Smart wealth managers know it’s all about the client

Orbium’s latest global C-level wealth-management survey suggests a slow response to changing client needs and demands. The good news is that it also offers insights into how firms can put that right, says Ian Woodhouse

People want to see their wealth grow and they turn to the wealth-management industry to help them. Today, with low or even negative interest rates, the wealth manager’s role is harder than ever. But interest rates aren’t the only tricky force WMs are grappling with. Clients are also increasingly picky about where growth comes from.

A good return is no longer enough to justify an investment. Today, clients want to know that their investments will help them reach life goals – perhaps retiring at 50, owning a yacht, supporting a cause or buying houses for their children and grandchildren. Clients also increasingly want their investments to chime with their ethical, environmental and social concerns. They question whether the proposed investment contributes to the sustainable economy, whether anyone was exploited as a result of it, or if it does global harm, promotes war or contributes to climate change.

On top of this, WMs have to satisfy a raft of regulations that include being open about the fees they charge – and ensuring those fees are competitive and justifiable. We’re living in an age where environmental, social and governance (ESG) pressures affect investment choices.

The impact of ESG 

These forces are combining to change the very nature of the industry. One consequence, as revealed by Orbium’s second global C-level Wealth Management Survey, available in May, is that WMs are moving away from advising on individual investment products. Instead, they are helping the client put together an entire portfolio that satisfies that individual’s given risk profile and stated life goals and resonates with their social and ethical beliefs.

Wealth Managers’ solution priorities currently oriented to security-based portfolios are expected to decline in relative importance with less than half of WM citing this as priority offering by 2025. Among other things during that same period, the ability to offer life-long financial planning as well asfamily advisory services are increasingly seen as priorities (50 per cent growth and 30 per cent respectively between 2019 and 2025). When it comes to ESG investing, 41 per cent more WMs make it a priority by 2025.

Juggling all the moving parts – the risk profile, achieving the desired returns and monitoring the ESG record of investments – means portfolios are becoming ever-more complex and harder to keep on track. And we haven’t yet mentioned the ability to offer new asset classes such as crypto currencies and tokenised assets (a blockchain token that digitally represents a real, tradable asset), nor the trend that sees clients seeking to include alternative asset classes, such as wine, cars, art and antiques.

Drill down to the detail 

For WMs to be able to provide these services profitably and at scale, they’ll need sophisticated tools based on digital technology. These tools must be capable of drilling down to monitor performance of every element of a portfolio – against risk, ethical, social and governance criteria, as well as required returns. They must be able to send alerts whenever an element is out of alignment – or, to use industry jargon, out of tolerance – so the WM can advise the client and/or alter the portfolio makeup.

Such tools also need to offer data insights and help find the appropriate offer for each and every client– day in, day out. This represents a significant move away from traditional client segmentation towards ever-smaller segments– even to the so-called segment of one.

The more innovative WMs are already on this and others are catching on and investing accordingly. Our survey found that 32 per cent of WMs currently consider it a priority to offer family advice on governance, trusts, succession and philanthropy, for example. That number grows to about 42 per cent by 2025. Similarly, those offering advice on pensions and tax planning as a priority grow in number from 39 per cent to 52 per cent. As for client segmentation, nearly one-in-10 believes products and services will need to be hyper-personalised by 2025 and just over one-in-five believes an element of personalisation in line with ESG values and lifestyle will be important to this. The big question, though, is whether WMs are responding fast enough to these market forces.

Don’t delay in facing change

While we’ve seen the longest global bull market ever recorded, our survey shows that WMs anticipate a more volatile period ahead; volatility that is likely to have an adverse effect on their margins. At the same time, many WMs expect to have to devote more of their resources to complying with regulations. These two trends alone suggest that profitability will come under increasing pressure – just as clients become more demanding and technological advances mean it has never been easier for fintechs and challengers to pick off bits of the WM industry. Competition is likely to intensify.

Our survey findings, along with market forces, raise a question over whether WMs are correct in their assessment of just how fast they need to change. My conclusion is that they are being too slow and should speed up their investments in digital technology to better position themselves. The good news is that our findings can help WMs examine their strategies and business models against those of their peers and industry leaders. In this way, they’ll be able to act on their shortcomings before it’s too late.

Ian Woodhouse is head of strategy and change at Orbium

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