In an annual overview, Capgemini delves into the big trends shaping the wealth management industry, ranging from use of behavioural analytics in client/advisor relationships through to the continued emergence of family offices in regions such as Asia.
Wealth managers must build ways of measuring ESG impact, ensure that digital changes suit clients’ actual needs and build a strategy to hold crypto assets such as bitcoin. These are some of the trends that global consultancy Capgemini identifies in an annual overview of the industry.
Cybersecurity has become a pressing issue for firms, and wealth managers need to focus more on analysing human behaviour to serve clients more effectively and enable them to keep on track with their financial goals, the report said.
“As wealth management firms supercharge their digital transformation journeys, investments in cybersecurity and human-centred design are becoming critical to building superior digital client experience,” the report said.
“Another holdover trend − sustainable investing – is gaining mainstream attention and generating increasingly sophisticated client demands. Data and analytics capabilities will become ever more essential for ESG scoring and personalised customer engagement. As large financial services firms refocus on their wealth management business while new digital players make industry strides, competition is becoming historically intense. Not surprisingly, client experience is the new battleground,” it continued.
The 30-page report kicked off by examining the well-trodden topic of inter-generational wealth transfer.
“Speculation about the exact amount and the timing of the wealth transfer varies. Forbes reports $30 trillion over many years. PNC says $59 trillion by 2061. CNBC predicts $68 trillion over 25 years. The New York Times confirms the variety of these assessments but forecasts about $15 trillion over the next decade. And Barclays estimates $7.5 trillion globally within the next three decades. Whatever the amount and timing, a significant opportunity for wealth managers is imminent.”
As a result, firms must deliver client experience that younger clients – used to Big Tech experiences – are comfortable with, the report says.
A related issue, Capgemini said, is the need for firms to help clients improve their financial literacy, and offer financial planning advice that covers the whole of a client’s life.
A second trend in the report is the amount of consolidation happening in the wealth management sector. In North America alone, about 205 deals were made in 2020 and the pace has continued, as reported by the likes of ECHELON Partners and others. In 2020, US investment management M&A activity stood at around $28 billion, the highest level since the end of the dotcom bubble of 2000.
“Moving forward, it is likely that more records will be broken as firms give up their games to stay competitive, keep up with technological developments, innovate and cater to clients through hyper-personalised solutions,” the report continued.
Examining other trends, Capgemini noted the global rise of family offices, saying that there were 7,300 such offices in 2019, rising by 38 per cent from 2017, and now probably around 10,000. Two-thirds of family offices are in North America. Globally, family offices oversee about $6 trillion in assets under management, versus $4 trillion in the world’s hedge fund sector.
In Asia, the report noted that, traditionally, family offices used a holding company of special purpose vehicle structure, but are shifting to a more “functional office structure.”
The report’s explanation of other trends included reference to “embedding wealth management offerings with fintech firm’s existing offices, opening new channels for providers and clients to engage with one another."