The new digital normal in wealth management is here
The worldwide march towards digitalisation has had an impact on all industries, first steadily and then, as the COVID-19 pandemic gathered pace, in waves. One of the impulses for this has been increased competition for consumer wallet share. Consumers are now seeking convenience, lower costs, and reliability, all of which can now be achieved with digitalisation.
Changes in the investor population lend further to this momentum. Demographic and social changes have ushered in a growing pool of women and millennials as well as gig-economy participants and the self-employed in wealth management.
In the US for example, women currently control USD10.9 trillion of household financial assets.
These demographic shifts and improved longevity also mean that women will control a much larger sum by 2030, says McKinsey. In the past five years, the number of women taking on greater responsibilities for managing their family assets has jumped 30%1.
Deloitte’s 2021 survey of millennials and Gen Zs throw up equally interesting insights on this segment. Nearly two-thirds of the participants they surveyed reported feeling stressed over their financial situation. About the same percentage said they had reassessed and changed their financial goals as a result of the pandemic2. This is a hugely significant finding, given that millennials numbered 1.8 billion, and accounted for 23% of the global population in 2020. It is both a massive opportunity for the wealth-management industry and a challenge, as investment needs will change.
Corroborating this is another 2020 survey of 15,000 consumers by Salesforce that indicated that 62% of consumers allowed digital experiences from one industry to influence their expectations of another. Which is why as digitalisation evolves across every industry, wealth management has to keep pace3.
“Where previously bespoke investments were only available to the wealthiest few, wealth management is fast democratising. Profound changes in market demographics and psychographics – combined with relatively new and growing capabilities of servicing these emerging requirements – have led to far-reaching changes in the way wealth management is being designed and delivered. The result is a sector that has been shifting its focus to convenience and flexibility across all client segments,” said Joanna Tang, CEO LU Global.
Technology’s critical role in wealth management
Technology has enabled speed and agility and improved security, reliability and efficiency. Capabilities such as artificial intelligence and machine learning have made it possible to achieve greater investment freedom, convenience, and flexibility, and LU Global is proud to be leading away with our award-winning app.
As technology continues to evolve, overhaul and streamline investor journey’s, there’s no doubt that the most effective players in the wealth management environment will be those who can aggregate diverse capabilities and specialisations to create an omnichannel experience.
This is evident as we are increasingly starting to see non-traditional financial players leveraging new emerging financial technologies to offer such services to their users, which is why partnerships are becoming one of the fastest and most effective ways to enter new markets, create innovative solutions and speak to new audiences.
Artificial intelligence and machine learning applications in wealth management are also expanding fast. At LU Global, these technologies have enabled our registered investors to take advantage of 24/7 availability and lower costs.
This was achieved as increased automation from cognitive tools overhauled the manual nature of traditional investment procedures. By using such technology we can house hundreds of thousands of instruments, all available for instant viewing, analysis, and transactions, and most importantly, at minimal fees and commissions.
Wealth management enters the age of personalisation
With ongoing advances in data analytics, wealth managers also have the opportunity to access a range of tools to understand and map their customers’ journeys. A deep understanding of how clients search, browse, learn, and ultimately transact is essential to developing effective digital wealth-management offerings.
Armed with this data, digital and hybrid wealth managers can personalise and customise the journey for their clients. They can segment and target specific demographics with unique needs, for example, women, retirees or younger investors. They can then market specifically to these sub-groups and curate offerings that differentiate them.
In a July 2020 study on digital innovation, BCG recommended that designers base innovation on the human experience to respond to rapidly changing behaviours and expectations. This, it believes, merits deeper study of behavioural analytics, customer research, data analysis, and also reflection on the customers’ journey with the product or service4.
As a result, wealth-management platforms need to be built intelligently and include holistic and emotive touchpoints.
