There are many challenges but also plenty of reasons for wealth managers to be optimistic about over the next five years, according to Orbium’s latest Wealth Management C-level survey. But the responses in the survey also show a disconnect between ambition and being in a position to seize opportunities, writes Ian Woodhouse.

The latest Orbium survey, Survive and Thrive to 2025 – Insights from the Wealth Management C-Suite, paints a fascinating picture of a much wider $260 trillion opportunity available for the wealth management sector today.

The bullish sentiment captured in the survey, however, reveals that some wealth managers (WMs) might not yet be adequately prepared for the existential threats looming over the industry over the next five years.

First, the good news. WMs are finding ways to work with non-bankable and private assets such as real estate, private businesses, fine art, wine and even yachts. Traditionally, these illiquid assets could not be monetised by WMs and only showed up when used as collateral. But client demand for more mainstream securities and technology is changing that.

The survey reveals that forward-thinking WMs are starting to discover methods—such as connecting buyers and sellers—tokenisation and fractional ownership to help their clients make the most of their non-bankable and private assets as a means to open up new revenue streams. This comes at a time when growth within the traditional WM market is proving hard to come by. When these non-bankable assets are included, the wealth of those served by private banks and WMs swells to $260 trillion.

But navigating this shift is not easy, particularly as it also comes with the need to adapt to what we call the megatrends of hyper-personalisation, the rise of ethical investing, the need for greater value generation, the need to leverage personal data while keeping it safe, and the rise of platform ecosystems. Indeed, it’s clear from our survey that many WMs are finding the shift more difficult than they anticipated. Even more startling is the faith they have in their own ability to succeed. The majority of WMs believe their own growth is expected to outpace that of their peers; clearly some are overestimating what’s possible in a tougher environment.

At the heart of the opportunity lies new technology. WMs would need digital platforms to capture and retain a share of the wider growth and client potential. But they would also need new skills and a change in culture from the boardroom down to take advantage of this technology. Without these, they will likely struggle.

The survey shows that just over 20 per cent of WMs are considering wholesale change to their business models in response to the remodelled landscape. But in what we believe is a significant finding, nearly 80 per cent believe they can survive by tweaking their model. The scale of the opportunity and the speed and magnitude of change suggests success is by no means given.

For example, responses reveal that WMs expect to see some $1.5 trillion a year in assets leave their firms as wealth is inherited between generations. Stemming this outflow could be critical to thriving in the future and means firms should better, and more tightly, tailor services to meet client needs and help stop them going elsewhere.

Over time, and thanks to data analysis, WMs should even be able to serve the market of one – a level of hyper-personalisation that applies to products as well as services and advice. More interactive and remote dialogue between advisors and clients, tokenisation of assets and smart use of data could have roles to play in attracting and retaining clients. But so would being the right sort of WM. It is likely that clients will increasingly look for responsible wealth firms with robust policies and knowledge of environmental, social and ethical investing that chime with their own. Marketing yourself as a sustainability expert but having board members associated with airlines, the oil and gas industry or tobacco could jar.

Having the vision and capabilities to deliver could require very different skills from those traditionally found within WMs. It could also require a business model focused on technology and data to be able to provide the level of personalisation that clients expect.

People with the necessary skills are in short supply, making it harder to attract and retain them. Cultivating an environment where innovation — not a word traditionally linked to wealth management — is encouraged would make it easier. Staff training and career paths will likely be affected too, as would key performance indicators.

The survey also shows that WMs understand how successful transformation programmes could deliver revenue growth and lower costs, with average anticipated revenue growth of 30 per cent and a reduction in costs of 25 per cent. But again, these programmes are dependent on technology that, applied appropriately, allows for automation and innovation. In itself, the technology doesn’t deliver either—something perhaps overlooked by the 80 per cent mentioned above.

This is the crux of the paradox thrown up by the survey’s participants and their responses. They know they need to adapt but very few understand the full scope of the transformation required to discover new value opportunities, co-create and innovate with partners and scale sustainably at speed. Although the survey was undertaken before the COVID-19 pandemic took hold, the trends it deals with—including slow growth, rising costs, the rise of ethical investing, significant intergenerational outflows of wealth and hyper-personalisation — are only likely to be accentuated at a faster pace as a result, making the lessons that can be drawn even more valuable.

To read Survive and Thrive to 2025 – Insights from the Wealth Management C-Suite, orbium.com/c-level-survey

Ian Woodhouse is head of strategy and change at Orbium

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