Question Examining the Direction of Wealth Management: What's Next?
Question Examining the Direction of Wealth Management: What's Next?
The wealth management sector adapts to meet client requirements at a slow yet steady pace. In this first part of a two-piece series, we'll examine aspects expected to remain constant in the industry's future development.
This strategy, inspired by Jeff Bezos' business strategy, helps us comprehend how certain sectors within the industry will remain stable despite future changes. In the subsequent portion, we'll use this framework to discuss what may transform in the upcoming years.
The Genesis of Wealth
For the majority of human history, our lives revolved around survival as hunter-gatherers. The lack of substantial belongings or resources to store resulted in a transient lifestyle with no need to safeguard or manage assets.
The onset of the Neolithic Revolution around 12,000 years ago marked the end of the last Ice Age. New tools facilitated the transition from hunting and gathering to farming, leading humans to settle in specific lands they wished to claim as their own. With the emergence of surplus and fixed wealth (crops, land, and livestock), the necessity for managing and shielding these resources (or "assets") emerged.
The drive for survival evolved into the desire to amass resources for a more stable and secure standing in society. The quest to "move up" echoes our instinct to acquire resources for immediate protection and longevity success.
Despite societal transformation over the past 12,000 years, the inherent instinct to protect and augment your assets has remained constant. As a result, the core function of the wealth management industry is inextricably linked to protecting and enhancing individuals’ wealth.
Stability in Wealth Management
Ongoing Demand for Wealth Managers
Research published by Credit Suisse and UBS in their 2023 Global Wealth Report predicts a 38% increase in worldwide wealth through 2027. The report also forecasts that the number of millionaires worldwide will surpass 59.4 million in 2022, reaching 86 million by 2027.
This information leads us to our initial pillar of consistency: The market for wealth managers will not contract. Humans are social beings. From a primal standpoint, we rely on one another to endure. Trust has always be vital for cooperation. Modern society extends this trust to experts who provide specialized skills, such as financial advisors.
Seeking the counsel of a financial advisor represents an evolved behavior. Clients engage advisors to bring their specialized knowledge and abilities, increasing the likelihood of financial stability and growth. It should come as no surprise that, despite technological advancements, a Cerulli study discovered that the "advised" U.S. investor segment has expanded from 35% to 47% since 2009, while those who view themselves as "self-directed" have decreased from 41% to merely 27%. In essence, the desire for hands-on advisors has grown rather than waned.
Unwavering Demand for Customization
Lastly, the pursuit of customization reflects the desire to feel in control. In previous centuries, personalization was reserved for the elite. Monarchs and their families benefited from bespoke services like tailored garments, handcrafted furniture, and custom-designed palaces. Phrases we use today, like "being treated like royalty" or "fit for a king," reflect this social divide.
In modern times, technology has democratized personalization across all aspects of life. The development of personalization across industries mirrors a broader cultural shift: Consumers no longer seek generic, one-size-fits-all solutions. Instead, they anticipate tailored experiences, services, and guidance that reflect their lives and values.
Wealth management is adhering to this same trend. Advisors now have the capacity to deliver comprehensive financial planning and investment strategies tailored to a client's unique financial aspirations. This brings us to our second constant: The market will not demand less personalization in the future.
The Core of Wealth Management
In the face of technological advancements and industry transformations, the principles of trust, wealth protection, and tailored service will form the bedrock of wealth management. As we look to the future, these enduring human motivations supply a stable framework for advisors to construct resilient, client-centric practices. Comprehending these needs helps us approach the future with clarity, ensuring that, no matter the innovations, the wealth management industry can continue to evolve without losing sight of what matters most: clients.
Advisors must prioritize cultivating strong relationships with their clients through personalized service, proactive communication, and transparency. By incorporating these time-honored principles into their practices, advisors can position themselves as trustworthy partners, ensuring their value remains indispensable for an ever-changing customer base.
While the fundamental human drives mentioned above should persist, in Part II, I will employ an "end state" vision approach, which envisions removing all existing technical constraints to define an optimal future scenario of client results. I will assess how new technologies and innovations will shape client expectations and redefine wealth management.
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In the second part of this series, we will analyze how new technologies and innovations may transform the wealth management industry using an "end state" vision approach. This approach envisions removing all existing technical constraints to define an optimal future scenario of client results.
Andres Garcia-Amaya, as a member of our Executive Wealth Council, contributes valuable insights and perspectives on the evolving nature of the wealth management sector and the future role of technology in client expectations and service delivery.