Wealth Management Industry Trends Q3 - 2023
  • September
  • 2023

Key Trends in Wealth Management Q3 - 2023

The AI Surge, Rising Interest in Sustainability, and Consumer Duty – Wealth Management Industry Trends

The ongoing attempts to tame inflation have led the Western economies to struggle with high-interest rates and increasing cost-of-living. Against the backdrop of geopolitical uncertainty sparked by the war in Ukraine, these economic challenges have caused a ripple effect on every industry - including wealth management. The value of global financial wealth shrank for the first time in 15 years in 2022, declining by 4% to $255 trillion, according to a BCG report. Moreover, the rise in costs for wealth managers driven mainly by larger teams, wage inflation and tech spending have been a big challenge. These conditions have made it crucial for the incumbents to have a clear roadmap for the rest of the year. 

The question is, how can wealth management companies ensure profitable growth during this volatile era? As the industry continues navigating an increasingly difficult financial landscape, several key trends have continued reshaping how wealth is managed. Among these trends, the rise in importance of the environmental, social, and governance (ESG) factors, more regulatory attention to consumer treatment, more recognition of the financial analytics tools, and the deeper integration of AI, machine learning and automation all stand out as notable drivers of change.

Bridging the Trust Gap: Consumer Duty Sets New Standards for Customer Care

On 31 July, new rules set a higher standard of consumer protection in financial services. According to Consumer Duty, banks, insurers and wealth managers are now obligated to ensure relevance and understanding of the information supplied to the consumers, tailored service meeting their needs and to provide accessible customer support for issue resolution. Wealth managers’ mindset will have to shift to ensuring a more value-oriented standard of service beyond additional reporting, including fulfilling required standards of care towards the customers in B2B relationships.

The duty towards consumers is indeed the need of the hour as a study by the FCA found that less than half of UK adults have confidence in the UK financial services industry. Circa 7.4 million people unsuccessfully attempted to contact one or more of their financial services providers in the 12 months before May 2022, with the most vulnerable in society most likely to have struggled with this. Moreover, just 36% agreed that most financial firms are honest and transparent in the way they treat them. 

As a result, firms must demonstrate how all parts of their supply chain – from sales to distribution – deliver value. Undoubtedly, many will grapple with overseeing consumers throughout their investment journey. However, Consumer Duty might compel more firms to utilise advanced financial analytics to create regulated, or non-regulated, self-service guidance journeys that cater to their clients and seamlessly monitor every aspect of their experiences, from inception to completion.

AI-Powered Tools Are Setting New Standards in Client Engagement

Artificial intelligence is on the verge of being fully democratised, and wealth managers must prepare for how this could potentially change their workflows. This time the change would not only concern glamorous fintechs. Household names such as Goldman Sachs and Morgan Stanley are now using generative AI tools to generate market intelligence, reducing the effort required by investment research analysts to aggregate and process the information.

The arrival of ChatGPT resulted in a flurry of similar tools being launched by tech titans and financial services firms. For instance, Bloomberg launched Bloomberg GPT, which is trained using both publicly available general data sets and their proprietary financial data accumulated over decades. With better access to these tools, it’s entirely possible that new divisions of labour will emerge as formerly arcane areas of specialisation become more accessible to a broader audience. More sophisticated AI could also be a silo breaker and could facilitate collaboration across multiple business units, leading to greater efficiency and learning. 

It is more evident that machine learning-powered tools will help wealth managers deliver more personalised advice. Given that more than 80% of new wealth management clients will expect customised advice by 2023, it’s easy to see the rise in various combinations of large language models like ChatGPT and financial analytics suites like OutRank®. Apart from forecasting abilities, tools such as OutRank® enhance the comprehensive financial planning processes. Combining its broad simulation capabilities with an ability to take in and interpret information from the customers would take the engagement standards in the wealth management industry to the next level of quality and profitability.

Increase in interest for ESG investment – more than a ‘nice to have’ for wealth managers

The amplified call for more sustainable investments from customers, coupled with tightening ESG regulations, has compelled wealth management firms to accentuate their allegiance to sustainable investments. Morningstar reported that sustainable funds constituted nearly 20% of the total fund assets in Europe in 2022.

Regulatory directives like the Sustainable Finance Disclosure Regulation (SFDR) are now stipulating GPs to declare the sustainability metrics of their offerings. This mandate urges firms to use efficient systems for data calculation, acquisition, and management. According to Bloomberg’s ESG Data Acquisition & Management Survey, 92% of finance executives are readying themselves to increase their investments in sustainable businesses, with at least a 10% hike anticipated. Going further, almost a fifth of these executives have set their sights on a boost of 50% or more.

Companies previously complacent about sustainability are now inexorably drawn to ESG data reporting due to the growing requirement for transparency and accountability. Morgan Stanley is already making substantial headway and has committed $700bn towards its goal of reaching $1tn in ESG financing by the close of the decade. 

With OutRank®’s simulation-based approach, financial advisors and wealth managers can evaluate the projected investment performance differences in different future climate outcomes. This can empower the customers to visualise their long-term financial goals incorporating climate change scenarios into their decision-making. 

This key action takes steps to bolstering revenues concerning scalable client acquisition, consistent financial guidance for customers throughout their investment journeys and fostering better financial literacy. Having the correct digital tools can help boost relationship manager productivity and effectiveness and improve client experience and loyalty. 

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