When you outsource your wealth management function to a third-party service provider, you’re not responsible for handling day-to-day operations and client contact. But you still have a huge responsibility in making sure your provider is fully capable of serving your clients’ needs.
Here are five major market trends that are affecting the wealth management industry. Is your provider addressing them?
Trend 1: End of bank secrecy
As the global crackdown on bank secrecy continues, wealth management advisory firms have no choice but to quickly move from secrecy-led tax services to a more holistic and comprehensive approach to investor portfolio management.
Trend 2: Evolving investor requirements
There’s a very different advisor-investor dynamic with millennials than with baby boomers. The younger investors, especially those of the entrepreneurial class, are looking for a much wider range of services from their wealth advisory partners. Beyond tax management and planning, millennial investors want:
- Seamless access to wealth and investment advice across platforms and channels
- Greater access to investment ideas relating to environmental responsibilities and social impact causes
- A networking support platform where they can exchange notes about financial management with fellow investors, colleagues, friends, and social media, instead of solely depending on regular report and data feeds from their advisors
- Passion-based investments that are not only used as a diversification strategy but can also yield high risk-adjusted returns. Popular examples we are seeing include wine, art, watches, coins, and cars
- DIY, wherein investors are provided with tools and advice to perform their own research
- Highly tailored investment strategies, e.g., for female entrepreneurs
- Real-time updates and faster turnaround times for almost all processes within the wealth management lifecycle
- Access to the specialized set of offerings, unconventional risk management strategies, and alternative investments funds wealth managers typically offer to just Ultra High Net Worth Individuals (UHNWI.)
Trend 3: Robo-advisory platforms
Despite the robot versus human debate, robo-advisory platforms continue to gain prominence. And investors are increasingly embracing a hybrid approach where they can get low-cost advice from robo-advisors and leverage human advisor expertise when more nuanced investment decisions come into play.
Trend 4: The digital disconnect
A technology-enabled front-office certainly helps financial services firms achieve some of their efficiency and client service goals. But RPA in the back-office can make their operations even more efficient and effective, and analytics in the back-office can help them make faster, better investment decisions, and anticipate customer behavior with greater precision.
Evolving fee models
Facing diminishing returns, investors are increasingly demanding more transparency around the fees they are charged. In turn, the fee model is gradually moving from commission-based to performance-based. For example, some providers are charging their fees linked to how well they perform against a particular benchmark index or rate.
Trend 5: The compliance conundrum
Despite rising costs, enterprises continue to remain skeptical and cautious about outsourcing large chunks of the compliance function. They’re increasingly outsourcing some transactional activities, such a regulatory reporting and basic documentation vetting, to their third-party providers. But they’re still holding more critical services, such as due diligence, end-to-end KYC, and AML processes, close to their vests. And this guarded position makes very smart business sense. Because they are ultimately responsible for correct compliance, and because so much is at stake, enterprises should only consider outsourcing these types of processes if they have full confidence in their providers’ expertise and ability to effectively fulfill their compliance obligations.
What trends are you seeing in the market? Is your wealth management provider able to keep pace with your evolving requirements? How are they charging you for the services? Please share your thoughts with me at [email protected].