Some late-December musings about what the year has meant for the industry and thoughts about what lies ahead. This news service is taking a holiday break and will resume publication from the start of January. Best wishes to all our readers.

Whatever else one can say about the past 12 months – and I can say a lot! – it is clear that the wealth management industry has had plenty of opportunity to demonstrate its value proposition. Forced to work and live remotely, buffeted by big market swings and worried about rising taxes, private clients need cogent advice as never before. Advisors have had plenty of opportunity to prove that they’re worth what they charge. 

Almost a year ago, financial markets were roiled by the GameStop saga – often young, newbie investors using social media platforms to attack short-sellers of certain companies. At the same time, new clients, such as people sitting at home with cash to spare, have entered the market. The hype, deserved or otherwise, around bitcoin and other digital assets, as well as enthusiasm for environmental, social and governance-themed investments, appears to have been designed to attract a younger generation of investors. 

While not an original observation, it appears that the sector is now really seeing the arrival of the “NextGen” of clients as Baby Boomer business/wealth holders pass away and hand over the reins. Depending on whom you believe, tens of trillions of dollars are in play. And this switch is happening at a time when governments, desperate to plug COVID-wide holes in their coffers, are likely to target high net worth individuals as a revenue source. Inheritors of wealth face likely grabs from governments the world over, be they supposedly conservative, liberal or socialist.

Let’s not forget that in the UK, a Conservative Party-led government that won a thumping majority two years ago, has enacted tax hikes on the middle classes and corporate world (arguably a reason why Prime Minister Boris Johnson’s personal brand is in freefall). US President Joe Biden’s “Build Back Better” legislation is, at the time of writing, being stymied in Congress as some politicians recoil at the cost. But readers shouldn’t think that there will not be hikes on capital gains and shifts in estate taxes in the US. Perhaps the hikes will not be as large as were feared a few months ago. 

As noted in 2020, the pandemic accelerated the use of digital tools such as two-way video so that people could work from home. I am sure that many of us have taken part in “virtual” events – this news service being no exception. Although people crave in-person contact, these new ways of communicating are here to stay. Expect to hear the term “hybrid” a lot more, whether it applies to online wealth management offerings or ways of working and handling clients. Industry figures tell me that firms which boldly embrace such technology, provided they act strategically, are poised to open a wider gap on the rest of the sector. 

Staying with technology, the embrace of digital ways of working raises cybersecurity and regulatory concerns. A few days ago, the US Securities and Exchange Commission punished a unit of JP Morgan for record-keeping failings related to employees using private mobile devices, and channels such as WhatsApp, to interact with clients. How firms navigate this world remains a considerable challenge. Clients of all ages, and not just the young, expect the same easy communications with wealth managers that they might achieve when changing utilities providers or booking a flight. 

The ability of big-brand banks to surf this sort of wave means that if they succeed, they will open up a wider gap in the competition. On the other hand, new technology could enable smaller players to “leapfrog” some established players thanks to a lack of legacy costs and possible reputational burdens. For all the talk about a “wave” (that surfing image comes up again!) of consolidation among big banks, so far this hasn’t materialized. One reason perhaps is that banks are in far better shape, capital-wise, than they were a decade ago. Another is that regulators remain wary of creating “too-big-to-fail” behemoths that are hard to bail out in the case of trouble. 

That doesn’t mean that consolidation isn’t happening across parts of the wealth management value chain. Take the North American market. For the past few years, there has been a rush of M&A activity, such as in the registered investment advisor space (not quite such hot action in the multi-family office area). Firms such as CI Financial, Hightower and Mercer are among the busiest. Buyers want economies of scale to handle rising regulatory costs and client demands; the owners are often near retirement, or want to partner with others to obtain critical mass. At some point the furious M&A pace in the US will slow, but not perhaps just yet.

Getting in touch with new clients is certainly a reason for corporate activity. Western banks such as Julius Baer and Bordier & Cie have built JVs to tap markets in Thailand and Vietnam, for example. Schroders, another western firm, has expanded its Asia footprint in a similar fashion. On the home front, it recently acquired Greencoat Capital in the UK, to drive ESG expertise (likely to be a force for other deals at firms in coming months). The proposed £1.5 billion acquisition of Interactive Investor by abrdn (formerly known as Standard Life Aberdeen) in the UK is an example of a firm trying to extend its reach to DIY-style investors and stay ahead of the game. In the US, last October Charles Schwab completed its purchase of discount broker TD Ameritrade, consolidating its hold on this sector.

Inevitably, there is likely to be a sharp focus on ESG in the year ahead. Expect more talk about how firms must calibrate offerings, avoid the risks of “greenwashing” – likely to be a regulatory bugbear – and deliver credible results for investors. The Bank for International Settlements warned of a “bubble” in cleantech firms a few months ago, so investors need to be careful. Delivering ESG outcomes for clients means that wealth managers and advisors must upgrade their skills. To run a “carbon-neutral” portfolio, for example, means that an advisor must have some knowledge of science so that they can select genuinely valuable ideas from the dross. Executive search firms will take note, as will HR departments. 

This is an industry with a lot on its plate. But what also appears to be the case at the end of another turbulent year is that wealth managers have plenty of reasons to prove their worth, even if new business models make life more uncomfortable at times. Helping those who build businesses, create jobs and deliver new services and products remains hugely important.

On behalf of the team at the WealthBriefing family of newswires, may I wish all our readers a great holiday season and a prosperous, rewarding and healthy 2022.