New Generation Technology and Priorities: Wealth Management 2020


By James Reynolds, Aspectus

The future is upon us—or at least it certainly feels that way for those of us that lived through the 1980s. We have now passed, or are fast approaching, the apocalyptic dates prophesied by many of the decade’s classic sci-fi flicks. It is now three years since The Terminator’s Skynet launched an all-out nuclear assault on humanity. It is this year that Marty and Doc Brown arrive Back to the Future. And in just four years we are scheduled to find ourselves in the grim, dystopic nightmare envisioned in Blade Runner.

OK, so it didn’t quite turn out how some imagined. 2020 is unlikely to be a world of killer robots or flying cars. But it has changed dramatically since the 1980s (e.g. the Internet), and 2020 will present a vastly changed landscape for individuals and businesses alike. A recent report from PwC (‘Asset Management 2020: A Brave New World’) casts a speculative eye forward to look at the very different environment asset managers will likely be facing in just half a decade’s time. Some of the key takeaways have profound implications for wealth managers, specifically the challenges and issues they face in ensuring their brand remains relevant in 2020.

Talkin’ ‘bout my generation

“Between 2010 and 2020, more than one billion more middle-class consumers will emerge globally, representing the largest single decade increase in customers in history. This increasing affluence will fuel the need for financial products for a young and growing constituency.” —PwC, ‘Asset Management 2020: A Brave New World’

Let’s start with the good news. The world is due for a huge rise in the volume of Assets under Management (AUM) over the next half-decade. The report forecasts that total AUM will exceed $100 trillion by 2020, from around $64 trillion today. Of particular relevance for wealth managers are the predicted AUM from high net worth individuals (about $77 trillion) and the mass affluent ($100 trillion)—each doubling from their respective 2004 levels. The report speculates that over the same period, the asset management industry will increase its share of this AUM from 10% to almost half.

Yet this doesn’t simply mean more of the same—far from it. The make-up of the pool of money, and the typical clients wealth managers will be chasing after, will change dramatically.

For a start, wealth managers will need to adapt their models to the generational shift these numbers imply. Currently wealth managers primarily service the post-war baby boom generation. But by 2020 a considerable number of new clients will hail from the millennial generation. The younger portion of this generation will have no memory whatsoever of a pre-Internet age, and those older ones that have will have grown up accustomed to text messaging and video communication. This will only be exacerbated by the fact that those developing economies expected to give rise to a large new middle class tend to have younger populations.

Engaging with these customers will be a vastly different proposition to engaging with their parents and grandparents. Their primary, habitual means of gathering information will not be traditional, common-denominator adverts or news, but rather various social media networks and specialist applications. They will be used to, and expect, information to be presented in a dynamic, interactive manner that allows them to quickly access the detail they want. And that detail must be instantly relevant and tailored to their individual circumstances. They will have little patience for delays or disconnects between the systems they use to organise their lives.

This means that wealth managers are going to have to get serious about embracing technology to survive—no small challenge, given that today’s wealth management industry is distinctly low tech relative to others in the financial services space. But it’s not just a matter of digitisation, or creating an app. Wealth managers will need to ensure that touch-points between their organisation and clients are more numerous, more in-depth, and spread more evenly across the whole process. Much traditional wealth management is anchored around face-to-face meetings with an expert adviser, which may not be that regular. But this mode of communication will be less important and less convenient—and certainly not enough on its own—for the younger clients of tomorrow, who are growing up in a world of automated consumerism.

This also raises the question of how to convey faceless expertise in communication. Expertise is at the heart of wealth management; it is essentially the product being sold. Yet traditionally this expertise has been bound up with individuals, via in-person relationships with clients. While this will no doubt remain important, the future need for continual, digital communication with clients via multiple channels will render it impractical for individuals alone to carry the ‘expertise’ aspect of the brand. Wealth managers of 2020 will be doing a lot more communicating with clients than at current. Much of it will be depersonalised text and images, and it crucial that the brand’s expertise runs right through these.

On top of this, the level and type of engagement should be determined to some extent by the client. The customer will expect to be able to customise their experience according to their own needs. Options available to potential clients will need to run all the way from a once-a-year letter containing a simple, passive portfolio update, right through to daily advice and information via an app, recommending strategies and funds and highlighting information based on the client’s broader data habits.

“Asset management is a virtual business, but operates within a relatively low-tech infrastructure. By 2020, technology will have become mission critical to drive customer engagement.” —PwC, ‘Asset Management 2020: A Brave New World’

The PwC report kicks off with an illustration of a customer interaction in 2020 that neatly highlights some these challenges. A young Chinese woman, Wei, checks a dating app on her mobile device. The dating company has a sister investment company, and the app automatically matches her dating preferences to an ideal financial strategy, suggesting a selection of appropriate funds. Wei is able to select a fund, which then plays a video detailing key information about it. A simple touch later and she has invested via her mobile account. What this examples shows is that it’s not just a matter of embracing new channels (apps, video) but also ensuring those channels link up with the wider informational ecosystem in a way that can drive business.

While this level of targeted advertising may take some older users aback as invasive, younger consumers are accustomed to this kind of search-optimized tailored marketing. The new generation looking to invest in 2020 will expect asset managers to be able to link and communicate in a seamless fashion that shows a familiarity with their interests and aspirations.

This trend toward tailored services and communications, combined with a larger, more diverse audience, will greatly enhance the importance of in-depth customer profiling, and ensuring that this profiling drives engagement. Technology—specifically access to a broad range of data, as in the illustration—will be crucial to achieving this. The wealth management sector today has the financial expertise, but is not particularly data rich. Conversely, technology firms, particularly the Googles of this world, are data-rich but lack financial expertise. This raises the natural prospect of collaborations and mergers. This in turn has communications implications beyond engaging with clients and prospects, namely question of how to make your firm attractive to a potential partner in the tech space?

The entrance of technology players into the market will only make competition fiercer. By 2020 wealth managers will have to stand out from the crowd to survive and thrive. The days of the generic, generalist wealth manager may be numbered for all but the largest firms. Wealth managers of 2020 will need to hone their specialist credentials and have a clearer idea of just who they are targeting and why. This could mean specialising in servicing a narrower market segment, and/or specialising in certain regions, markets, asset classes or investment approaches. And this of course will have big implications for how a firm markets and expresses itself.

So we invite the wealth management community not to wait. Start branching out immediately into new venues of communication. The clients of tomorrow will remember how you communicate with them today, and it is never too early to begin establishing your name as a trusted partner for handling assets. The world is changing at a faster pace all the time, but the future is not as scary a place if you start preparing for it today.

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