overview: wealth management
IBS Journal July – August 2015
Global wealth management: key trends
• Equities overtook cash as preferred asset class of HNWIs in 2014, ~27 per cent of portfolios
• Use of credit in HNWIs’ portfolios is widespread, 18 per cent assets financed by borrowed money
• Passive and alternative strategies to grow at a faster pace than conventional active management
• Client trust in wealth management firms has been improving during the post-crisis period
• HNWIs’ demand for philanthropic plan- ning and products is rising steadily
• Wealth management firms are strug- gling to create scalable business models
• The wealth management division is becoming central to universal banks’ operating models
• Regulatory oversight on the wealth management industry is increasing across the globe
• Emerging markets (especially Singapore and Hong Kong) are emerging as new offshore centres for wealth management
Source: Capgemini – Trends in Global WM Industry
wealth managers play catch-up with their clients’ expectations or to replicate what their competitors are doing, rather than basing their investments on a longer term vision. Wealth managers and private banks are worried that rising and strong client expectations in digital experience are not being met in the short-term but it is diffi- cult to predict which front-end technolo- gies will become mainstream and therefore it is difficult to shape a long-term strategy in this area.
The challengers
What about the threat from those chal- lengers in the wealth management space? Of late, a common device by speakers at industry events has been to show a slide of the front page of a bank’s website and then overlay this with the logos of some of those that are challenging in each product area. This can produce some busy slides. At SAP’s Financial Services Forum in London in June, for instance, separate speakers did this for both HSBC and CBA. The banks’ wealth management offerings were particularly highlighted as under attack. In this sphere, there is a lot of talk about the likely impact of the ‘robo-advisory’ services that are becoming increasingly common, but there are other threats as well. Peter Schramme, chief business devel-
opment officer at wealth solutions special- ist, Objectway, cites among ‘numerous’ cur- rent challengers the likes of Nutmeg (UK), Betterment (US), WealthFront (US), MeDi- rectBank (Belgium), CheBanca (Italy), and Knab (Netherlands). ‘Longer term, organ- isations who “own” the digital consumer relationship such as Google, Apple, Face- book and Twitter can enter the investment management market, although we think they will mainly focus on payments for the foreseeable future. That area is much more mainstream, easier, much more uniform, and has simple instruments.’ IBM’s global industry leader, banking and financial markets, Likhit Wagle, also cites Motifinvesting, Stocksport, Livewire and SelfWealth as disruptors. Fintech com- panies can go ever increasingly after the banks’ business and he feels that the wealth
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management area is the most likely to see some form of structural dismantling, into distribution and manufacturing. He points out that in the US in the last six months or so, the ‘robo advisors’ have taken around $9.5 billion of managed money away from the established US wealth managers. Those newcomers are going after a
customer base, residing below the high net-worth individuals (HNWIs), that has been fairly neglected by the banking industry, says Wagle. Their algorithms are offering a lot of choice and alpha stocks have not delivered strong returns for some time. Moreover, with management fees of around 0.5 per cent, they are cheap as well. Their main focus at present is on relatively vanilla products but they are evolving and are broadening their services, such as tying up with information providers and analyt- ics companies. In large, growing Asian markets in par-
ticular, Wagle feel the only way forward will be some form of self-assisted adviso- ry model because of the sheer volume of target customers. As the demerger of the banking value chain occurs, it might well be that the largest wealth managers to emerge have no actual financial advisors of their own, he predicts, in the same way that Uber does not own any taxis and Airbnb does not have any hotels. Freymond observes that ‘some very
interesting innovations haven’t yet reached the tipping point but could prove dis- ruptive if they do’. A number of entities are working on rethinking the investor’s experience with the institution, he says. ‘Whether that takes the form of a totally automated wealth management self-ser- vice or a more interactive experience with more involvement of the client in the deci- sion making process, these developments require significant changes in the techno- logical platforms that support them. Giving more control to the investor requires more flexibility and a very high level of automa- tion for the process to be both reliable and affordable.’ He feels most institutions have not been able to implement such levels of technology as yet and initially only offer a limited set of financial instruments (mostly exchange-traded funds).
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