Francis Menassa, JAR Capital: Wealth 2.0: the future of wealth management

No sector is immune to disruption and innovation has already started to reshape wealth management amid the growth of robo-advisers and new digital communication channels. However, in an industry where clients require a tailored and flexible approach, technology is complementary to wealth managers’ activity but cannot replace them since no algorithm is more powerful than trust. Wealth management remains foremost a people business.

I. Millennials and the Great Wealth Transfer

In the post-financial crisis landscape, wealth managers are facing profound changes in their market environment. A combination of fast developments in technology and competition from fintech players, a tighter regulatory context, ultra-low interest rates, more emphasis on socially responsible investing (SRI) are calling the traditional wealth management model into question. However, the single greatest shift I am witnessing right now is demographic. We’re on the cusp of the biggest wealth transfer in history. Research by Cerulli Associates forecasts that in the US alone, nearly 45 million households will transfer a total of U.S.$68.4 trillion in wealth to children and charity over the course of the next 25 years. Meanwhile, CBInsights predicts that by 2030, Millennials will control U.S.$20 trillion of assets globally and their parents (the baby boomers) will pass down another U.S.$30 trillion by 2050 in North America alone. The generational shift in wealth will impact the wealth management landscape over the next quarter century in an unprecedented way, since Digital Natives’ approach to wealth management differs greatly.

II. The need for a more client-centric approach

In some families I have been working with for generations, while the parents wanted everything on paper, their children use cloud storage, remote access and communicate via new channels such as WhatsApp. Having grown up with ubiquitous digital technology, Millennials are hyperconnected and demand more communication and transparency from their wealth manager, expecting the latter to be available 24/7. They live in a very competitive economic landscape, and therefore are more price-sensitive than their elders. Millennials are witnessing first-hand the deployment of a new wave of automation and robotisation spurred by the Fourth Industrial Revolution. Deloitte estimates that by 2025, over U.S.$16.0 trillion assets under management (AuM) could be managed with the support of robo-advisory services. A 2017 joint survey by EY and Finantix found that 71% of wealth managers believe clients are ready to take advice from robos. The fast development of Big data and Analytics will transform the sector: real-time information collected from a variety of sources and platforms, from social media to the sensors of smart homes and connected object, could be analysed to continually and automatically rebalance portfolios. Artificial Intelligence (AI) will be of great assistance in risk management and compliance, where it will automate data analysis, reduce the burden of administrative tasks and therefore allow humans to focus on higher value-add activities.

"Without facts and principles, data is useless" – Bob Hoffman

However, do not expect even the youngest clients to relinquish traditional media and face-to-face meetings. According to research by Deloitte, 82 percent of younger clients would appreciate more personal meetings with their investment adviser, showing that technology is not a substitute for personal interactions. Another notable difference compared to previous generations is Millennials’ ethics: 75 percent of them claim they want to remain ‘authentic’ and refuse to compromise family or personal values (Deloitte). In addition, almost two-thirds are not only concerned with the state of the world, but also feel obliged to change something, demonstrating that SRI investing has bright days ahead. This is a double whammy from our perspective since investing in sustainable and ethical assets offers another mechanism of due diligence. The other good news is the expansion of the Millennial market. The global volume of HNWI+ will increase by around 25% to almost U.S.$70 trillion by 2021, with demand stemming mainly from the US, China, Russia, Brazil and India, EY forecast in its 2018 Wealth Management Outlook. Many opportunities lie in this new distribution of wealth. Technology will undoubtedly assist and augment us. It is, however, just one part of the overall picture: many white spaces still need to be filled in the wealth management market.