5 Predictions on the Future of Wealth Management

  • 6 May 2018
  • David Miller

You might not realize it, but the wealth management industry is undergoing a massive sea change. The rise of technology is changing client expectations, and by 2021 an estimated 18 million Americans will be worth seven figures or more. Robo-advisors and the massive wealth transfer to younger generations are just a few of the trends the industry is facing, and firms will need to rethink how they do business to succeed in the future.

Many wealth management firms are trying to embrace technology and other strategies to cope with what the future holds. Unfortunately, the marketplace is littered with small, niche technologies that solve small problems without offering a solution to large industry-wide pain points. This leaves investors and advisors aimlessly wandering for a clear solution.

If wealth management firms want to take a proactive stance, they need to consider embracing trends like increased transparency, simplification of the industry, effective communication methods for cross functional teams, and emotional intelligence which are all beginning to shape the financial services world.

1. Investor Empowerment & Increased Transparency

If there’s one thing that’s plagued the financial services industry in general, it’s a perceived lack of trust and transparency amongst the public. However, it’s not fair to simply single out financial services or wealth managers, as the recent Edelman Trust Barometer survey found that 63 percent of people rate CEOs in general as either somewhat or not at all credible. But in wealth management, there has been minimal transparency for clients. The lack of trust in advisors has driven many investors out of mutual funds and into ETFs, resulting in an increased commoditization of the industry.

That’s why, moving forward, we’re bound to see the industry embrace increased transparency and investor empowerment as a fundamental part of the business model. This will take multiple forms, including the increased use of the Separately Managed Account (SMA), providing higher customization capabilities and greater transparency to both investors and advisors. Firms will start to embrace aspects of the Sharing Economy, working with industry partners that value transparency, cross-collaboration, and lower fees. Investors are becoming more empowered than ever, and firms will create technology with a core purpose or solution in mind, such as providing fee transparency or democratizing the family office for Main Street America.

2. Advisors will Embrace Tech or Face Extinction

Technology and mobile apps have made virtually every aspect of people’s lives faster, easier, and more connected. There’s no “putting the genie back in the bottle” and it’s something wealth management will begin to implement. Rather than going into an office and spending time with a financial advisor, consumers are now seeking out the “Uber of financial services” for their wealth management needs. Clients want to leverage technology to make informed, independent, and turnkey financial decisions.

Wealth managers need to recognize that consumers now expect technology to handle some of the basic, more tedious aspects of wealth management. This includes things like account setup and management, and asset allocation strategy. It’s a huge part of what has led to the surge in robo advisors and related tech. While the human aspect to wealth management isn’t going away anytime soon (and likely never will), firms need to recognize the need to embrace technology in some form or another, if for no other reason that tomorrow’s clients will come to expect it. Investors will want to have all the information they need at their fingertips, accessible 24/7, with a mix of both automated advice and the option to set up a consultation or communication line with a human being.

3. Tech will Simplify Understanding of Wealth Management

In the past, many consumers haven’t participated in wealth management because they simply lack the education and understanding of the benefits, how things work, and what they’re investing in. This is changing rapidly, as digital, mobile, and online educational resources become more prevalent and accessible to the average investor with little to no background in wealth management. Take Lynda.com (now part of LinkedIn learning), for example, which is a video-based education tool for a vast array of literacy topics including financial. Lynda.com, Khan Academy, and Investopedia are just a few of the leading indicators of how digital and mobile technologies will lead to a more educated investor client base.

The next iteration might even be educational apps integrating with a client’s wealth management firm. Watching a video on ETFs and have a specific question about how it relates to your portfolio? Simply tap or swipe to instantly connect directly to your wealth advisor via a video chat. We’ll also see the “gamification” of normally tedious processes — like paying off debt or saving for college — making them more fun and engaging. Machine learning might also be able to better assess a client’s needs, goals, and overall emotional state over time, and proactively provide educational content that will help them along their financial journey. As technology evolves, clients and consumers are sure to be better informed, educated and more aware than ever before.

4. Emotional Intelligence will Play a Pivotal Role

When it comes to money management and decisions, there’s no denying the role emotions play for clients. As the wealth management arena matures to an evolving customer base, it’s up to the industry to help bring the two lenses of emotion and data into focus. The reality is while some of the industry has become more commoditized with the introduction of products like ETFs, most clients need the human element to guide them throughout their financial lives. That’s why the wealth management firms of the future will put an emphasis on Emotional Intelligence (EQ).

Understanding the EQ of a client is what we call their Avatar. A client’s Avatar is their combined, unique personality traits that make them more prone to certain financial behavior. For example, the Giver is generous and dedicated to causes. Knowing this about your client will alert you to their preference to charitable organizations and giving back. The fiduciary duty of an advisor is to ensure their client doesn’t over-exert their fiscal liability — a.k.a. over-commitment. Over time, the advisor educates their clients, helps them develop an awareness of their financial behavior, and aids them in using it to their benefit.

5. Robo-Advisors will hit Productivity Plateau

We’re all familiar with the hype and notoriety around robo-advisors and apps. They’ve made investing more easily accessible and automated through the use of AI, software algorithms, and mobile technology. But what’s important to remember is that, while these technologies will continue to evolve and advance the investor experience in many ways, they’re not replacing humans anytime soon. There’s simply no way (at this time) that an AI or an app can effectively assess and manage a client’s EQ or emotional state. While there is a clear long term path in neuroscience to support a proven formula that accounts for the emotional aspect, it isn’t completely solved yet and is going to take years of massive collaboration.

When the market takes a turn for the worst (and it’s bound to happen), client’s can’t call an app or AI system on the phone. Rather, they’ll turn to their trusted human financial advisor to help ease the stress and figure out a plan moving forward. In the future, we’re likely to see more “hybrid” types of models, where robo-advisor tech and humans work together to provide the best experience for clients. Things like asset allocation and rebalancing can easily be automated, while the human advisor works to set strategy, manage EQ, and formulate lifetime financial goals with clients.

While these changes in the wealth management space are unavoidable, they are also good, for investors and advisors. Massive firms are actively raising their requirements for clientele, making white-glove financial services less accessible to Main Street. Our objective is to bring the services of the uber-rich back to the average investor, ending the preference towards Wall Street and making financial services available for the chosen many.

For more information on the Future of Wealth Wealth Management, visit www.PeachCap.com

About David Miller

David Miller, CFP®, believes in making an impact wherever he can and supporting organizations that further the betterment of society. David is a progressive thought leader in the financial services industry, where he has been an integral connector in helping the industry bridge the disconnect with millennials and older generations. He is the author of Wealth Kryptonite and Founder and CEO of PeachCap, a conglomerate of financial, tax, and accounting companies including a broker-dealer, Registered Investment Advisor, CPA Firm, and Asset Management company. He holds his Series 27, 24, 7, and 66 licenses and has held compliance, financial operations, sales, and supervisory principal roles both with a Fortune 50 Company and in the small business space.