What You Need to Know
Top 10 Trends in Wealth Management 2018
Contents
Introduction 3
Trend 01: Applications of Cognitive Computing, Machine Learning, and AI Expand Across Wealth Management Industry 5
Trend 02: Robotic Process Automation Can Help Firms Keep Costs Down and Accelerate Digital Transformation 8
Trend 03: Innovation is Key for Firms to be Future-Ready 11
Trend 04: Introduction of Marketplace Models for Wealth Management Products 13
Trend 05: Focus on Enhanced Customer Experience is Becoming a Wealth Management Priority 15
Trend 06: Cybersecurity Continues to be an Important Concern for Wealth Management Firms 17
Trend 07: Increase in Cost of Doing Business for Firms Due to Complex Regulations 19
Trend 08: Advent of Hybrid Advice Solutions to Set Wealth Management on a New Course 21
Trend 09: Development of Next-Gen Genome-Based Segmentation and Increased Focus on Traditionally Underserved Segments 23
Trend 10: Evolution of Fee Models Due to Client Demands, Regulatory Mandates, and Competitive Pressure 25
References 27
About the Authors 27
1 Ouruseoftheterm‘FinTech’referstotheuseofdigitaltechnologiesformakingwealthmanagementproducts,servicesanddistributionmoreeffectiveforfirms,wealthmanagers,and/orHNWclients.ThisincludesbothdigitaltechnologiesthatareprovidedascompletelynewandstandaloneservicestoHNWclients,aswellasthosewhichsupport/enabletraditionalwealthmanagementservices.Forourdefinition,wearemostfocusedontheservicesdevelopedandprovidedbystartups(aswellaslarge,innovativetechnologycompanies)
Introduction
Thewealthmanagementindustryisfacedwithchallengessuchasintensecompetition,feecompression,stricterregulations,andevolvingcustomerneeds.Theimpactoftheseforcesandtheresponseofindustrystakeholdersgiverisetocriticaltrendsincustomerpreferences,newtechnologies,changingadvisorymodels,andsecurityandcompliance.
Wealthmanagementclientsarebecomingmoreastuteaboutfinancialplanning,andtheyareseekingdigitalcapabilitiesandbetteradvisoryoptions.Astechnologycontinuestochangerapidly,firmsmustbeagiletoenhancetheoverallexperienceofboththeircustomersandwealthmanagers.Tostaveoffrisingcompetition,manyfirmswillcollaboratewithFinTechs1 via innovative business models such as marketplacestostayrelevantandcompetitive.
IncreasedfinancialawarenessofHighNetWorthIndividuals(HNWIs)isleadingtoincreaseddemandsforsophisticatedandcustomizedservices.ProductinnovationcanhelpfirmsimprovethecurrentmodestHNWIsatisfactionlevelsandhelpthemdifferentiateinarapidlysaturatingmarket.Whileemerging technologies such asArtificialIntelligence(AI)andRoboticProcessAutomation(RPA)aredevelopingrapidlyinthewealthmanagementspace,ApplicationProgrammingInterfaces(APIs)andblockchainisalsoseeingasurgeinitsuseandadoption.
Ontheregulatoryfront,myriadcompliancemandatesthatwealthmanagementfirmsfacecanseemquitecomplex,butfromthecybersecuritypointofview,almostallrequirementsfocusonprotectingclientsandtheirinformation.Security and compliancerequirementsaregivingfirmsahardtimewithrisingcostsandoverallspendingintheseareas;however,inthelongrun,thesemayreflectgreaterstabilityforfirmsandwillhelpinestablishingtrustoftheirclients.
The industry’s advisory model has also been transforming, shifting from commission-based to performance-based models, increasing focus on the traditionallyunderservedsegments,andtheriseofhybridadvisoryservices.Increasingcompetitionandclientdemandfortransparencyisforcingfirmstorelookattheirstrategiestoacquireandretainclients.
Inthenextsection,weprovideananalysisofthetop10wealthmanagementindustrytrendsthatfirmsneedtonavigateintheneartermintheirpursuittobecomeagileandcompetitiveintheindustry(Exhibit1).
3
Exhibit 1: Top 10 Trends in Wealth Management
Source: Capgemini Financial Services Analysis, 2017
Focus Area Trend
Applications of Cognitive Computing, Machine Learning, and AI expand across wealth management industry
Robotic process automation can help firms keep costs down and accelerate digital transformation
Innovation is key for firms to be future-ready
Emerging Technologies
Introduction of marketplace models for wealth management products
Focus on enhanced customer experience is becoming a wealth management priority
Evolving Customer Needs
Cybersecurity continues to be an important concern for wealth management firms
Increase in cost of doing business for firms due to complex regulations
Compliance and Security
Advent of hybrid advice solutions to set wealth management on a new course
Development of next-gen genome-based segmentation and increased focus on traditionally underserved segments
Evolution of fee models in wealth management due to client demands, regulatory mandates, and competitive pressure
Changing Advisory Trends
4 Top 10 Trends in Wealth Management 20184
Background
• AdvancesintechnologiessuchasArtificialIntelligence(AI),MachineLearning(ML),andCognitiveInsightshavestartedtomakewealthmanagementinroadsastheindustryrealizesthattheabilitytoextractvaluefrombigdataisakeydifferentiator.
• Analyticsapplicationsinwealthmanagementfirmsarealreadymovingbeyondmarketing and customer segmentation to more robust fact-based behavioral datacapture,asittapsintostreamsofstructuredandunstructureddata.
• Forexample,firmsareimplementingtheNextBestAction(NBA)enginetoenabletheirdigitaltransformationjourneybyleveraginganalytics,insightsandmachine-learningalgorithmsasacompetitiveadvantageacrossfront-to-backvalue-chain.
Key Drivers
• Exponentialincreasesincomputerpoweranddatastoragehaveledtotheriseinartificialintelligenceandmachinelearningsystems:
– Thisincreaseisalsodrivenbythefactthatmoredataisbeingcreatedwhichisexpectedtoincreasethree-foldfrom2016-2021.2
– ThisexplosionofcustomerdatameansfirmscanleveragetheNextBestActionframeworktoshifttoacustomer-centricapproachanddesignpersonalized,versusstandardproducts.
• The rise in passive investing and move toward lower fees has also led asset managerstoinvestheavilyintechnologytoreduceoperatingcostsandtocomplywithregulatoryscrutiny.
• ManyfirmsarealsomovingtowardBigDataandanalyticsapplicationsastheirclientsbecomemoredemandingtowardpersonalizedanddata-driveninsights.
Trend Overview
• Thewealthmanagementindustryisanearlyadopterofartificialintelligence: – AutomatedadvisorsutilizingAIareexpectedtohaveassetsworthUS$2.2trillionby2020.3
– Cognitiveapplicationsinwealthfirmsarealsohelpingdeliverdeeppersonalization,andanswercomplexclientquestionsinrealtimethroughexpertvirtualadvisorsthatactasaconversationalinterfacewithclients
Innovative applications using emerging technologies are now moving beyond marketing analytics toward more strategic functions.
Trend 01: Applications of Cognitive Computing, Machine Learning, and AI Expand Across Wealth Management Industry
2 “TheZetaByteEra:Trendsandanalysis”,Cisco,June7,2017accessedOctober2017at https://www.cisco.com/c/en/us/solutions/collateral/service-provider/visual-networking-index-vni/vni-hyperconnectivity-wp.html
3 “By2025,AIWillHavea5-Trillion-DollarDirectImpactontheWorkforce”,LetsTalkPayments,May5,2016accessedOctober2017at https://letstalkpayments.com/by-2015-ai-will-have-a-5-trillion-dollar-direct-impact-on-the-workforce/
5
(Exhibit2).Forexample,WellsFargopilotedanAI-drivensolutiononFacebookMessengerasachanneltopersonallyaddresscustomerqueries.4
• High-speedautomatedassettradingandreal-timeregulatorycomplianceareexamplesofgrowingindustryinnovations:
– AI-enablednaturallanguagegeneration(NLG)isincreasinglyclosingthegapbetweendataanalysisandinvestmentdecisions,whichwillhelpprogressautomatedadvisorytechnologyanddrivemoreefficiencytoautomatedtradingstrategies.
