Like other industries, wealth management organizations have dedicated much of the last two years to mitigating the effects of the pandemic. But as we enter 2022, the wealth management industry needs to look toward the future and prioritize keeping up with this quickly changing market.
Organizations will need to adjust their business models to account for the modified economic situation as well as meet modern customer expectations. Clients are seeking an increasingly broad scope of services from their financial advisors. This means that wealth management firms will need to increase their offerings and use better technology to support those offerings.
While these shifts are not without their challenges, they are also providing wealth management firms with the opportunity to move their business into a new era. Amidst these changes, Aite-Novarica Group has focused on ten trends that will shape the wealth management market this year.
Some of these include:
- Retail investors will show their staying power. The pandemic launched a surge in global retail trading in 2020, and it shows no signs of slowing down. These traders have shown a desire to be in total control of their investments, an ability to endure volatility and speculate well, and a focus on returns. No matter how the market behaves, these traders are likely to remain in control. Brokers of all types will have to adapt their business models to win over these traders; mobile channels and building out trader, options, and cryptocurrency platforms will be key.
- Financial planning will be further democratized. Financial planning is a core component of how wealth management firms are expanding, especially given the impacts of COVID-19. Financial institutions and fintech startups alike will keep broadening the reach of their financial planning offerings. Technological improvements will be vital for keeping investing accessible to customers from all socioeconomic levels. As more people become involved in various types of financial wellness activities, the demand for more democratized advice and support will also grow. Wealth management firms and financial advisors will need to better position their offerings to meet these evolving client segments’ needs.
- Environmental, social, and governance (ESG) methodologies and scoring systems will receive higher levels of scrutiny. The ESG market is a dynamic one, and new regulations will directly impact how ESG data firms operate. Wealth managers must keep in mind that working toward a deep ESG integration will require hard work; given the inconsistent disclosure in the market, differing agendas, nontransparent voting information, and other issues, wealth managers should keep watch over their ESG partnerships and data protocols.
- Alternative investment marketplaces will increase profitability and efficiency. The number of wealth management firms using alternative investment marketplaces is likely to increase for several reasons. Capital management is important because feeder fund and alternative investment businesses take a lot of capital, but wealth management firms are not eager to spend. Regulations like the Volcker rule basically prevent financial institutions from investing in or sponsoring hedge funds or private equity funds; alternative investment marketplaces can alleviate some of the stress in this area. Finally, it is critical to make the processes involved in alternative investment as frictionless as possible, especially when it comes to smaller tickets for HNW clients.
To learn more about the rest of the top ten trends for wealth management in 2022, read the full report Top 10 Trends in Wealth Management, 2022: So Many Opportunities, So Little Time. You can also check out the recording of our recent webinar covering these trends.