In many ways the last 12 months have been an inspirational experience. The world has collectively banded together to fight an invisible, destructive force. Vaccine development has exceeded even the best predictions, and while collective lockdowns have not been popular, they have been immensely effective at slowing the virus. The world has experienced a mobilisation of resources towards a common enemy in an effort that has only ever been seen during wartime. Frankly, the scale of work can only be matched by the scope of the tragedy COVID-19 has inflicted on so many families.
It is not controversial to say that the year 2020 is one that will never be forgotten. We have reshaped how we live our lives, in some ways permanently, and been provided a moment of reflection. What is truly important? What world do I want for my children? What can I do to create a better future? These are the questions that investors are asking both themselves and the people in charge of their portfolios. Technological development and innovation are inevitable, and have only accelerated due to COVID-19, but what will be more impactful are the changes to the fundamental motivations of investors.
This year the World Finance Investment Management Awards are spotlighting the firms that are answering these questions and exceeding clients’ new expectations. These firms are not only keeping their customers informed and safe by using digital channels of communication, but they are taking into consideration that the core reason many of their customers come to them is changing. These businesses know that their clients care about their future, both financially and existentially, and are rising to meet the challenge.
Back in 2014, the future of the wealth management sector looked very promising. According to PricewaterhouseCooper’s Asset Management 2020: A Brave New World report, the sector was set for a record-breaking year. Global investable assets were expected to increase to reach more than $100trn by 2020, with a compound annual interest rate of six percent. Sophisticated new tools and analytics were expected to revolutionise how the industry operates, and companies in the asset management space would transform into a proactive force for good.
It’s surprising how much of the prediction holds true. In August 2020, Boston-based research firm Cerulli Associates placed the total value of assets under management as $102.7trn in 2020, admittedly almost $1.7trn down from the previous year. PwC’s 2014 report also accurately predicted the value of technology in the modern asset management environment. Thanks to the use of technologies such as data mining and customer engagement systems, service delivery has become almost an entirely online process.
For firms that heeded this warning, the COVID-19 pandemic may not have been the catastrophic blow many expected. As the world locked down, people with assets under management were suddenly not only unsure of what investments made sense, but they were also prevented from going into a branch or office to receive some personal guidance. Digital systems obviously avoid this problem, but the firms who were not already fully digitally attuned were suddenly caught out.
The COVID-19 pandemic is unprecedented, making historic comparisons difficult, but Asia paints a clear picture for the rest of the world when it comes to navigating into a COVID-normal environment. As the first continent in and first continent out, what happens in the region will be of significant interest to managers in the US and Europe. A recent McKinsey & Company report titled: Asia wealth management post-COVID-19: Adapting and thriving in an uncertain world, reveals how quickly markets can recover from the devastating COVID blow. According to McKinsey & Company, investor wealth in Asian equity markets declined by approximately 10 to 15 percent between February and April 2020. China was, unsurprisingly, the biggest contributor to this fall both in terms of investors’ portfolios and economic activity. However, by June 2020, investments began to return to an upwards direction, indicating a positive sign for the sector at large.
The report flags several areas of concern. The first is retaining investors’ trust in financial institutions. Many will have memories of the 2008 global financial crisis and the doubts that were cast on the solvency of so many organisations. With COVID-19 acting as a catalyst for immense disruption, even greater than what was seen in 2008, wealth managers will need to do a lot to reassure their clients and keep them from panicking. In a medium-term scenario, identifying new growth opportunities will be the next priority as investors look to make sense of a new reality. Finally, after the industry has found its feet, competition will resume. The lingering question is what a COVID-normal world will look like. From a business sense, the shift to a digital-first model seems to be permanent. The industry was already heading towards digital communication and analytics as the primary form of interaction, but the current environment has all but guaranteed this will be the main form of engagement from now on. Additionally, the COVID-19 pandemic has changed the way we look at risks. It’s clear that the world faces a number of existential threats to our safety, both physical and financial, that have the potential to shut down business overnight. This changed environment will alter the risks that people, investors and the broader market are willing to tolerate. It’s easy to see investors shifting to a more conservative portfolio, or one driven by their values.
Looking forward to 2021, asset managers are now identifying what new initiatives they can undertake to reassure their clients. A study undertaken by the Australian Securities Exchange shows that Australian investors have reacted to the disaster with some degree of sophistication. People around the retirement age have adjusted their expectations, while younger investors have accepted a willingness for short-term risk in exchange for potential long-term gains. In the first three months of the pandemic, more than half of investors made changes to their portfolio, and almost one out of 10 changed their entire portfolio.
Importantly, the value of an investment manager is still considered very high. The Australian Securities Exchange reports that the vast majority of investors were contacted by their adviser in the first three months of the pandemic, and the vast majority also found their adviser either ‘somewhat helpful,’ ‘very helpful’ or ‘extremely helpful.’ These results show that investors still place a high priority on the expertise of a trusted and reliable advisor. This will be important for advisors to keep in mind as they gradually continue towards a COVID-normal portfolio for their clients.
The skills that asset managers need to succeed in the future has dramatically changed. Not only do they need to be digitally literate while still providing personalised service, they need to look to the bigger picture and understand the shifting trends of the modern investor. The winners of the World Finance Investment Management Awards for 2020 are the companies most able to shift their thinking and embrace the new reality we find ourselves in.
World Finance Investment Management Awards 2020
Antigua & Barbuda
Global Bank of Commerce
GFH Financial Group
Itau Asset Management
BCI Asset Management
SURA Investment Management
Eurobank Asset Management
Setanta investment Management
Nomura Asset Management
NBK Asset Management
APG Asset Management
UOB Asset Management
AXA Investment Management
UOB Asset Management
Ak Asset Management
AIX Investment Group