The digital revolution is set to "realign" the playing field for the wealth industry, as investors seek more personalised products, invest more heavily in alternative vehicles, and look to move from active to passive solutions, according to new research.
A recent white paper entitled Wealth and Asset Management 2021: Preparing for Transformative Change, authored by consultancy Roubini ThoughtLab, found rapidly evolving investor needs and advances in technology are already prompting wealth and asset management firms to 'reset' their product priorities in the next five years.
For example, many of the 500 providers surveyed have already begun, or plan to engage with customers digitally via a range of strategies including automated trading and rebalancing tools when investing and via online portfolio risk-management tools and stress-testing models.
However, in order to meet fast-changing customer demands, investment providers will need to "reassess many aspects of their strategies, from their product offerings to go-to-market approaches", according to the research.
In particular, the paper notes that with technology, globalisation, and consumerisation continuing to be the most visible drivers of change in the industry, one of the greatest threats to wealth managers is actually coming from outside the sector from big internet players such as Google, Apple and Alibaba.
"Already 30% of providers report that non-traditional wealth services providers are their main competitors; by 2021 the percentage will rise to 35%. Meanwhile, by 2021, 45% of investors say they will use non-traditional investment providers, such as internet platform companies," the paper said.
"Apple Pay, and more recently Samsung Pay, are reshaping transaction and payment processing within financial services. As an example, the assets under management of the online money market business started by Alibaba, Baidu and other Chinese internet companies stood at about $700bn by the end of 2015."
According to the consultancy, this shift in product and go-to-market strategies will "realign" the playing field for the wealth industry, as investors plan to make use of a broader array of providers in order to achieve their aims (see chart, above). This will inevitably result in more competition as investors reach out to a greater number of providers, the paper said.
However, with every type of investment provider becoming more competitive and margin pressures increasing by 2021, it will become even more challenging for wealth firms to demonstrate value to investors.
Commenting in the white paper, Kevin Barr, head of SEI's investment management unit, said: "In the past, by showing relative returns, you compared yourself against your peers. Now companies need to rethink how they express value. Performance-specified investor goals is one way."
Perhaps unsurprisingly, the paper found that the top priority for investment providers over the next five years is building, partnering, or acquiring Fintech capabilities, with 59% of firms working on developments in this area.
Investment providers in the study said they are following a variety of approaches to break into the space: UBS is setting up, its own fintech platforms in-house; while others are establishing partnerships, such as RBC with FutureAdvisor.
Brown Brothers Harriman survey
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