• Investmentmanagersareusingpredictiveanalyticstogenerateinvestmentideasorasanearlywarningsystemforassetsatrisk.AI-enhanceddataanalyticscancomplementtraditionalfinancialanalysisbyofferinguniqueinsights:
– BofAMerrillLynchisexperimentingwithanAIstock-pickingtooltohelpidentifyvalueinsmall-capstocksthatconventionalanalystsmightmiss.5
– JPMorganrecentlywonanawardforitsanalyticsplatform,SPARTA,whichincludes real-time calculation of performance, contribution, and attribution, in additiontoon-the-flygroupingandadvancedex-postriskanalytics.6
• AccordingtoarecentBofAMerrillLynchreport,advancesincomputingtechnology,machinelearning,anduser-friendlyinterfaceswillgenerateaUS$5.2–6.7trilliondirectimpactintheformofahigherefficiencyandoutput.(ibid.3)
• WealthfirmsareinthetechnologicalracetointegrateAI,MLanddataanalyticsapplicationswiththeirteamstoprovidehybridservices.
Implications
• Astechnologyadvancesbecomekeydifferentiators,competitionbetweennon-traditionalandtraditionalfirmsmayheatup,withfirmsfindingwaystodistinguishthroughbetterserviceandoperationalefficiencywithapplicationsofAI,MLandcognitiveanalyticsacrossallsignificantwealthmanagementstages(Exhibit2).
• TheNBAengineprovidesactionableinsightsthataddday-to-daybenefitstocall-centerrepresentatives,relationshipmanagers,operationalstaff,customers,andeventheirpilotBOTtodriveselfservice.
• Thetrendforservicinglowerendofthemarketmayemergeintosophisticatedautomatedpropositionsinthefuture,buttheremayalsobehighadoptionofsophisticated tools for traditional investment managers to service those clients whostillwantandneedamorepersonalizedapproach:
– Examplesoftheseinnovationsincludedigitalpersonalassistantstohelpclients plan their time and complete administrative tasks, and machine learningtoproactivelypredictclientneeds.
• Themovetowardsmoredataanalyticsapplicationswillgivefirmsanedgeonstockmarketpredictionssavingthemhugecostsandmargins.AutomatedadvisoryandotherAIapplicationsinfinancialservicescouldincreaseefficiencyby45-55%foratotaleconomicimpactestimatedtobeUS$0.6-0.8trillionin10years.(ibid.3)
4 “WellsFargoTestingBotForMessengerFeaturingNewCustomerServiceExperiences”,WellsFargo,April18,2017accessedNovember2017at https://newsroom.wf.com/press-release/community-banking-and-small-business/wells-fargo-testing-bot-messenger-featuring-new
5 “Machinelearningistransforminginvestmentstrategiesforassetmanagers”,CNBC,June6,2017accessedOctober2017at https://www.cnbc.com/2017/06/06/machine-learning-transforms-investment-strategies-for-asset-managers.html
6 “BestAnalyticsInitiative:BuySide—JPMorganAssetManagement”,WatersTechnology,January16,2017accessedOctober2017at https://www.waterstechnology.com/awards-rankings/2480253/aftas-2016-best-analytics-initiative-buy-side-jpmorgan-asset-management-sparta
6 Top 10 Trends in Wealth Management 2018
Exhibit 2: Key Application Areas of AI and ML in Wealth Management Firms
Source: Capgemini Financial Services Analysis, 2017
Key Applications
CustomerSegmentation and Targeting
Opportunity Management
Portfolio Management and Risk Management
Customer Service and
Engagement
Acquisition and
Onboarding
7
Background
• Therearemanybasic,logic-basedandrepetitiveprocedureswhichcanbereplacedbyautomationinthewealthmanagementindustry.ThesesortofprocessesareidealforusingRoboticProcessAutomation(RPA).
• Anon-invasivetool,RPAdoesnotdisturbunderlyingcomputersystems.• RPAprocessesarebuiltstep-by-stepandnotcodedbyprogrammers,aboonfor
non-technicalusers.Itisuser-friendlyandhighlyscalable,withthepotentialtooffershortpay-backperiodscomparedwithothertechnologies.
• WorkforceinefficienciescanbeeliminatedusingRPA,withhighlylabor-intensiveprocessesanidealstartingpoint.
Key Drivers
• Ever-increasing,complexandstringentregulationsmakeitdifficultforwealthmanagementfirmstokeepcostsincheckwhileensuringapositivecustomerexperience:
– Forinstance,TheDepartmentofLabor’sfiduciaryruleintheUnitedStates8, theEU’sMarketsinFinancialInstrumentsDirectiveII(MiFIDII).
• YoungerHNWIsaredemandingbetterdigitalcapabilitiesfromtheirfirms.Atthe same time, wealth managers are seeking improved digital capabilities to helpthemserveclientsbetter.
• FinTechsandlowerinvestmentreturnspost-2008–coupledwithincreasingcompetition due to the emergence of automated advisors – have put marginpressureonfirms.Therefore,businessesarelookingtocutcostsbyimplementingRPAsolutions.
• Otherfactorssuchasenhancedproductivity,loweroperationalcosts,reducedresponsetime,fasterclienton-boarding,etc.aredrivingfirmstowardRPA(Exhibit3):
– Automationenableswealthmanagementfirmstofocusontheircorebusiness, strengthen their competitive advantage, and improve satisfaction forclientsaswellaswealthmanagersandstaff.
Utilizing Robotic Process Automation (RPA) can help firms save up to 60% on time-to-resolution of repetitive tasks.7
Trend 02: Robotic Process Automation Can Help Firms Keep Costs Down and Accelerate Digital Transformation
7 “Flawlessaccuracy,incredibleefficiency,shrinkingcosts”,CustomerThink,June14,2016accessedOctober,2017at http://customerthink.com/flawless-accuracy-incredible-efficiency-shrinking-costs-the-back-office-tech-that-makes-it-all-possible
8 TheU.S.DepartmentofLabor(DOL)FiduciaryRulewasoriginallyscheduledtobephasedinApril10,2017–Jan.1,2018,butwasdelayeduntilJune9,2017,includingatransitionperiodfortheapplicationofcertainexemptionstotheruleextendingthroughJan.1,2018.FullimplementationofallelementsoftherulehasbeenpushedbacktoJuly1,2019.Theruleexpandsthe“investmentadvicefiduciary”definitionundertheEmployeeRetirementIncomeSecurityAct of1974(ERISA)
8 Top 10 Trends in Wealth Management 2018
Trend Overview
• ManyfirmsareexperimentingwithRPAandhavecomeupwithsomeusecases.However,thesignificantcostsassociatedwithreplacinglegacysystemshaveprecludedmanyfirmsfromscalinguptoalevelthatyieldstangiblebenefits.
• RPAcanbeusedtoincreasecontrolsandexecutionconsistency,butitcannotreplacehumanoversightinriskandcompliance.9However,RPAcanhelpkeepcostsincheckbystreamliningcomplianceprocesses.
