Trends in wealth management driving the industry's future

Wealth management (WM) in the United States is undergoing profound change. New consumer preferences and digital models, as well as demographic, macroeconomic, regulatory, and competitive trends, have come together in a perfect storm to completely upend the WM experience for consumers and advisors alike.

Some wealth management trends have caught on faster than expected, including digital proliferation and the goals-based planning that is becoming industry standard. On the other hand, some have moved slower than anticipated, including the impact of big data, as well as widespread access to new asset and investment opportunities.

Considering the overall picture, however, both the depth of disruptive innovation, and the speed of fundamental shifts across the wealth management industry, are remarkable.

Design principles shaping experience
As digital propensity continues to rise, retail investors have come to expect customer experience, rather than product offerings, to be the differentiating factor in wealth management firms. These compelling digital experiences are designed to be:

• Sentient, intelligent, and highly engaging.
• Human, modern, transparent, and trusted.
• Highly automated, frictionless, integrated, and collaborative.

Similarly, a broad swath of investors now expect to receive “intelligent” advice, regardless of whether it is delivered live or via automated, industry-leading finance algorithms.

The financial experience reimagined
Investors are not the only ones who expect more compelling digital interactions. Financial advisers (FAs) now expect the same high-level-experiences as those they offer their clients.

Wealth management firms that have prioritized the creation of compelling digital experiences for their employees often find it well worth the effort internally, as well. Besides increasing productivity, they make it easier to hire, retain, and energize the best talent.

Building a new, scalable digital architecture
In our 2017 paper, we outlined a functional architecture for a scalable wealth management platform that would enable the digital adviser of the future. We have reviewed this functional architecture with more than 50 wealth managers and a number of industry vendors in North America, Europe, and Asia, and have found it to be a reliable guide for the future. In the last 18 months, a number of these firms have focused their investments on a small set of core capabilities, with the following five standing out the most:

1. New client digital solutions.
2. Broker-dealers’ new digital applications launches.
3. State-of-the-art CRM capabilities.
4. Modern data management (MDM) capabilities.
5. Streamlined on-boarding solutions.

These capabilities have not only shortened time to bottom line impact, but have created positive dynamics with clients, advisors, and shareholders, likely spurring further transformation for years to come.

However, much still needs to be done.
While the digital transformation of WM has taken strides, we have only seen limited progress to date on the creation of:

• Powerful, automated advice engines.
• Dynamic planning for continuous client engagement.
• Next-best-action algorithms for investors and their advisers.
• Real-time, digital engagement models with machine-generated communications.
• Tailored content delivered to individual investors.

More generally, we have only seen the beginning of exponential technologies—such as robotics, cognitive computing, and distributed ledgers—applied to wealth management.

Transformation in progress: More emerging ideas and trends

With the adoption of new functional architecture transforming the current wealth management environment, we see many more changes ahead, including these four wealth management trends:

1. Integration of client and adviser experiences: Forward-looking firms have dedicated significant efforts to developing human-centered digital experiences that seamlessly integrate client and advisor.
2. The rise of the quasi-client: Robo-advisers remain quick to give prospective clients a log-in through which they can obtain some guidance. However, many of these “quasi-clients” won’t commit to transferring assets or paying a management fee.
3. The convergence of retail banking and wealth management through advice: Wealth management firms will build lending and cash management capabilities to cross-sell to a mass affluent, retail customer base. Conversely, retail banks will build investment and advisory capabilities to keep these highly-profitable customer relationships.
4. Closed-loop systems to engage retirement customers: We’ll see more institutional retirement, consumer banking, wealth management, and commercial banking lines of business working together. It will take significant investments for large, diversified banks to realize this “closed-loop” vision, making it hard for smaller firms to compete.

Gain a deeper understanding of the emerging ideas and trends transforming the future of wealth management in the US.

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A long view of transformation and opportunity

In conclusion, we have witnessed only the beginning of a massive wave of transformation sweeping through wealth management. We believe it will take about ten years, be far-reaching in scope, and led by the customer and front office. Middle- and back-offices will follow, enabling compelling experiences through updated architecture.

In looking at the overall picture, we’re reminded that human beings overestimate the pace of change and underestimate the depth of transformation. Great peril remains to organizations if their attempts to build the right, digitally enabled, scalable platform are haphazard. To truly adapt to and take advantage of industry transformation, firms must play the long game.