Wealth management of tomorrow: Emerging trends within the regional landscape

Looking to the future, as regional and global markets convene around environmental and social issues, businesses become more dynamic, and investors have new priorities, the wealth management industry is also evolving to cater to changing needs.

Disruption has also been prompted by a shift in mindsets and priorities; besides heightened demand for personalised solutions, wealth managers and clients are also increasingly drawn to the intelligence of automated solutions for a higher value proposition. These trends, among others, are potentially paving the way for a new era within the industry.

Wealth management will likely move from resilience in 2020 to reshaping in 2021 to lay the foundation for reinvention up to 2025, Accenture said in a note.

Meanwhile, an Accenture – Orbium Wealth Management C-Level survey revealed six key industry megatrends – the emergence of new technologies; ecological and environment concerns; trend towards hyper-personalisation; shift from support to value generation enabled through technology; paradox of personal data; and rise of platform ecosystems – that could progressively impact the industry.

Basit Saiyed, regional head of Wealth and Liabilities, Wealth and Personal Banking, Middle East, North Africa and Turkey, HSBC builds on it: “Three main trends will be digital wealth solutions, ESG investing, and evolving regulation. As customers continue to become more experienced and comfortable undertaking certain transactions digitally, especially the mass affluent segment, digital wealth solutions – or wealthtech – will be a key area of development.”

“ESG has become increasingly important for investors to consider in their decision making, helped by the growing evidence that it can drive outperformance while contributing positively to society. Investment strategies incorporating ESG are growing fast and now account for over a quarter of professionally managed assets globally, while integrating ESG into mainstream financial analysis is also gaining relevance. The adoption of ESG investing is set to grow at an accelerating rate over the coming years, driven by asset owners, risk mitigation and return objectives.”

Drawn to a higher calling, and keen to do ‘good’ by their money, investors are channeling their finances towards greater causes. As environmental and social concerns grip world economies and markets, sustainable investing is seen edging away from the periphery and into the mainstream.

Wealth managers are heeding the call. Principles for Responsible Investment (PRI) – an investor initiative in partnership with UNEP Finance Initiative and UN Global Compact – was launched in 2006 to understand the investment implications of environmental, social and governance factors, encouraging investors to use responsible investment to boost returns. The collective AUM (assets under management) represented by PRI signatories increased to $103.4 trillion as of March 31, 2020.

The global trends of investing with purpose and aligning spending habits with values have been reflected regionally as well, encouraging service providers to align their offerings.

“In 2020 we saw a six-fold increase over the previous year in sustainable and transition finance activity in the region, including a number of innovative deals, and that growth hasn’t gone unnoticed by investors,” says HSBC’s Saiyed. “In fact, last year we announced the formation of a dedicated sustainable and transition finance team in the Middle East, North Africa and Turkey (MENAT), to help both corporate and individual clients’ transition to more sustainable investments. We also have plans to add more green funds to our product shelf and also look into potential opportunities for ESG in the retail space.”

Dr Owen Young, regional head of Wealth Management, Africa, Middle East and Europe, Standard Chartered Bank adds: “We see an interest in ESG solutions – the demand for ESG is being fuelled by increased investor awareness and interest, government support in many markets as well as wealth changing hands to the next generation of more socially conscious investors. Industry research tells us that the new generation, or the millennials, are twice as likely to invest in companies or funds with ESG outcomes, and over 80 per cent cite investing with a focus on ESG impact as central to their investment decision making.”

Clients are now investing for purpose and looking beyond return on investment; a quarter of millennial clients see sustainable investment propositions as the most important factor when selecting a new wealth manager, an EY report suggests.

“For clients, purpose underpins the reasons why they invest – including their desire to do-good and to create a meaningful personal legacy. Worldwide, 78 per cent of wealth clients now have goals related to sustainability in their lives, while 62 per cent of clients, regardless of age or gender, have goals related to generating a legacy. Each of these two aspects – sustainability and legacy – are important when considering a client’s overall purpose and how it is changing,” the 2021 EY Global Wealth Research report states.

Digital connect
Following a broader digitalisation sweep across financial and other key sectors, the scales within the wealth management spectrum also seem to be tipping towards technology solutions. The rise of robo-advisors is a potential testament to the growing appeal of digital wealth management solutions, which are now vying for a spot amid traditional practices.

“Digital wealth management tools are the future in an era of technological advancement and digital solutions being experienced in all walks of life. Digital wealth management solutions, like robo-advisors, enable leveraging technology, thereby enhancing scalability and reach to serve a larger customer base and improving overall customer experience,” notes Madhur Kakkar, senior executive officer at Century Private Wealth.

“The pandemic has accelerated broader technological adaption, but changes are required in the behaviours of both clients and advisors to be able to put greater emphasis on digital solutions. While digital transformation has led to evident disruption in the banking sector, wealth management business has been a slow mover.”

Piyush Dubey, partner at Kearney Middle East and Africa – Financial Services Practice, builds on it: “Clear waves of change are expected in the GCC wealth management sector. Invested and investable assets are shifting towards younger generations of customers, acclimatised to control, flexibility, and transparency. Customer loyalty and stickiness will decline. Even older generations are becoming more exposed to technology solutions that commoditise product offerings and put control back into the hands of the consumer. These waves of change are driven by wealthtech firms which are defined as entities that either directly provide digital or robo-advisory and investment platforms or enable traditional wealth managers to provide such platforms.”

While the balance may tip towards digital-led models or advisor-led engagement depending on the demographics and preferences of the investors, a hybrid mode of play is expected to rise and prove sustainable in years to come, drawing on the benefits of personalised interventions and digital solutions.

“The GCC as a region is probably more conservative by nature, and the ultra HNW segment has preferred to stick with face-to-face advisory. Even though the region is receptive to change, ultra-wealthy individuals and families in the region are not essentially motivated by the low fees associated with technological solutions. A hybrid model, however, may be more suitable in times to come, wherein innovation leads to more effective solutions, but advice is delivered to the client through the human touch of a relationship manager. It is like technology is being employed in the background and clients get attracted to the variations on more traditional products and services,” adds Kakkar.

As businesses change hands with a new generation of owners arriving at the helm, a substantial amount of wealth will also see movement. As clients continue to seek purpose and new models emerge amidst growing awareness and digital disruption, the wealth management space may be at the cusp of a new dawn.