• TypicalRPAusecasesinclude: – Clientonboarding–KnowYourCustomer(KYC)andotherduediligence
processes during client onboarding are being automated and moved to digitalinsteadofhavinghardcopiesofmultipleforms.AlthoughRPAworkswithcontentthatisalreadyavailablewithinasystem,initialinformationhastobehandledbypeople.
– Backofficeoperations–Automatingtime-consumingtasksandprocesseswill lead to agile operations, and free up the time of the decision makers, in additiontoreducingcosts.10
– Chatbots–Chatbotsprovideanavenuetosignificantlyengagebothcustomersandwealthmanagers:
� Customerscanleveragethechatbotstoaccessportfoliosummariesandchanges in asset parameters in real time without the intervention of wealthmanagers.
� Voiceassistants(likeAmazon’sAlexa)canbeintegratedwithchatbotstoresolvevoicebasedqueries,thusreducingeffort.
� ChatbotscanbeusedtoanswerFAQsrelatedtonewstrends,andtransactions,thusdrivingself-service.
� Wealthmanagerscanleveragechatbotstoidentifynewclientleadsandautomatethefollow-upwithspecificinput.
Exhibit 3: Key Drivers of RPA
Source: Capgemini Financial Services Analysis, 2017
Key Drivers
Increasing, Complex and
Stringent Regulations
For example, DOL’s fiduciary rule in the United States, and MiFID II in European Union
HNWI demand for better digital
capabilities
With RPA, processes can be made more
efficient and error-free
Emergence of robo-advisors, FinTechs, and Bigtechs have put pressure on margins for firms
Changing Consumer Behavior
Increasing Competition
Workforce Inefficiencies
9 “Robotics:TheNextFrontierForAutomationInFinanceAndRiskManagement”,Forbes,April20,2016,accessedOctober2017at https://tinyurl.com/yc5dp6mk
10“WheretoStartwithRPAinFinancialServices”,Finextra,August1,2017,accessedOctober,2017at https://www.finextra.com/blogposting/14362/where-to-start-with-rpa-in-financial-services
9
• Tocomplywithregulationsandtokeepthecost-incomeratiosincheck,improvingoperationalexcellenceinthebackandmiddleoffices(whichwouldhelpreducethecosts)isonlythestart.
• FirmsneedtolookatRPAbeyondjustatechnologyinitiativeandleverageittore-orient their business models, re-engineer their processes, and restructure theirpeople.
Implications
• RPAcanenablefirmsdothingsinafaster,cheaperandbettermanner,bringingefficienciesintothesystem.Additionally,thereisenhancedsecuritycomparedtohuman-drivenprocesses.
• Wealthmanagerscanconcentrateonvalue-addactivities,whichinturnhelpsdriverevenue.Asroutinetasksareautomated,customerexperienceisimproved.
• Asroutinefunctionsareautomated,employeescanlearnnewskillstomaintainandupgradetheircontributionstothefirm’sgrowth.
• OncecompaniesgraspthevalueofRPA,theycanacceleratetheirdigitaltransformationprogramsastheyscaleupoperations.
10 Top 10 Trends in Wealth Management 2018
Trend 03: Innovation is Key for Firms to be Future- Ready
Background
• Otherparticipantsinfinancialservicesretailbusinessarewayaheadinproductinnovationthanwealthmanagementfirms.Forexample,theVitalityprogramininsurancewithathree-stepprocess–one,discoverthestateofyourhealth,two, personal health goals based on the health status which can be used to earn points,andthird,enjoyrewardsaccordingtothepointsyouearn.
• AsHNWIsbecomemorefinanciallysavvy,theyaredemandingmoresophisticatedandcustomizedservices.ToimproveHNWIsatisfaction,productinnovationisessential.
• Wearenowobservingsuchinnovationinwealthmanagementtoo,asFinTechsdisrupttraditionalbusinessmodelswiththeintroductionofautomatedadvisoryservicesandotherdigitalcapabilities.
• AfurtherchallengetoincumbentsisthepossibleentryofBigTechs11 that bring not onlytechnologyexpertisebutthetrustofabroadcustomerbase.BigTechentryintowealthmanagementcouldspurintensecompetition,orfruitfulpartnerships.
Key Drivers
• Duetonon-differentiatedofferingsinthewealthmanagementindustry,therearecostpressuresanddownwardmovementofprofitmarginsfortheincumbents.Businessesmustinnovateinbothproductandtechnologyofferingstoimprovemarginsand,asaresult,customerexperience(Exhibit4).
• Lowinvestmentreturnsinthepost-crisisperiodhavemadeclientsconsiderswitchingtootherfirmsinhopesofbetteropportunities,thusmakingclientretentiondifficult.
• Theentryofnon-traditionalplayers,suchasFinTechswithbroaddigitalcapabilities,isdisruptingtheindustryandforcingincumbentstoinnovatetostayrelevantandcompetitive.
With subdued post-recession investment returns, disruptive innovation has become a powerful wealth management differentiator.
Exhibit 4: Key Drivers Behind Innovation in Wealth Management Industry
Source: Capgemini Financial Services Analysis, 2017
Text
Changing HNWI Behavior and Preferences
Non-differentiated Offerings
Key Drivers behind Innovation
Non-traditional Players
11BigTechisageneraltermtocoverdata-driventechnologyfirmsnottraditionallypresentinfinancialservices,suchasGoogle,Amazon,Alibaba,Apple, Tencent,andFacebook.
11
• HNWIs,especiallythoseunder40,increasinglydemanddigitalcapabilitiestosupporttheirportfolioandrelationshipmanagementneeds.Atthesametime,wealth managers seek freedom from repetitive, routine activities to have more timetoengagedirectlywiththeclients–inrevenueincreasingactivities.
Trend Overview
• Opportunitiescreatedthroughspecifictechnologiesinclude: – Applicationprograminterfaces(APIs)–Usersuploadtheirbankaccountdetailsintoasingleapp,andwhiledoingtransactions,theycanpaythroughanyoftheaccounts.
– Blockchain–TheDistributedLedgerTechnology(DLT)basedsmart-contractconceptcantightenprocessesandremovesomerisksfromtransactionsinfinancialservices.
• Technologicalinnovationcanenhancetheservicedeliveryexperiencealongthevariouscustomerlifecyclephases:
– Forexample,BNPParibaswealthmanagementhasco-createdanewclientexperiencewithclientsandFinTechs–withafocusonthreenewservices:
� ‘myAdvisory,’ which boosts clients’ investments management and provides personalizedfinancialadvicedirectlyviaasmartphone.
� ‘myBioPass,’ whichenablesclientstoeasilyaccesstheironlinebankingservicesusingbiometrics.
� ‘The Leader’s Connection,’ which is a digital platform available on smartphone andtabletthatallowsBNPParibaswealthmanagerstoconnecteligibleinvestorstofacilitateco-investmentsandgivethemtheopportunitytosharetheirviewsonexclusiveprivateinvestmentopportunities.12
– CustomerAcquisition–FirmssuchasOCBCBank,HSBC,andMUFGhavecompletedaproofofconceptforaknow-your-customer(KYC)blockchain.13 OtherFinTechssuchasNetkiprovideopensourceandopenstandard-baseddigitalidentitysolutionsthatallowfinancialservicecompaniestomeettheircompliancerequirementsonbothpublicandprivateblockchains.14
Implications
• Withfirmsaggressivelypushingdigitaltechnologiesintothecurrentvaluechaininwealthmanagement,theindustryislikelygoingtoseehigherpenetrationofautomatedadvisoryanddigitalmarketplaceplatforms.
