The first three quarters of 2018 were pretty good for the markets and the wealth management industry, but the recent market correction could indicate an end to the bull run. In its 10 predictions for the wealth management industry for 2019, Aite Group warns that wealth managers who have not already positioned their firms for the future will have a tough go of it in the year ahead, as they face continued economic and market pressures. “2019 will see wealth management firms accelerate changes in their business model and technology,” Aite says in its report.
Change tends to bring chaos, but also opportunity. And advisors who are aware of the themes likely to shape the year ahead are one step closer to success. Here, Aite shares its 10 predictions for 2019 to help firms prepare for the changes ahead:
1. Fee Compression
It will be felt not just by financial advisors, pressured by technology that has expanded transparency and access, but also by product manufacturers. “Product manufacturers will feel the pressure of a more efficient, diversified and competitive marketplace,” Aite writes.
2. Product Partnerships Evolve
While broker/dealers and wealth management firms moved away from their relationships with mutual fund families, they’re once again seeking out strategic partnerships with such companies. “Firms with product breadth, strong performance, financial stability, and deeper pockets for support are desirable partners for broker-dealers and wealth management providers,” Aite says. “However, not all broker-dealers have the scale to negotiate a strong arrangement, forcing further consolidation.”
3. The Rise of Model Portfolios
Home-office models continue to become more important, a trend driven by the commoditization of asset management, increasing compliance risks and fee compression. Outsourcing investment management can benefit advisors, as it frees them up to focus on their relationships with clients, via financial planning. “But convincing financial advisors to delegate their role in managing assets will not be easy,” Aite says.
4. Sustainable Investing Becomes More Mainstream
There is increasing demand for socially responsible and sustainable investment strategies, a trend that has been driven largely by younger investors. According to Aite, wealth managers are starting to take this trend seriously. And in 2019, a new trend emerges, Aite argues, as advisors bring an environmental, social and governance (ESG) approach to financial planning and support services.
5. Retirement Planning Gains Significance
As more baby boomers come up on retirement, the tools for helping clients plan for the future become more personalized and in real time, Aite says. “Introducing language such as ‘retirement paycheck’ makes tangible to the client the significance of the effort. Finally, data availability, technology sophistication, automation, integration and societal changes bring rigor to unprecedented personalized planning.”
6. Digital Strategy
We’ve heard it before, but digital continues to be a big theme in 2019, as firms expand their strategies across businesses, advisor segments and client age and affluence. According to Aite, firms are centralizing digital strategy management, and getting senior leaders, design and programming teams and all business groups to work on digital strategy. Some have even established in-house incubators and accelerators to spur innovation. “Firms with an integrated digital strategy are raising the bar and will force more wealth management and asset management firms to accelerate their digital efforts,” Aite says.
7. The Tech-Enabled Hybrid Model Evolves
Wealth managers have moved on from being afraid of business-to-consumer robo advisor platforms to incorporate digital advice platforms into their businesses. That “hybrid” model will evolve further in 2019, Aite says. Firms will have clear strategies around this, with growth goals and revenue targets. “The year 2019 will see that happening alongside the shift from a simple hybrid platform to a high-touch hybrid platform for many firms.”
8. Data as a Differentiator
Firms will continue to explore new technologies that can help them utilize big data as a differentiator. “A way for firms to differentiate themselves is by giving clients tailored and positive customer experiences, and if data is correctly managed, it will minimize customer churn, fraud and default risk.”
9. Artificial Intelligence Tech Is Coming, But Use Caution
The largest firms are already piloting programs to use artificial intelligence technology in their businesses, and Aite expects them to expand this effort into new domains. But AI is still so new, and many unknowns exist. “The external environment, from competition to regulator review to ethos and data privacy concerns, remains full of unknowns in the near term. For the rest of the industry, the good news is the scouted map will make the inevitable journey an easier drive.”
10. APIs Alter the System
Application programming interfaces (APIs) are becoming the delivery method of choice for many vendors in the wealthtech space, and it’s a phenomenon that tech providers will have to come to grips with, Aite says. “This new model of access to their platforms might significantly alter their competitive positioning, economic model and stickiness with their clients.”