There’s nothing that makes me feel older than explaining out-of-date technology to someone too young to have experienced it. For example, the other day I was explaining what a “portable” computer looked like in the early 80s. Sure, it was portable . . . if you liked lugging around what looked like a sewing machine. And don’t even get me started on those green monochrome screens!
Well, someday, we’ll be talking about the current state of WealthTech – and of wealth management in general – the same way we now remember those early portable computers. And tracking this revolution is an exciting new research study, called Wealth and Asset Management 4.0, being conducted by the innovative think tank ESI ThoughtLab.
I was recently invited to be part of the advisory board, and I’m so excited to be part of this project because it is truly astounding in its scope. It’s being conducted over three phases, starting in April and ending this upcoming October, and includes insights from 2,500 investors and 500 investment firms from all over the world. Best of all, ESI ThoughtLab is surveying thorough cross-sections within those groups as well.
The purpose of this vast project is to document the shift to what ESI ThoughtLab calls “Wealth and Asset Management 4.0.” Although the wheels of change were already in motion before, the COVID-19 pandemic has been accelerating the digital, social, economic, and demographic shifts that have been leading to this new stage in wealth management characterized by, in ESI ThoughtLab’s words, a “digital-first, socially-minded world.” This stage is an evolution from Wealth and Asset Management 3.0, which began in the 1990s when the rise of PCs, the Internet, and online trading and banking started the electronic age of wealth management.
A project of this magnitude ushering in a bold new era of financial service is music to my ears. Since founding the Rudin Group in 2008, I’ve been calling attention to the need for wealth managers to embrace a new approach. The one-size-fits-all mindset that for decades firms have used to appeal to what used to be the traditional high-net-worth (HNW) investor – namely, white men – is as outdated as using a rotary phone. As HNW investors are becoming more diverse in age, gender, race, ethnicity, family composition, and sexual orientation, wealth managers’ strategies need to evolve as well.
For example, one of the major findings in Capgemini’s 2020 World Wealth Report was that firms need to use technology to hyper-personalize their offerings and services to meet HNW clients’ expectations and capture future growth segments. For far too long, wealth managers have relied on investment performance alone to justify the advisory fees they charge. Yet the Capgemini WWR, which surveyed 2,500 HNW individuals across 21 wealth markets, found that investors want more, especially during times of economic volatility, like we’ve experienced during the COVID-19 pandemic. In fact, around one-third of the HNW individuals surveyed by Capgemini said they were uncomfortable with the fees that their firms charged in 2019, and 22 percent said they planned to change their primary wealth management in the next 12 months, with high fees being the top reason for the change.
Investors’ discomfort with fees is one of the reasons why robo-advising has grown in popularity – and is continuing to grow. In fact, the number of worldwide assets managed by robo-advisors is expected to grow at an annual rate of 26 percent from 2020 to 2024, resulting in a projected total of $24.872 billion by 2024, according to Statista. Yet, as I wrote in a Forbes blog nearly a year ago, the solution isn’t a fees war between traditional advisors and robo-advisors but rather a “a marriage between technology and human advice.” This marriage involves wealth managers using data analytics and machine learning to provide personalized portfolio construction and tailored advice, and using Application Programming Interface (APIs) to create a comprehensive view of a client’s investments and generate customized client reporting, according to the Capgemini report.
But here’s the catch: Wealth managers have to use the new technology that’s out there already – and the new tech that will continue to evolve – in order to be part of Wealth and Asset Management 4.0. Otherwise, they risk becoming an outdated part of the “old guard,” as archaic as those old “portable” computers the size of sewing machines!
