shared their views with this publication about what the future holds. Here are views from Aite Group.

This publication has approached a number of respected consultants operating in the wealth management sector to comment about a range of challenges and opportunities for the industry in different parts of the world. A number of articles will be released in these pages in the coming weeks;  we hope readers find them stimulating. The articles have been sought by this publication and also by Bruce Weatherill, of Weatherill Consulting, and also chairman of ClearView Financial Media, publisher of this news service.

Among the consultants commenting on the prospects for the wealth management sector in this series is Aite Group. The Boston-headquartered firm recently brought out an extensive report, called The Emergence of A New Digital Wealth Management Marketplace. The author of the main 48-page study, summarised below, is Sophie Schmitt, senior research analyst in Wealth Management at the firm. Aite Group profiled two sets of firms: Start-ups, (small wealth management providers with less than $10 billion in client assets, or small technology providers with a new solution), and a second group, namely those overcoming certain challenges such as solving specific problems, generating significant revenue, or having disruptive qualities.

A new breed of online wealth management firm has emerged. These firms, most of which are brand new start-ups, have ambitious goals of using technology to deliver advisor-level financial advice and professional investment management services to anyone seeking financial advice and/or help managing investments.

Although this concept is certainly not new, what is new is the greater ease with which firms can execute on this idea. In the past, start-ups had to raise significant capital to invest in hardware and software. Today, firms can leverage cloud-based services from Amazon and Salesforce.com to host sites and run databases. They can concentrate instead on building unique algorithms and content.

Aite Group has had discussions with founders and representatives at all of these wealth management firms over the last two years and its new report discusses the emergence of a new digital wealth management marketplace, and profiles 17 promising wealth management and technology participants.

Groups

The providers were divided into four groups based on how they deliver, or enable delivery of, the two key wealth management services of financial advice and access to investment products:

-- Online financial advice providers deliver advice via web, phone and email while leaving the investment management or product purchase up to the client;

-- Online investment management players offer access to innovative and/or low-cost investment management services via a web and mobile channel primarily;

-- Traditional wealth management firms extend their capabilities to the online channel to grow nationally;

-- Multichannel service enablers are providers that aim to be the online extensions of established wealth management practices and focus on supporting web marketing, client service, and collaboration.

Trends driving digital wealth management include generational preference (a large percentage of Generation X and Y investors are entering the years when they hope to create wealt; some 70 per cent of the US population, for example, is now connected to the Internet via broadband and more than a third of it uses a table computer; equity markets are rising again, encouraging more changes to how portfolios are managed, and the financial crisis has damaged the attractiveness of using advisors and made technology-based options more appealing.

The revenue potential for digital wealth management providers is large but uncertain for both the advice and investment management spaces (several billions of dollars in each space). By comparison, the revenue opportunity for multichannel service enablers is lower but more certain and predictable (just under $1 billion) due to the necessity for advisors to offer digital services today.

Acquiring customers online will be challenging for firms without media partners, unique content, and a social media strategy. Acquiring customers through institutions (benefits providers, retirement plan sponsors, multi-line financial services firms etc.) may be an easier proposition. Therefore, Aite Group expects to see several firms focus more on business to business sales than on business to consumer sales by the end of 2014.

In addition, the revenue opportunity for digital wealth management enablers that aim to digitize the traditional financial advisor-led service is smaller than any digital wealth management provider opportunity, but is more certain. Financial advisors must therefore extend their services to online and mobile channels and their firms are more willing now than ever before to rely on third party technology providers to help them deliver multi-channel capabilities quickly.

Wealth management providers should look to these new wealth management providers for inspiration.

Online advice providers should be interesting acquisition targets for traditional wealth management providers since they provide a cost-effective way to prospect for new clients and/or serve low asset balance clients.