Above all, wealth management has a need for speed
Before the advent of digitalisation, an investment journey was marked by a series of road bumps. The first was the opening of their accounts, which called for extensive documentation. This was followed by time-consuming manual onboarding, tedious face-to-face client education and the dissemination of private information via intermediaries.
With digitalisation, LU Global was able to pioneer rapid improvements in straight-through processing, workflow management and operations management. LU Global was recognised for its intuitive app interface, customer-centric design and security and reliability in 2020 and awarded the Best Fintech Innovation in Asset Management (ASEAN) by Asia Asset Management.
Managing regulation and compliance, often manually, was another bottleneck. In the aftermath of the 2008 Global Financial Crisis, Know Your Customer processes became more stringent and fraud prevention, fiduciary responsibility and data privacy increased in importance. Technology and digitalisation created much greater efficiency in these areas.
With increasingly blurred lines between investment and Big Tech, we will see greater scope for cooperation to create faster, stronger, safer, and more broad-ranging money-management platforms. For instance, rapid strides in cloud computing, especially its scale, flexibility and stability, have given rise to agile and reliable trading platforms, even in times of volatility and high trading volumes.
The future of wealth management
The most obvious change in recent years, was the onset of smaller and more agile wealth-tech companies, like LU Global, who made rapid inroads in the financial sector. While incumbents were long protected by high barriers to entry, new wealth-tech firms harnessed the power of new technologies to disrupt the sector. We were unencumbered by legacy IT systems and therefore able to build from the ground up to cater to the needs of digitally-savvy clients.
A less obvious change on the horizon is that many of these wealth-tech companies, including LU Global are now offering our cutting-edge technology to established incumbents through strategic partnerships. This is making it possible for both incumbents to retain clients by offering new technologies and/or products. A significant opportunity awaits in the investment area in particular, given the rise of private investments and interest in emerging markets, digital assets and tokens, ESG and sustainability.
The importance of strategic partnerships between fintech companies and traditional service providers was recognised in a survey by PwC in 2019, which showed that 94% of financial services respondents believed that fintech capabilities would help to grow their revenues5.
As technology continues to skyrocket at breakneck speed, we’re seeing the rollout of new services such as digital brokerage and micro-investing platforms. In fact, the largest micro-investment platform in the US now has 9 million users and USD 4.3 billion in AUM6. This demonstrates demand among newer segments of investors for smaller minimum sums and flexible investment tenures that can allow them to participate in a wider range of investments while maintaining financial flexibility.
Preqin’s analysis of growth trends in these alternative asset classes suggests that AUM could increase by USD 3.5 trillion between 2020 and 2023, bringing the total to USD 14.23 trillion. Leading this growth will be private equity and private debt, with the Asia Pacific region at the epicentre of this trend7.
To wrap it up…
Digitalisation has the potential to overhaul the way wealth managers find and recruit clients, and serve them in a timely, accurate and bespoke manner. The breakneck speed at which these advances are entering the mainstream is the biggest game-changer in the industry in recent years.
Underpinning this trend towards digitalisation is the rise of a new breed of wealth-management consumers, including women, millennials and Gen Zs. These more research-oriented – and predominantly digitally-savvy – investors are seeking a new model of transacting that is above all, convenient and flexible.
LU Global is a wealth-tech platform that offers bespoke access to a swathe of carefully curated investment opportunities. LU has made these highly-prized investment funds more accessible by offering these funds with simplified terms and lower minimum sums. To find out more about LU Global, download our app and start investing on your terms.
- McKinsey, 2020, Women as the next wave of growth in US wealth management
- Deloitte, 2021, The Deloitte Global Millennial and Gen Z Survey
- Salesforce, 2020, State of the Connected Customer
- BCG, 2020, Human-Centered Design Is More Important Than Ever
- PwC, 2019, PwC Global Fintech Report 2019
- TechCrunch, 2021, Acorns’ new fintech target is debt management with acquisition of Pillar
- Preqin, 2020, Future of alternatives 2025: Preqin forecasts alternative AUM growth of 9.8% through to 2025