• Firmsandwealthmanagersareexpectedtoincreasinglyusesocialmediaandleveragedataanalyticsforprospectingclients.Thereareusecasesofmobileappsfeedingtherelevantinformationdailytowealthmanagersandclients:
– CitibankpartneredwithThomsonReuterstoenabletheircustomerstogetaccesstoseriesofstockmarketinsightsandanalysisontheirinternetandmobiletradingplatforms.15
• FirmsareexpectedtostrategicallyfocusonbigdataandadvancedanalyticstoenabledifferentiatedservicesandproductsolutionsforHNWIs.Innovationcan,inturn,improvecustomerexperiencebyprovidingcustomizedofferingstotheclientsandhelpfirmsmoveawayfromthe‘one-size-fits-all’approach.
• Theindustrycouldbelookingatincreasedoutsourcingofbackandmiddleofficefunctionsinresponsetothegrowingmarginpressuresandthecomplexregulatorystructure.
12 “BNPParibasWealthManagementreinventsitsClientExperienceleveragingdigitalsolutions”,January1,2017accessedOctober2017at https://group.bnpparibas/en/press-release/bnp-paribas-wealth-management-reinvents-client-experience-leveraging-digital-solutions
13 “HSBC,MUFGandOCBCcompleteKYCblockchainPOC”,FinTechInnovation,October4,2017accessedOctober2017at https://www.enterpriseinnovation.net/article/hsbc-mufg-and-ocbc-complete-kyc-blockchain-poc-937750511
14 “21CompaniesLeveragingBlockchainforIdentityManagementandAuthentication”,www.letstalkpayments.com,February13,2017accessedOctober2017at https://letstalkpayments.com/22-companies-leveraging-blockchain-for-identity-management-and-authentication
15 “ThomsonReutersStockAnalytics”,accessedNovember2017athttps://www.citibank.com.sg/gcb/investments/brokerage.htm
12 Top 10 Trends in Wealth Management 2018
Trend 04: Introduction of Marketplace Models for Wealth Management Products
Background
• Wealthmanagementproducts,likemostbankingproducts,arenowbeingunbundledfromthebankasawhole,andbeingofferedasmodulesorindividualproductstoclientswhomaynothavebeenassociatedwiththebank.
• WehaveseenthePlayStoreforAndroidandtheAppStorefromAppleevolvingintothrivingmarketplacesforthird-partyapps,alongwayfromtheinitialdayswhenonlyGoogleandAppleappswereavailablefordownload.
• WithhundredsofFinTechscomingupwithgreatideasforbetterproductsandhigherreturnsalongwithimprovedcustomerexperiencebyleveragingMLandAI,wealthmanagementfirmsneedtodecideiftheyonlywanttobecomeaproduct creator or also become a broad product distributor, in order to provide customer-centricholisticfinancialsolutionsbyofferingin-houseaswellasthird-partyproducts.
Key Drivers
• Thewealthmanagementindustryhasseenrapiddisruptionintheformoflowercostmodelsthatprovidehigh-techsolutionsatlowercosts.E.g.automated advisors that manage a huge amount of wealth without the help of humanadvisors.
• Suchbusinessmodels,mainlyonthedigitalmedium,offersolutionsespeciallytothemass-affluentsegmentatafractionofthecostoftraditionalwealthmanagers, driving out intermediaries to reduce fee costs, and eliminating the needofcostlyhumanadvisorstomanagethewealth(Exhibit5).
The increasing ease of access and low cost of switching between service providers and products could lead to marketplace models of wealth management.
Exhibit 5: Key Drivers behind Marketplace Models
Source: Capgemini Financial Services Analysis, 2017
Disruption by Low-cost Advisory Models
Proliferation of Digital Services
Services for the Mass-affluent Segment
13
Trend Overview
• Themobilemarketplaceshaveaddedvaluetotheprimaryplatformownerandhelpedexpandthescaleofofferingsbyallowingproductsfromcreativedeveloperstobesoldtocustomersoverthisplatform:
– Similarly,inthewealthmanagementdomain,thereachofthedigitalmediumand the trusted brand of incumbents is perfect for FinTechs to leverage for scaleintheformofacollaborationwheretheirproductsaresoldtoexistingandnewclients.
– Customerswillbeabletouseawiderarrayofofferingsontheplatformfor holistic wealth management solutions, even though from multiple third-parties.
• Ifwealthmanagementfirmsdonotforayandexperimentwiththismodelsoon,aneventualentryofBigTechsintowealthmanagementservicescouldleadtolostopportunitiesandleavethemataseveredisadvantage.
• Thesemarketplacescouldinitiallyofferproductsthatarelessintensivew.r.t.humanadvisorsandrelyonautomatedadvisors:
– FinTechs could be onboarded to sell their products and services via the marketplace,tillacriticalnumberofclientsareacquired.
– Anearlymoverincumbentcouldalsohaveotherincumbentsselltheirproducts on the platform, thus improving the reach and attractiveness of the marketplacetoclients.
– The services and products that can be distributed via this model could includethosethatcanbemanagedbyautomatedplatformssuchasrisk-profiling,portfoliomanagement,andcashandcreditservicesamongothers.
– The marketplace model will encourage customer-centric solutions rather thanfirm/product-centricadvice.
• The faster such a marketplace can scale up and build a trusted brand, the harder will it be for others to gain a foothold, thus creating a competitive advantage in thelongterm.
Implications
• The marketplace model will mean that the incumbent platform owner will have toconstantlycompetewiththird-partyproductsandservicesinadditiontoothermarketplaces:
– Third-partysolutionsbeingsoldinthemarketplacewillcertainlyhavelowermarginsforthemarketplaceownercomparedtotheirownsolutions.
– Hence,thefocusshouldbetostayaheadofotherproductsw.r.t.innovation,brand,andcustomerexperience.
• Tostayaheadofthegame,evenaftersettingupthemarketplace,theincumbentswillhavetoattractFinTechs,saythroughaccelerators,andcollaborate with them to build better products and solutions to sell via the marketplaceathighermarginsthanthird-partyproducts.
• The marketplace model will allow the incumbent to collect massive amounts of data from clients who interact with the platform, thus opening up possibilities ofbetterinsightsoncustomerneedsandcustomerexperience.
• Thismodelisalsoahugeopportunityforthemarketplaceownerstograbaneverlargershareoftheclient’swalletbyhostingawidearrayofofferingsacrossthewealthportfolio.
• Hence,themarketplacemodelmaybeadefensiveplayintheshort-term(tothwarttheFinTechthreat)butcouldturnouttobeatremendousstrategicvalue-addasananalyticaltreasuretroveforafuture-proofdigitalwealthfirm.
14 Top 10 Trends in Wealth Management 2018
Trend 05: Focus on Enhanced Customer Experience is Becoming a Wealth Management Priority
Background
• Customerexperienceinwealthmanagementholdshigherweightforclientscomparedtootherproductstheyuse,asthisrelationshiphasfar-reachingimplicationsontheclient’sfinancialandlifegoals.
• Clientsareopentoswitchingtootherwealthmanagementprovidersinsearchofbetteruserexperience,thusforcingfirmstoinnovatetokeepupwiththeirdemands.
• ThecurrentHNWIsatisfactionlevelsaremodestandhavemuchscopeforimprovement:
– Themindsetofwealthmanagementfirmsisshiftingtowardputtingclient-specificneedsatthecenterofthewealthmanager-clientrelationship.Customerexperienceisacriticalinputforbuildingtrustandgainingclientconfidence.
• Customersarelookingtoengagewithclicksandinteractionsratherthanpapersandcharts.
Key Drivers
• FacedwithchangingdemographicsanddemandsofHNWIs,wealthmanagementfirmsmustadapttheirserviceofferings.AsHNWIsbecomemorefinanciallysavvy,theybecomemoreempoweredintheirwealthmanagementfirmrelationships.
