Wealth management response to COVID-19


Wealth management response to COVID-19

How wealth managers can recover and thrive

The impact of COVID-19 on wealth management firms and investors has left questions about the short- and long-term impacts on the industry. To position themselves to thrive in the next normal, wealth management firms should consider several actions as they begin their recovery.

Wealth management being remade

As the world was confronted by the COVID-19 pandemic, economic, social, and political challenges quickly became apparent across the United States and globally. The abrupt spread of the virus shook the global economy as well, due to the closure of industries and businesses arising from social distancing measures.

These abrupt circumstances affected both investors and wealth management firms. Investors saw direct impacts on their portfolios, given initial market drops and historic levels of volatility. Firms’ top lines were affected as transactional revenues rose with trading volumes, while overall net interest income and fees tied to assets under management (AUM) declined consistent with market performance.

Though backstop and contingency efforts have been implemented to assuage uncertainty, there remain questions about the short- and long-term impacts of COVID-19 on wealth management. Many existing wealth management trends have been accelerated, while others have reversed, and firm strategies have quickly pivoted to respond to client needs in a new environment.

While there are several future scenarios to consider as the pandemic plays out, wealth management firms should consider several actions as they begin their recovery in order to position themselves to thrive in the next normal. Otherwise, they may risk losing market share and relevance during an already trying time.

How wealth managers can recover and thrive

Wealth management's response to COVID-19: Two steps forward, one step back

The trajectory and direction of industry trends observed in wealth management up to the COVID-19 pandemic have been altered by the current global health and economic conditions—some wealth management trends have accelerated. Of particular note are these three:

This is active management’s time to shine. While passive investing has dominated during the recent record-length bull market, active management poses advantages during volatile and turbulent times, and firms that transform people, process, and technology within their equity platforms could be better positioned to grow assets and win back investors into active strategies. While outflows have been pronounced, particularly from equity strategies, the crisis provides an opportunity for active managers to demonstrate value against other strategies, showing their abilities to pick individual winners and generate alpha compared with typical index approaches.

Proactive advisers and firms are driving client discussions about actively managed products, as a renewed interest in such strategies has arrived. Product manufacturers may also seek to enable this spike in interest through performance-based features that have yet to achieve mass appeal.

In times of higher volatility, there is a premium on customized, human, and timely communications with investors. With the shifts to virtual business practices, many wealth managers have aggressively reached out to their clients by phone to make it a “moment that matters” and build further goodwill through a human touch.

Firms with larger customer bases have relied on electronic means, emails customized through artificial intelligence (AI), or social media to connect. Still, some other firms have not accepted the trade-off between human and digital engagement models and have sought a third way to further tailor electronic communications to individual customers, by mixing analog and digital communications.

In times of uncertainty, market corrections, and high volatility, the value of financial planning and professional advice becomes clearer to many retail investors. The impact of COVID-19 on wealth management should, therefore, accelerate the trend toward more comprehensive financial planning and advice at the heart of the relationship between retail investors and their wealth managers.

This kind of service level is difficult to maintain within a traditional commission-based brokerage account. So, firms should consider continuing to focus their asset-gathering efforts on fee-based services. Fee-based assets have often been “stickier” for firms and advisers, while such arrangements also offer investors access to more holistic financial planning advice. Deep relationships with clients are profitable relationships, and firms and advisers should continue to strive to deepen that relationship in troubled times.










Not a return to the old way of wealth management operating models

The acceleration in market and competitive wealth management trends, along with the confidence many firms have gained in their remote delivery capability, have set the stage for a strategic reset of firm operating models.

Those functions that will be coming back into offices will need to migrate back slowly, according to detailed plans currently under development. Servicing the industry remotely provides its own challenges and opportunities to drive success in active strategies, serve clients through digital platforms, and provide holistic financial planning advice. While most firms will take on many of the strategies below as a part of wealth management's response to COVID-19, those firms that deliver on the potential of these opportunities will likely establish or extend market leadership.

  1. Client interactions are quickly becoming fully digitally enabled. Critical business workflows are being digitized to enable changes in both client behavior and accommodate field personnel working remotely.

    The next challenge will likely be in providing differentiated experiences through the integration of interactive planning and performance reporting tools in either a virtual or in-person setting.
  2. Lines of defense will need to transform. There are thousands of processes and hundreds of procedures and controls that have historically been underinvested in from a technology perspective.

    As a result, many of the supervisory responsibilities of these functions are still dependent on physical proximity, including those performed within branch offices. With that being said, key controls for many firms were already being digitized, and we expect this trend to be accelerated as firms reflect on their challenges of processing record volumes and managing extreme volatility.
  3. Collaboration software has changed the way people work together. Colocating has been an important objective for many business functions to date because it has substantial collaboration benefits. With the crisis, the idea of virtual rather than physical centralization has come to the forefront, with more flexible models emerging for sharing resources across teams and markets. Indeed, the premium is on access to expertise through any means rather than geographic proximity and physical interactions.

    As a result, firms will likely continue to turn to secure team collaboration software that can enable teams to stay connected and communicate nearly as effectively as being physically together.

Looking at the longer-term impact of COVID-19 on wealth management

As the industry slowly emerges from the crisis and the next normal takes hold, the success of wealth management firms will likely depend on their ability to use the crisis to accelerate their digital transformation and embrace a more flexible wealth management operating model.

Client interactions will change, whether by choice or necessity. Digital enablement will likely continue to be leveraged to meet business and customer needs, while how and where employees work and are supervised has already changed. The timing of this transformation may have been accelerated by as much as two years in just the previous two months.

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