Building Digital Capabilities in Wealth Management
Brent Beardsley, senior partner and managing director, discusses how wealth managers can pull ahead in the race to go digital.Watch the video
The growth of global private wealth hit a speed bump in 2015, especially in the developed markets, with all regions other than Japan experiencing a slowdown relative to the previous year. This development, combined with the ongoing decline of revenue and profit margins—all amid shifting client needs in both traditional and nontraditional segments—is forcing wealth managers to reevaluate their strategies.
Overall,: tightening regulation, accelerating digital innovation, and shifting needs in traditional client segments. These trends have already had an impact on wealth managers’ costs and profitability as banks scurry to implement new compliance measures, update their IT systems, and train their sales forces. Yet the inherent revenue potential is still largely untapped, signaling “areas for action” for agile wealth managers.
Moreover, demographic and socioeconomic trends are setting the stage for the rise of nontraditional client segments—currently underserved or rising in importance—that do not necessarily fit the standard, net-worth-based service approach. Two such segments offering significant growth opportunities are female investors and so-called millennials (people born between 1980 and 2000). With investing profiles that often differ from those of others with similar levels of net worth, these two groups require a different mode of engagement that can address the mismatch between what they are seeking and what wealth managers are currently offering.
Ultimately, in order to succeed, wealth managers will need to adopt a more client-centric perspective, decide how to sensibly segment their base of current and prospective clients, clearly identify customer needs, and define value propositions accordingly. Some players have already embarked on this journey, but for most the first step has yet to be taken.
In 2015, the asset management industry recorded its worst performance since the 2008 financial crisis. Growth in assets under management stalled, and net new flows of assets, revenue growth, and revenue margins all fell. Fee pressure on managers continued to rise. Tepid markets and turbulence, which persist in 2016, are today’s reality.
Yet with market-driven asset growth in the rearview mirror, asset managers have an opportunity—and a mandate—to assess the real state of their business and address the step change in capabilities required to prevail when market growth isn’t a given.
As they do so, it will become increasingly clear that competence in advanced data and analytics will define competitive advantage in the industry in the not-too-distant future. Today’s managers face a fundamental and indisputable need to support their investment processes by developing increasingly advanced capabilities in digital technologies. The alternative, for most firms, is to risk becoming irrelevant and to trail their rivals in the ability to generate superior investment returns.