• Lessthan50%ofHNWIsarefullycomfortablewiththefeestheypay(asnoted in the 2017 World Wealth Report),andthenewentrantsinthiscrowdedmarketarefullyexploitingthisopportunitybytailoringtheirofferingsandfeestructures,deliveringsuperiorclientexperienceunderbetterfeemodels.
• Clientexperiencemainlyrevolvesaroundsimplificationofclienttouch-points,creationofintuitiveandeasy-to-usefeatureswithincomplexinvestmentmanagementtools,andseamlessomnichannel(e.g.acrossmultipledevices)portfoliomanagementcapabilities.
• Firmsalsoneedtokeepthewealthmanagerexperienceaboveathresholdlevel,astechnologicalinnovationsintheindustrymakeiteasyforwealthmanagerstogoindependent.HNWIs,inturn,tendtofollowtheirwealthmanagersduetothealreadyestablishedrelationshipandtrust.
Trend Overview
• Withtheirstrategyrevolvingaroundcustomerexperience,firmsarefollowingabottom-upapproachtofindoutwhatthepain-pointsinthecustomerjourneyareandwhere“wowmoments”canbecreated.Itisnowimperativeforfirmstore-engineertheirbusinessmodelstokeepup(Exhibit6).
• Firms are looking to leverage the rising interest in digital channels such as socialmedia,mobileapplications,andimplementingautomatedadvisoryandautomatedinvestmentmanagementtoenhancetheoverallexperienceofboththeircustomersandthewealthmanagers.
Customer experience can be used to create a sustainable competitive advantage in a rapidly changing industry.
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• IncreasedHNWIawarenessandchangingdemographicshaveledtoincreasingdemandforcustomizedandsophisticatedadviceondigitalchannels.Wealthmanagersandclientsalikewanttheabilitytomaintainthewealthrelationshipremotely.
• Firmsarejustbeginningtoexperimentwithhybridmodelstostriketherighthuman-andautomated-advisorymix.
Exhibit 6: Levers to Enhance Customer Experience
Reengineering the Strategy to Create “WOW” Moments for Customers
Increasing Adoption of Big Data and Analytics
Rising Leverage of Digital Channels
Move toward Hybrid Models
Top-Down Simplification from Product to Platform
Source: Capgemini Financial Services Analysis, 2017
Customer Experience
Enhancement
Implications
• Firms need to train their wealth managers on digital capabilities – to ensure thatallcustomers,inturn,canhavethebestpossibleexperienceduringtheirinteractions.Severalwealthmanagementfirmsarelookingatafullyintegratedworkstationtoenablewealthmanagertohaveeverythingattheirfingertips,thusenhancingtheclientserviceexperiencethroughimprovedclient-facetime.
• Firmsneedtoanticipatecustomerneedsandidentifybehaviorpatternsbettertokeepupwithevolvingclientneedsandofferamorecollaborative,individualizedwealthexperienceandanintegratedcustomerjourneyacrossthevaluechain.
• Thisisexpectedtoleadtoincreasedadoptionofdataanalyticstocreatecustomized advice for clients, while enabling wealth managers to make better advisorydecisions,creating‘wowmoments’alongthewayforagreatclientexperience.
16 Top 10 Trends in Wealth Management 2018
Trend 06: Cybersecurity Continues to be an Important Concern for Wealth Management Firms
Background
• Wealthmanagementfirmsholdhugeamountsofhighlysensitiveinformation,whichmakescyber-defenceveryessentialasdatatheftcanleadtosignificantreputationalandfinancialdamages.
• Increasing digitization, outsourcing, and reliance on emerging technologies such asIOTandthecloudfurtherincreaseexposurerisk.
• CyberrisktopsthelistofconcernsforUKwealthmanagementfirms,with90%ofwealthmanagersratingthethreatofcybercrimeaseitherhighorvery-high.16
• AccordingtoareportreleasedinSeptember2016,cybersecurityisahighpriorityfor81%ofadvisors,butonly29%arefullypreparedtomanageandmitigatetherisksassociatedwithcybersecurity.17
Key Drivers
• Recentlarge-scalecyber-attacksacrossallindustriesdrivetheneedtosecuredata.
• Digitizationinvolvingmigrationtothecloud,IOTinfrastructures,etc.,haveprovidedseveralbenefitstowealthmanagementfirmsbutalsoexposedthemtoexternalthreats,drivingthemtoincreasetheirsecuritylevelstopreventlossofsensitivecustomerinformation.
• Stricterregulationsarenowcompellingthewealthmanagementindustryforstrongermeasuresincybersecurity:
– E.g.inEurope,theGeneralDataProtectionRegulation(GDPR)willrequiremandatorydataprotectionmeasurestobeimplementedbyfirmsandmayimposeheavypenaltiesonthemincasesofnegligence.
Trend Overview
• Aswealthmanagementfirmsexpandtheirdigitalservicestomeetclientdemands,theyfacemanyopenvulnerabilitiesforwhichtheyneedtopreparewithbroader,sustainable,andadaptivecyber-defencemodels.
• Thepossibilityandscaleofcyber-attacksonfirmscannotbeundermined(Exhibit7):
– Globally,damagesduetocybercrimeareexpectedtorisetoUS$6trillionannuallyby2021.18
Use of sensitive data, regulatory mandates, and digitization require firms to beef up their cybersecurity mitigation plans. A reactive approach is insufficient to stop fraud.
16“CyberriskstopsUKWealthManagementfirms’listofconcerns”,LarkInsuranceandCompeerLtdReport,January23,2017accessedOctober2017at https://tinyurl.com/yapkuoec
17 “IsYourDataSafe?The2016FinancialAdviserCybersecurityAssessment”,FPAResearchandPracticeInstituteTMaccessedNovember2017at https://tinyurl.com/ybms9noz
18“CyberCrimeReport”,CyberSecurityVentures,accessedOctober2017athttps://cybersecurityventures.com/hackerpocalypse-cybercrime-report-2016/
17
• Voice-enabledconnecteddevicesarecreatingnewopportunitiesforidentitytheftandfraud,andhencesuchasecosystemneedstobesecuredbeforeinvestmenttransactionscanberoutedthorughthem.
• CompaniessuchasPindropandNuancehelpdefendagainstfraudthroughvoicecalls.Theyusevoicebiometricstoauthenticatecallersanddetectidentitytheftthatmightleadtofraud.
• ManyfirmsareincreasingspendonITsecuritytopreventdisruptionorbreachduetocyber-attacks:
– Arecentsurveyrevealedthat86%offinancialservicesfirmsplantospendmoretimeandresourcesoncybersecurityinthecomingyear.19
• Theglobalcybersecuritymarketcontinuestoexpandwithananticipated2017-22CAGRof11.0%andisexpectedtoreachUS$231.9billionby2021.20
Exhibit 7: Impact of Cybercrime on Firms
Source: Capgemini Financial Services Analysis, 2017
Impact of Cybercrime
Loss of Trust in Brand
Financial Loss and High Costs
of Recovery
Reputational Loss
Loss ofBusiness
Continuity
PotentialBankruptcy
Loss of Operational Productivity
Implications
• Globally,thereisamovetowardproactiveprotectionwherefirmsemploysecurityanalyticsutilizingmachinelearningandartificialintelligencetoanalyzeinformationandpredictorthwartpotentialthreats.
• Demandforadvancedthreatprotectionproductsusingbigdataanalysistodetect and neutralize possible threats will grow at a much faster pace than demandfortraditionalenterprisesecurityproducts.
