The Wealth Management Firm of the Future: What It Looks Like & Why
The wealth management industry shows no signs of slowing down. Despite the pandemic, 98% of firms reported AUM growth in the last five years, with 22% doubling the assets they oversee. Indeed, even despite the current economic downturn, 94% of advisors expect growth to continue over the next five years.
However, that’s not to say that wealth management firms should sit back and relax as they wait for AUM to magically increase over time. As firms make plans for 2023 and beyond, achieving growth now and in the future will depend on their strategies, technologies, and focus. It’s more imperative than ever for firms to understand what success looks like and how they can achieve it.
Let’s dive into how the wealth management firms of tomorrow will meet challenges, continue to drive growth, and adapt business models to find success.
Meeting Challenges Head On
The challenges of tomorrow won’t look exactly like the challenges of today, and wealth management firms that succeed will anticipate and mitigate these challenges as they arise. From increasing profitability to doubling down on innovation, the small margins of each of these represent a much greater impact when combined over time.
The high margins and growth firms have achieved up until now are unlikely to continue. As business conditions include more pressure from fees, lower inflows, and clients leaving for lower-fee products, firms can expect lower margins. They can either accept this as a win for clients and lower margin expectations or attempt to cut and consolidate costs (which might harm client relationships).
Regulations will continue to influence the way wealth management firms evolve. With increasing public policy pressures on industry limitations, the complexity of the regulatory environment is likely to increase in the next 5-10 years, and firms that succeed will be proactive at responding.
Successful firms of the future will learn to rely on brand differentiation combined with technological infrastructure, meeting the needs of growing customer segments and geographies. Marketing and product innovation along with investment performance will no longer suffice.
Firms of the future will increasingly rely on technology to drive growth. The areas that are likely to see the most growth are client engagement (51% of firms say this is their top priority for technology), cybersecurity (24%), and machine learning for portfolio construction (21%).
5) Innovation & Purpose
Currently, only 14% of wealth management firms say they have a cultural and financial commitment to innovation, with only 28% saying their firm has a strong sense of purpose overall. To succeed in the future, firms with innovation and a driving purpose behind it will surpass their counterparts.
Growth Will Rely on Client & Advisor Experience
To be successful in the future, wealth management firms should renew their focus on activities and technologies that drive growth. What exactly is driving growth at the moment?
In a recent survey of advisors, the top three drivers of growth included:
- Referrals (61%)
- New business from existing clients (48%)
- Business development (39%)
When it comes to technology, firms also need to consider how their tech strategy and focus will change as time goes on. In the same survey, 55% of advisors reported their top objective is to use technology to improve the overall client experience, with 52% prioritizing improving internal workflows and efficiency. A close third and fourth priority included creating capacity to serve more clients (14%) and reducing operating costs (13%).
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Overall, the most important contributors to a firm’s overall growth were defined as:
- Defining the client experience (24%)
- Improving workflows, operations, and efficiency (22%)
- Expanding and enhancing wealth management services (20%)
Adjusting Business Models As Needed
Lastly, firms that succeed in the future will keep their business models agile so they can adapt to the inevitable challenges and changes headed their way. The highly diverse and fragmented market will continue to differentiate, leaving firms to decide what role they should best play in clients’ lives.
KPMG identified three emerging business models to consider:
- The Financial Well-Being Provider: This firm will operate with “low-cost, high-value” services by offering digital-first customer engagement.
- The Domestic Wealth Manager: This firm will target high net-worth clients who need a strong, personalized touch for their taxes, estate planning, and investment portfolios.
- The Global Investment Expert: Finally, this firm will engage the ultra-sophisticated segment of the market with global capabilities, expertise, and connections.
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