The wealth and asset management industry is experiencing a significant period of transformation. A new wave of investors, rising competition from new digital players and emerging investment trends are transforming the traditional elements of the sector. VadarMoss explores how the rise of digital will influence the wealth and asset management industry for this year.
Market changes present significant opportunities for those capable and prepared to embrace a new way of thinking. Technology is strengthening wealth management, businesses are exploring innovative and better services, and new models are emerging. The priority is ensuring the quality of service can be maintained with the accelerated rise of new technology in the sector.
Recent studies highlight the opportunities investing in digital offers and the benefits for advisors and wealth managers looking to diversify their client portfolios in response to our ever-changing world. Investing in digital infrastructure enables businesses to diversify their portfolios, minimising risk and volatility.
Looking at the year ahead
As customers and businesses continue to navigate through volatile and disruptive economic conditions, this year will inevitably bring new challenges and opportunities for wealth management companies seeking to attract and retain confidence from investors.
Global markets have declined, and many investors who initially entered the markets during the pandemic experienced a loss. At the same time, the proportion of self-directed investors has increased. Industry experts suggest that many of those investors that lost out will move to businesses with stable and reputable advisory capabilities. In 2023, wealth management companies with a digital-focused reputation will likely attract investors and transform them into long-term customers.
Some new entrants to the marketplace have experienced a decline in their market capitalisation, particularly those heavily reliant on crypto trading for their revenues. Established companies will target these emerging businesses that lack diverse revenue streams, with the appeal to attract a younger, digitally-minded customer looking for a better service and a more diverse range of wealth management solutions.
Many opportunities are likely to appear as digital progress reshapes the future of financial services and emerging organisations with new business models continue to compete with incumbents. Wealth managers must respond to these new developments as our digital and physical worlds intertwine.
While many companies experienced a decline in assets last year, about half of businesses continued to add staff. Marketing professionals were popular options for companies during the last year. Meg Carpenter, CEO of PR company FiComm Partners, explains that digital marketing represents one of the most efficient ways for businesses to connect with customers in a human-first and targeted manner.
As market conditions tighten, improving the digital experience is becoming a top priority for wealth managers. According to the Asset Risk Consultants (ARC) report, over 80% of wealth management companies believe digital is critical for next year and are focused on implementing at least one digital initiative.
Economic and geopolitical factors have impacted the overall performance of UK private wealth portfolios. In these challenging times, the work of wealth management companies has become even more vital as businesses seek to find ways of positioning and preserving their value throughout 2023. Recent studies suggest that companies within the sector are hedging their bets on a continued push for digital to alleviate customer concerns.
Many businesses consider digital a top priority and every company surveyed in the last report by ARC stated they were implementing at least one digital measure. Meanwhile, around half of the companies plan to invest over 10% of operating expenditure in digital, even as many companies explore areas to reduce spending during the economic downturn. Kenn Taylor, the head of wealth management at Alpha FMC, explained that we may have expected to see digital progress and investment slow down during the pandemic, geopolitical instability and cost of living challenge. Instead, we have experienced a resilient digital plan that has continued to grow.
Wealth managers are accelerating their digital spending plans to manage the economic challenges and progress towards a recovery phase. Many businesses have recorded positive changes from adopting digital technologies.
There are, however, areas that need addressing to enable digital progress. A survey of wealth managers by Alpha FMC discovered many were using several operational processes, which impacts the progress and delivery of adopting new technology, as outdated architecture and a disjointed structure make changes more complicated. Many companies face the same issue concerning data – the quality of your output depends on the quality of the input. Any solution, however sophisticated, is limited by data quality. Unreliable data is considered a problem for many businesses in digital delivery. As our digital expectations continue to grow, we are witnessing an increased focus from wealth management companies on their core technology and data capabilities. The need to deliver a secure and scalable digital platform has never been greater.
Talent requirements for the future
Research from financial solution business Pershing and Wealth Management IQ explains how financial advisory firms are evolving their teams to meet growth requirements for next year, despite the current economic and market conditions. As we begin a new year, wealth management companies look at 2023 with optimism, undeterred by economic disruption, and are continuing with new talent attraction plans and role development.
According to the study, about a quarter of companies plan to double in size within the next five years, and over 50% expect positive growth. Even a fragment of this forecasted growth will facilitate the need for additional employees in an industry rapidly creating new opportunities but enduring ongoing talent shortages.