• Wealthfirmswillneedtostrengthentheircybersecuritycapabilitiestopreventcyber-attacksthatmightriskclientinformation:
– Theywillmostlikelyintegratenewtechnologiessuchasbiometrics,behavioralanalytics,andmachinelearningtobuildadaptiveandintelligentdefenses.
19 “86PercentofFinancialServicesFirmstoIncreaseCyberSecuritySpendin2017”,eSecurityPlanet,April2017accessedOctober2017at https://tinyurl.com/yb7afcgw
20“CybersecurityMarketworth231.94BillionUSDby2022”,Markets&Markets,July2017accessedOctober2017at http://www.marketsandmarkets.com/PressReleases/cyber-security.asp
18 Top 10 Trends in Wealth Management 2018
Trend 07: Increase in Cost of Doing Business for Firms Due to Complex Regulations
Post-recession regulatory mandates make the compliance function vital for wealth management firms.
Background
• Asanaftermathoftheglobalfinancialcrisis,thewealthmanagementindustrycameundermuchscrutiny.Theuncertaintyaroundthesheernumberofever-evolving regulations coming up in domestic as well as international markets has resultedinaparadigmshiftforthewealthmanagers.
• The cost of compliance, as well as the cost of non-compliance, is rising as the regulationsincreasebothinnumberandscope.Firmsneedtohaveastrategyinplacetoassessandcomplywiththeseregulationstoavoidfuturefinesandreputationaldamages.
Key Drivers
• Regulationsarecontinuallyevolvinginresponsetonewbusinessmodelswiththeentryofnon-traditionalplayersfocusingondigitalcapabilities.
• Fiduciaryrulesarebeingenforcedstrictlytopreventconflictofinterest,whereinsomeofthelargerwealthmanagementfirmscouldbetagainstwhattheyareadvisingtheirclientstodo.
• Regulationsarealsobecomingmorestringenttopreventfirmsfromcolludingovertransactionfeesandthepaymentmodels.
Trend Overview
• The cost of doing business in wealth management is rising with increased global regulatorychanges:
– In2016,ThomsonReutersRegulatoryIntelligencetracked52,506regulatoryupdatesgloballyfromaround500regulators,whichisabout201changesperday.21
• Regulationsareleadingtoanexpansionintheplayingfieldinthewealthmanagementindustry,withconsumersbeingtheultimatebeneficiaries.
• RegulatoryapproachestofinancialinnovationaredivergingintheUS,Europe,andAsia,potentiallyjeopardizingthelikelihoodofaconcertedglobalresponseinafuturefinancialcrisis.22
• Anupcomingregulation–GDPR(GeneralDataProtectionRegulation),whereinpeople have a right to be forgotten or a right to erasure of all personal informationheldonthembyaparticularcompany23–mayleadtoanincreaseintheoperationalcostsasfirmshavetogetsystemsinplaceinordertocomplywiththeregulation.
• Newregulationsareputtingsignificantfocusoninvestorprotectionandclientdisclosures.Organizationsarededicatingtimeandmoneytocombatthesechallenges.
21“9ForcesofChangeintheWealthManagementIndustry,andWhatItWillTaketoWin”,www.tabforum.com,April24,2017accessedOctober2017at https://tinyurl.com/k5vds9l
22“Startupsmaydrivefintechinnovation,butbigtechwillbewinnersinfinancialservices”,www.thenextsiliconvalley.com,August25,2017accessedOctober 2017athttps://tinyurl.com/y7xentwu
23“2018isshapinguptobearegulatorynightmareforfinancialservices”,www.information-age.com,April19,2017accessedOctober2017at http://www.information-age.com/2018-nightmare-financial-services-123465793
19
Implications
• Firms have to be up-to-speed with the latest regulations leading to increased compliance and operational costs, which is putting downward pressure on margins.Thiscouldspelltroubleforsmallerfirms,andconsolidationmaybetheonlyanswertosurviveinsuchasituation(Exhibit8).
• Intheshortterm,withthegrowingexpertiserequiredtokeepupwithcomplexregulations,outsourcingoftheback-officeandthemiddle-officemaybeanobvioussolutionformanyofthefirms.
• Amalgamationofthebestservices–acombinationofwhatRegTechsareofferingandtheexistingcomplianceframeworksofincumbents–cancreatebettercomplianceprocessesfortheindustry.Thiscouldeventuallystabilizecostsandmakefirmsmoreagileinthefaceofevolvingregulations:
– Wealthmanagementfirmsseekingtoquicklyrespondtoregulationsatlowercostsandwithoutneedingextensivesystemoverhaulsmaywishtoconsidertheuseofout-of-the-boxsolutionssuchasFenergoandSkience,thatsupportcomplyingwithrulesandregulationssuchasAML,KYC,MiFIDII,Dodd-Frank,etc.
Exhibit 8: Implications of Changing Regulations on Firms
Source: Capgemini Financial Services Analysis, 2017
Rising Compliance and Budgetary Costs
Outsourcing of Back- and Middle-office Functions
Amalgamation of Best Practices from RegTechs and Incumbents
20 Top 10 Trends in Wealth Management 2018
Trend 08: Advent of Hybrid Advice Solutions to Set Wealth Management on a New Course
The maturing of hybrid advice will have significant impact on the wealth management industry, although human element will remain a key differentiator.
Background
• AutomatedadvisoryserviceslikeBetterment,Wealthfront,etc.havedisruptedthewealthmanagementindustry,traditionallyreliantonwealthmanagerstodispenseadvice:
– However,automatedadvisorslackahumanface.Sincewealthmanagementdemandsahighlyfiduciaryservicethatahumanadvisorhasbuiltovertime,theseautomatedsolutionsfallshortastheyarenotabletobringthetrustandconfidenceofawell-recognizedbrandthatatraditionaladvisoryfirmoffers.
• Thisshortfallcanbemetbyahybridmodel,combiningself-serviceandwealthmanager-led advice, which has evolved to become as popular as the wealth manager-ledpath.
• Despitetheirsupportofhybrid-advicemodelsandthesignificantpotentialbenefitsonoffer,mostfirmshaveyettorollouteffectivesolutions.
Key Drivers
• Thewealthmanagementindustry,drivenbytheneedtogrowbusiness,reducecosts,andmeetregulatoryrequirements,isenthusiasticinitssupportofhybridservices:
– Wealthmanagementfirmswillstandtoimprovewealthmanagerproductivity,lowercosttoincomeratio,reduceerrors,andincreaseconversionsbyleveragingtechnologytoassistintraditionalmanuallyintensivejobs.
– Newregulationsareputtingabiggerfocusoninvestorprotectionsandclientdisclosures.
– Increasedagilityandcompetitivedifferentiationarealsocriticalbenefitsof arobusthybridadvisorysolution.
• Animprovedabilitytoattractmassaffluentclientswhoweretraditionallyunderservedbecauseoflowcustomerlifetimevalue,andtomeethigherHNWIexpectationsisalsospurringsomefirmstoleveragehybridcapabilities.
Trend Overview
• HNWIswanttheflexibilitytochoosefromself-servicedelivery,awealthmanager-ledapproach,oracombinationofthetwo–thehybrid-advisorymodel,asevidentfromtheresultsoftheGlobalHNWInsightsSurvey2017byCapgemini(Exhibit9):24
– HNWIsheartilyembracewealthmanagersattheprofilephaseoftherelationship(60.2%),whenfinancialgoalsarebeingoutlinedandrisktolerancesset.
– AlmosthalfofglobalHNWIsarepartialtoahybridapproachto‘manageongoingadviceandoptimization.’
– Outofthefivewealthmanagementlifecyclestages(‘Profile’,‘Develop’,‘Execute’,‘Manage’,and‘Report’),HNWIspreferthehybridroutefortwoofthe
24 2017 World Wealth Report, Capgemini
21
lifecyclestages(‘Manage’and‘Report’)andthewealthmanager-ledapproachfortwootherstages(‘Profile’and‘Execute’).
