In June 2018, a remarkable milestone was reached: according to Capgemini’s World Wealth Report 2018, the total wealth of the world’s high-net-worth individuals surpassed $70trn for the first time. Over the previous 12 months, the demographic grew by 10.6 percent – its sixth year of consecutive growth.
The wealth management sector is only expected to grow more as the world’s economy continues to perform well
The wealth management sector is a large global market by any measure, and it is only expected to grow more as the world’s economy continues to perform well. For wealth managers, this is exciting news, and for those already operating at established firms, it is easy to assume that the next few years could be profitable with little effort. However, with the market as big as it is, there are others waiting and willing to take advantage of any complacency.
The businesses that could soon be threatening wealth managers are not currently operating within the sector. A particular development identified by Capgemini’s report is the potential for technology companies to overcome the challenges and inefficiencies that exist in the sector.
Almost three quarters of all major technology firms are pouring a significant amount of money into both intelligent automation and artificial intelligence. These two technologies have a lot of potential applications in wealth management back-office operations, and could achieve a level of efficiency previously thought impossible. There is also room for these companies to enter the market as well, with the report highlighting that, despite growing financial returns, satisfaction levels with wealth managers has not grown.
For companies operating in the wealth management space, this all presents a major challenge. Wealth managers will have to continue to deliver solid results and capitalise on the strong market conditions, but also do more to impress their clients while preparing for the potential arrival of new challengers. The winners of World Finance’s 2018 Wealth Management Awards have all the skills necessary to succeed in this competitive market, while also doing more for their clients than simply posting healthy returns. As the demand for wealth management grows, these companies are rising to meet the challenges ahead.
Working on relationships
As the World Wealth Report 2018 identified, despite consistent and healthy results, clients are generally not fully satisfied with the relationship they currently have with their wealth managers. Anirban Bose, Head of Capgemini’s Financial Services Global Strategic Business Unit, explained in the report: “There is clear opportunity for wealth management firms to strengthen their relationships with their high-net-worth clients, as nearly half say they don’t connect well with their wealth managers. Providing an innovative digital client experience is one way to strengthen the bond between wealth managers and their clients.” Capgemini found that 64.3 percent of high-net-worth individuals said they would use an improved system for locating a wealth manager, whether it is a firm-specific initiative or provided by a third party.
The new types of digital wealth management services that become available will almost certainly be determined by how major technology companies, such as Google, Apple and Amazon, approach the industry. The immediate fear might be that these companies will directly enter the market with their own asset management systems, capitalising on dissatisfied customers and a new generation of high-net-worth individuals more accepting of digital systems. While it may seem unlikely, it is not beyond the realms of possibility: Amazon in particular has a habit of making a splash in unexpected industries, and in Asia, tech companies such as Alibaba and Tencent have already entered the payments industry.
Another possibility is that these companies become partners for wealth managers, offering products that assist back-office processes and decision-making. If this is the case, wealth managers will have to make careful choices as to which products genuinely enhance their services and meet the needs of clients.
Cryptocurrencies are another instance of technology impacting the wealth management industry, albeit in a very different way. Since 2016, digital currencies have garnered mainstream attention that has attracted many general investors to the asset class. Tempted by the seemingly impossible growth posted by the likes of bitcoin and Ethereum, younger investors in particular are interested in exploring the potential of cryptocurrencies. The generational divide is key, with the World Wealth Report 2018 finding that just over 70 percent of high-net-worth individuals under 40 place a high degree of importance on receiving cryptocurrency information from their primary wealth management firm. This contrasts with high-net-worth individuals over 60, only 13 percent of whom expect updates on cryptocurrencies.
Despite this, the industry is still not acting on this desire, with only 34.6 percent of high-net-worth individuals saying they have received cryptocurrency information from their wealth managers. For wealth mangers looking to improve their relationship with clients, this is a good place to start.
Another major factor shaping the wealth management industry is the locations in which wealth is currently growing. At surface level, the spread of wealth is quite stark; according to EY’s 2018 Wealth Management Outlook, the expected growth of net investable assets between 2016 and 2021 is remarkably concentrated. The US and China alone are expected to account for 45 percent of total growth. Russia, Brazil and India – the next three highest-ranking countries – will only account for 10 percent of total growth.
Despite being flush with cash, the US is not the first destination wealth managers should look to for investment opportunities. At 4.4 percent between 2016 and 2021, North America was found to have the lowest expected growth of the seven regions examined in EY’s report. This is in contrast to the Asia-Pacific region at 5.9 percent, Eastern Europe at 6.3 percent and the Middle East at 7.2 percent. Furthermore, all of these regions’ expected growth rates are far higher than the global average of 4.7 percent; they therefore present opportunities for both lucrative investments and potential new clients.
As with all international transactions, the navigation of differing regulations adds a layer of complexity, and the next few years could bring even greater difficulties in this respect. Between the UK’s Brexit negotiations with the EU and the mounting trade spat between the US and China, wealth management firms operating across multiple regions could soon find themselves contending with a number of new challenges. Firms will have to make hard decisions in this regard, while also making sure staff are equipped to hurdle the regulatory barriers that could arise at very little notice.
The wealth management businesses of the future will need to focus on developing personal relationships with their customers, while also pursuing the latest technology to remain at the forefront of the industry. To be future-ready, firms will need to make tough choices, but those that can keep a level head will tap into a market that is going from strength to strength. The winners of World Finance’s 2018 Wealth Management Awards are the businesses and individuals best equipped to make the most of the current financial climate, navigating the changing tides of technology while remaining trusted
partners to their clients.
World Finance Wealth Management Awards 2018
Best Wealth Management Providers
Global Bank of Commerce
Westpac Private Bank
BNP Paribas Banque Privée
The Royal Bank
Hellenic Fund and Asset Management
EFG Bank Hong Kong
Kotak Wealth Management
KFH Capital Investment
BGL BNP Paribas
MCB Private Banking
Van Lanschot Kempen
Standard Bank Wealth and Investment
Bank of the Philippine Islands
EFG Bank Singapore
BNP Paribas Wealth Management
King’s Town Bank
First Abu Dhabi Bank
BNY Mellon Wealth Management
Best Global Custodian, Cyprus
Best High-Net-Worth Wealth Manager, Switzerland
Best Multi-Client Family Office, Liechtenstein
Best Real Estate Investment Company