5 defining characteristics of the future of wealth management

Social Business Manager, IBM

Technological innovation. Digital disruption. A changing marketplace. Whatever you want to call it, the transformation of the wealth management industry is an inevitable outgrowth of the new technologies that are storming the investment marketplace. If wealth management firms want to stay relevant in the age of digital advisors—what are commonly referred to as “robo-advisors”—then they must adapt, providing financial planning and asset management that sweeps clients off of their feet.

What does the future of financial services look like? The World Economic Forum (WEF) recently released a report describing key characteristics of the future of wealth management. Consider how technologies that deliver these five characteristics can enhance the customer experience for investors while creating business value.

1. Accessibility

Wealth management services are becoming available to an increasingly broad customer base. What can wealth management firms do to succeed in their industry? Financial advisors should start paying attention to the “emerging affluent” investor segment. According to Fidelity’s Millionaire Outlook study, emerging affluent clients could generate more wealth than their older counterparts. Bob Oros, head of the RIA segment of Fidelity Clearing and Custody, says, “These folks will grow into the types of clients you’re typically serving now. They have the potential to out-generate the wealth of current millionaires.”

2. Transparency and control

Clients want to know how their money is invested, and they want to be able to make adjustments readily—certainly more readily than they have previously been able to. The World Economic Forum’s report, in the section “Revamping the value proposition of wealth managers,” suggests a scenario in which wealth management services make the best of technologies that provide the transparency and control that clients crave while supplying such clients with the high-value, face-to-face collaboration and advice they need:

To remain competitive against automated platforms, traditional wealth institutions adopt and further develop automated functionalities, which in return free up capacity for in-person wealth advisors. Leveraging freed capacity, wealth managers can now offer more specialised, high-touch services to a broader customer base, improving the overall quality of services received by customers.

3. Convenience

Clients are leveraging online and mobile channels to extents never before seen. How do Millennials, Gen Xers and Boomers compare as power users of financial apps?

  • Most likely to download investing apps: Gen Xers (55 percent)
  • Most likely to download personal spending trackers: Gen Xers (25 percent)
  • Most likely to download digital wallet apps: Gen Xers (32 percent)
  • Most likely to download wealth management apps: Gen Xers (32 percent)
  • Most likely to download personal finance apps: Boomers (40 percent)
  • Most likely to download banking apps: Boomers (67 percent)

And don’t count Millennials out! They rank second in four of the six categories, often by just a few percentage points.

4. Personalization

Clients want to receive personalized advice and tailored portfolio recommendations. How can wealth management firms leverage data to not only enhance the customer experience, but also drive customer profitability? Behavior Based Client Insight for Wealth Management provides client segmentation based on behavioral profiles and predicts life events using historical data, helping financial advisors deliver customized advice. As Dana Tatro, senior vice president of MassMutual, explains,

Financial planning is ultimately about people, their goals, and unique situations. Family circumstances, retirement planning needs and other personal situations are not “one-size-fits-all.” For this reason, human touch in financial planning remains for the long haul.

5. Low cost

What do the future costs of wealth management look like? According to the WEF report, “the cost of receiving advisory and management services will decrease as automation lowers the operating costs and new disruptive entrants spur competition in the market.” What can wealth management firms do with the decreasing costs of asset and wealth management? Matt Timms, in his article “Technology enriches the wealth management sector,” explains, “This rise of the digital consumer, coupled with a real and growing pressure on fees, has asked that wealth managers embrace technology.” Timms further expounds on this point by citing an Ernst & Young report on digital disruption:

The emergence of digital technologies for delivering services is forcing wealth managers to invest in their front-office digital capabilities or run the risk of falling behind. The digitisation of the wealth management value chain and the increasing use of mobile devices for doing business is making it easier for new entrants to challenge the status quo and exploit areas of dissatisfaction and underinvestment.

Accordingly, by leveraging technologies such as mobile, social and analytics, financial advisors can provide a personalized experience that provides the right advice to the right clients at the right time via clients’ preferred channels of communication. For example, using IBM’s new solutions created specifically for wealth management, firms can segment customers quickly and analyze their behavior to deliver cross-sell/upsell offers, helping instill loyalty, drive retention and create customer satisfaction. Read more about Behavior Based Client Insight for Wealth Management, then sign up for a customized workshop to help your business plan exactly how to adopt analytics solutions to address its most important pain points.