– Fully-automatedservicescurrentlyappealtofewerHNWIsbutarestillimportant.Theyaremostpreferredatthe‘Report’stageby19.7%ofHNWIs.
• Wealthmanagementfirmshavealignedtorecognizetheimportanceofhybridadviceandarepushingtoimplementthem:
– Asperthe2017World Wealth Report,53.7%ofglobalwealthmanagementfirmshavehybridadviceprogramsunderway,butnonehasafullyimplementedsolution.
– Firmshaveyettoachieveverypositiveresultsfromtheirefforts,givingthemselvesaneffectivenessscoreofonly4.0outofamaximum7.0globally.
Exhibit 9: Interaction Preferences for Wealth Management Capabilitiesa, Q2 2017 (Global)
a: Respondents with experience with the interaction in the past year have been analyzed.Note: Question asked: “How would you like to interact with your primary wealth manager or wealth management firm for each of the following services?”; HNWIs were asked choose their preferred interaction between ‘Fully Wealth Manager-Led’, ‘Hybrid’ and ‘Fully Automated’ for 24 Capgemini Hybrid Framework Capabilities, the values represent the average of the capabilities in the 5-stages shown aboveSource: Capgemini Financial Services Analysis, 2017; Capgemini Global HNW Insights Survey 2017
60.2%48.0% 47.3% 41.4% 37.5%
37.1%48.2% 43.3% 49.6%
42.7%
2.7% 3.8% 9.4% 8.9% 19.7%
0%
25%
50%
75%
100%
Profile Develop Execute Manage Report
Per
cent
age
of
Res
po
nden
ts
Hybrid Automated/Self-ServiceWealth Manager-Led
Implications
• Advisorswilllikelyeaseoutofdirectinteractionsinthemassaffluentclientsegmentswhileprovidingcustomizedservicesatthehigherend.
• Wealthmanagementfirmsmayhavetoadjusttoslimmerrevenuemarginsincore areas of business as fee structure will be revised to accommodate higher self-servicecapabilities.
• NewagetechnologiessuchasNLP,AI,andMLmaybetakenupbywealthmanagementfirmsasclientexperiencewillbeacriticalfactorofcompetitivedifferentiation.
• Hybridmodeltransformationwillrequirewealthmanagementfirmstofocusonspecificactionsrelatedtothepeople,processes,andmarketingpropositions.
• TheriseofhybridmodelsislikelytoleadtotheentryofBigTechfirms(Google,Alibaba,etc.)intothewealthmanagementspace.
22 Top 10 Trends in Wealth Management 2018
Trend 09: Development of Next-Gen Genome-Based Segmentation and Increased Focus on Traditionally Underserved Segments
Background
• Traditionallyunderservedsegmentswhichwereoutoftheambitoftraditionalwealthmanagementindustryaregainingattentionasdigitaltoolsandtechnologymakeitpossibletoservecomplexinvestmentneedswhichwereeconomicallyunattractiveinthetraditionalinvestableasset-basedsegmentation.
• These segments have distinct needs and preferences, understanding which can unlockavastamountofassets:
– OftheUS$41trillioninglobalintergenerationalwealthtobetransferredoverthenextfourdecades,womenwillinherit70%,orastaggeringUS$29trillion.25
– TheglobalwealthofwomenisexpectedtogrowfromUS$13trilliontoUS$21trillionby2021,about1.6%fasteryear-on-yearthanthatcontrolledbymen.26
– Themassaffluentsegment(US$1million-US$5million)comprises90%ofglobalHNWIsbypopulationand43.0%oftotalwealth.27
• Firmscanalsoanalyzetheirclientbasetodetermineunserved/underservedsegmentstointroducedifferentiatedofferingsthatcatertotheunmetneedsofthosesegments:
– Forexample,anassetmanagementfirmanalysesadvisorpreferencesandsuggestions,alongwithhistoricalbehavior/purchasesofcustomersandusesthisdata(calledgenome)topushproductsthatarelikelytobepurchasedbytheclient.
Key Drivers
• Personalizedsolutionscateringtonichesegmentscanbeaclientacquisitiontooltoattractyounger,less-affluentcustomers,whomightpotentiallyrequireprivatebankingservicesinthefuture(Exhibit10).
• Ascompetitivenesswithinthewealthmanagementindustryincreases(withdigitalplatformsofferingsimilarservicesatafractionofthecost),makinginroadswiththefemaleandmassaffluentsectionswillprovidegrowthopportunitiesfororganizations.
• Forbanks,thisisanopportunitytoincreasecompetitivenessbyusingpersonalizedsolutionsasapointofdifferentiationtocompetewithFinTechsandtoprotectfuturerevenuestreams.
• Aswomencontinuetoattainfinancialindependence,theywillincreasinglymakeinvestmentdecisionstailoredtotheirneeds.
Accessing traditionally underserved segments can create the next big opportunity for the wealth management industry.
25“AGoldenAgeofPhilanthropyStillBeckons:NationalWealthTransferandPotentialforPhilanthropyTechnicalReport”,BostonCollege,May28,2014accessed October2017athttps://tinyurl.com/owhzxqt
26 “WealthyWomenTargetedbyUBS”,FinancialTimes,January2017accessedOctober2017at https://www.ft.com/content/d446ffe0-e23e-11e6-8405-9e5580d6e5fb
272017 World Wealth Report, Capgemini
23
Exhibit 10: Key Drivers for Firms to Focus on Traditionally Underserved Segments
Source: Capgemini Financial Services Analysis, 2017
RisingInvestable
Wealth
Advent of Cost Efficient Digital Solutions
Increasing Competition
ChangingCustomer
Expectations
Trend Overview
• Traditionally,mostofthebigbanksserveclientsacrossdifferentsegmentscoveringretail,massaffluent,andHNWIs:
– Wealthmanagementfirmsfitcustomerswithinrigidinvestablewealth-basedsegmentswithoutbeingsensitivetotheirdistinctlydifferentneeds.
• Wealthmanagementfirmsarenowbeingcognizantofthesesegments: – UBShasprioritizedattractingmorefemaleclientswithfocusedadvisoryservices.28
– PilatusBanknowoffersthoseservicestothemass-affluentmarketaswell,thatwereearlieravailableonlytoHNWIs.29
Implications
• Itiscriticalforfirmstocustomizetheirapproachandengagementtoattractwomeninvestors.
• Firms need to retrain and improve wealth manager capabilities to help understandthedistinctneedsofthenewclientsegments:
– Hybridsolutionsarelikelytohelpcatertothedistinctneedsofthese segments.
• Firms need to be agile to revamp their internal infrastructure and competencies toadjusttonewerbusinessmodels.
• Firms must create a robust feedback mechanism to become more receptive to theexpectationsandconcernsofthesesegmentstoofferpertinentservices.
28“WealthyWomenTargetedbyUBS”,FinancialTimes,January2017accessedOctober2017at https://www.ft.com/content/d446ffe0-e23e-11e6-8405-9e5580d6e5fb
29“PilatusBankissettoofferPrivateBankingtothemassaffluent”,Globenewswire,October2017accessedOctober2017athttps://tinyurl.com/y7y4cjq2
24 Top 10 Trends in Wealth Management 2018
Trend 10: Evolution of Fee Models Due to Client Demands, Regulatory Mandates, and Competitive Pressure
Background
• Wealthmanagementfeeshaveprimarilybeenchargedasapercentageofassetsundermanagementwiththewealthmanager:
– Withstrictersupervisionofinvestmentstrategiesandrestrictionsontrading,andacautiousfinancialmarketpostthe2008crisis,returnonassetsmanagedbywealthmanagershavemostlydeclined.
