Slideshow 10 trends shaping wealth management

  • June 24 2016, 6:02am EDT
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1) The investor of the future

Gen Xers and Gen Yers think about advice differently from previous generations and expect to interact with their adviser in different ways, the report states, by having access to multiple channels and serveral advisory models at the same time and not just using one adviser, but also talking with peers, experts and social media.

These generations also want to stay in control of their financial lives and understand the advice they receive and make important decisions themselves. They are reluctant to buy discretionary services and they are increasingly comfortable conducting their own research, the report adds.

2) Technology vs. human-based advice

Deloitte notes that technology is positioned to change the nature and delivery of financial advice in significant ways, just as it has transformed taxi booking and accommodations. “In the last five years, a number of robo-advisers have emerged,” the report says. These robo-advisers will lead to the availability of investing and trading tools that can be made to employees with limited human intervention, “emphasizing the shift from human-based person-to-person advice to science-based, model-driven advice,” the report says.

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3) Analytics and big data

While most wealth management firms use fairly simple analytics to delivery insight, Deloitte expects to see firms develop more descriptive and predictive analytics that combine internal and external as well as structured and unstructured data to create more complex and insightful client profiles. “This … insight will allow firms to assess existing or potential new clients’ propensity to purchase various products and services,” the report adds.

4) Holistic, goals-based advice

Leading firms have invested millions of dollars to develop and train staff on goals-based advisory frameworks and tools. These tools help clients identify and prioritize personal goals, develop funding and investing strategies to achieve these goals, Deloitte notes. However, Deloitte has found that many advisers still face significant barriers to providing holistic advice to their clients, including access to the right tools and software.

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5) Democratization of investment solutions

A number of start-up firms have entered the market in the last five years and provide access to sophisticated, institutional-like trading strategies, Deloitte says. To date, large wealth management firms have paid little attention to these start-ups, the report states, and the capabilities that are being built. “However, innovation is shifting in the direction of democratizing access to investment solutions as exemplified by the number of start-ups dedicated to that cause,” the report adds.

6) Catching the retirement wave

For advisers, providing advice and planning around retirement income is incredibly complex. “Despite significant efforts over the last decade to improve retirement income planning services, many wealth management firms are still optimized around offering accumulation advice rather than income planning,” the report states. “Meeting the needs of clients focused on retirement will require new capabilities, including new products, tools and services.”

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7) The aging of advisers

Many advisers are approaching retirement age; with 43% of U.S. financial advisers over the age of 55 and one-third of this workforce expected to retire over the next 10 years, according to industry research, cited by Deloitte. The industry needs to recruit and train nearly 240,000 advisers just to maintain current service levels, the report says.

8) The new investment environment

The financial crisis and its aftermath have changed the environment for both wealth managers and investors, with investors now forced to navigate an environment plagued by three lows and two highs, Deloitte states: Low interest rates, low inflation rates and low/slowing rates of economic growth. Then high volatility and high levels of financial leverage.

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9) Heavier regulatory burden

In the next few years there are increasing regulations on consumer protection, financial products, conflict of interest, outsourcing and cybersecurity, Deloitte notes.

10) Convergence and new competitive patterns

Since the financial crisis, there has been a continued convergence of brokerage and private banking models to serve affluent clients with a broad range of advisory, investment, banking and lending capabilities, Deloitte notes. At the same time, digital enabled start-ups are capitalizing on a high rate of innovation in the industry. These trends will drive a “further increase in the intensity of competition across most wealth management markets and clients segments,” the report states, “impacting [firm] margins.”

“Investors across all wealth tiers have never had as many options for advice as they do today, and they will use this leverage to insist on greater value,” the report adds.