– Diminishingreturnshavedrivenclientstoexaminethefeestheypayandhowtheyarecalculated.
• HNWIsarealsodemandingbettertransparencyaroundfees.• CompetitionfromFinTechsisforcingwealthmanagerstoassesstheirpricingstrategiesandtoconsiderbetterfeemodelstoacquireandretainclients.
Key Drivers
• Asnotedinthe2017World Wealth Report,HNWIsarenotverycomfortablewiththeleveloffeesbeingchargedbywealthmanagers:
– Only47.8%ofHNWIsgloballysaytheyarefullycomfortablewiththeleveloffeeschargedforwealthmanagementservices(Exhibit11).
Client discomfort with fee levels and rising demand for transparency are encouraging flexible performance-based and modular-fee models.
Exhibit 11: HNWI Comfort Level with Fees (%), Global, Q2 2017
Note: Question asked: “Given the performance of your assets and the service you received from your primary wealth management firm, how comfortable were you with the fees you were charged in 2016? Please indicate your response on a scale of 1–7. 1 = Not at all comfortable, 4 = Neither comfortable nor uncomfortable, 7 = Extremely comfortable”; Ratings of 6 and 7 have been shown in the chart aboveSource: Capgemini Financial Services Analysis, 2017; Capgemini Global HNW Insights Survey 2017
47.8%
61.6% 57.4%51.4%
44.1%
20.0%
0%
25%
50%
75%
100%
Global North America Asia-Pacific(excl. Japan)
Latin America Europe Japan
Per
cent
age
of
Res
po
nden
ts
25
• Thelackofcomfortalsooriginatedfromlackoftransparencyinfees,concernwithvalueofservicesdelivered,andavailabilityoflower-costalternativesfromnewentrantswhoaredisruptingtheindustry.
• RegulatorsintheUnitedStatesandEuropearemandatingstricterfeedisclosurerulesforinvestmentservicesandproducts,makingitdifficultforfirmstodesigntransparentpricingandtoputtheclientatthecenteroffeemodelsinwhichvaluedeliveredisacriticalparameter.
Trend Overview
• HNWIs,globally,payanaverageofUS$65,795inannualfees,whichamountstoafairlyhigh8.4%ofassetsundermanagement.
• Theoverallleveloffeesisslightlylessaconcernwith18.9%ofHNWIssayingso,thanthevaluedelivered(22.9%)andthetransparencyoffeesandservices(20.9%).30
• HNWIsarenowlookingforfeemodelswheretheypayforservicesthat add value to their portfolios and not just as a percentage of assets undermanagement.
• Asseeninthe2016World Wealth Report,28.1%ofHNWIswouldideallywanttopayfeesbyperformance,about10percentagepointsmorethanthe18.0%ofHNWIswhocurrentlypaybyperformance:
– While30.1%ofHNWIspaybasedonapercentageofassets,only23.6%saytheywouldprefertodosoinanidealworld.
– Preferenceforthepay-for-performancemodelcutsacrossalmostallwealthsegmentsandwasespeciallypopularamongtheultra-wealthy.
• Firmsarenowadaptingtoclientdemandandcompetitivepressurebydesigningbetterfeemodels:
– E.g.FidelityInternationalhasannouncedthatitsfeesonactiveequityfundswillbelinkedtohowwelltheyperformversusbenchmarks.Fidelitywill charge a baseline management fee, though it will be less than what is currentlycharged.31
Implications
• Wealthmanagementfirmsarelikelytodevisetransparentfeemodelsinlinewithwhatclientswant:
– Theyneedtomovetowardclient-friendlymodelssuchasfeesbasedonperformance,afee-by-servicemodule,fixedyearlyfees,oracombinationmodel.
• Withthepossibilityofmarketplacesthatselltheirownandthird-partyproducts,incumbentfirmswillhavetoseriouslyconsidermodularfees:
– Unbundlingofbankingservices,includingwealthmanagementofferings,willultimatelyleadtomodularfeesacrosstheboard,beingofferedbylargebankstoFinTechsalike.
• Therefore, the share of fees as a percentage of assets is destined to go down, thoughnotcompletely,butfeesbyperformanceandbymodulewilllikelybethemostpopularmodelsinthenearfuture.
302017 World Wealth Report, Capgemini
31“FundFeesWhackedAgaininActive-PassiveFight”,Bloomberg,October3,2017,accessedOctober2017athttps://tinyurl.com/y8kg2oo9
26 Top 10 Trends in Wealth Management 2018
Heena MehtaisaSeniorConsultantwiththeMarketIntelligenceteaminCapgeminiFinancialServiceswithoversixyearsofexperiencespecializingincapitalmarketsandwealthmanagement.
Anirban AcharyaisaSeniorConsultantwiththeMarketIntelligenceteaminCapgeminiFinancialServiceswithoverfiveyearsofexperiencespecializingincapitalmarketsandwealthmanagement.
Priyanka Arora isaSeniorConsultantwiththeMarketIntelligenceteaminCapgeminiFinancialServiceswiththreeyearsofexperiencespecializingincapitalmarketsandwealthmanagement.
Akshat GovilisaManagerintheE.L.I.T.E.GeneralManagementPrograminCapgeminiFinancialServiceswithatotalexperienceof1.5yearsintechnologyandwealthmanagement.
The authors would like to thank Ferreol de Naurois, Tej Vakta, William Sullivan, David Wilson, Chirag Thakral, and Tamara BerryfromCapgeminifortheircontributionstothispaper.
1. World Wealth Report, 2017,Capgemini, https://www.worldwealthreport.com/download
2. World Wealth Report, 2016,Capgemini, https://www.worldwealthreport.com/download
3. “Howmuchdoyoureallypayyourmoneymanager?”,FinancialTimes, Aug26,2016,accessedOctober2017at https://www.ft.com/content/56243606-6614-11e6-a08a-c7ac04ef00aa
4. “Riseinuseofbiometricsproductsforcyber-security”,SCMediaUK,accessedOctober2017athttps://tinyurl.com/y9zmjmuf
5. “SurveyshowsincreasingfocusoncybersecurityinUKfinancialservices”,OutLaw,accessedOctober2017athttps://tinyurl.com/y89759je
6. “MachinelearningistransforminginvestmentstrategiesforassetmanagersCNBCaccessedOctober2017athttps://tinyurl.com/y8y9t4kw
7. “TheRiseofAIFirstWorldinFinancialService”,accessedOctober2017athttps://tinyurl.com/y7wyk5oe
8. Fenergowebsite,accessedDecember2017at https://www.fenergo.com/solutions/compliance
9. Skiencewebsite,accessedDecember2017athttp://www.skience.com/solutions
10. Pindropwebsite,accessedDecember2017at https://www.pindrop.com/technologies
11. Nuancewebsite,accessedDecember2017athttps://www.nuance.com
References
About the Authors
27
About Capgemini
A global leader in consulting, technology services and digital transformation, Capgemini is at the forefront of innovation to address the entire breadth of clients’ opportunities in the evolving world of cloud, digital and platforms.
Building on its strong 50-year heritage and deep industry-specific expertise, Capgemini enables organizations to realize their business ambitions through an array of services from strategy to operations. Capgemini is driven by the conviction that the business value of technology comes from and through people. It is a multicultural company of 200,000 team members in over 40 countries. The Group reported 2016 global revenues of EUR 12.5 billion.
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The information contained in this document is proprietary. ©2017 Capgemini. All rights reserved. Rightshore® is a trademark belonging to Capgemini.
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