2018: Trends to Watch in Global Wealth Management
"2018: Trends to Watch in Global Wealth Management", informs wealth managers and their strategy teams of the key developments emerging across the industry - and how best to respond to these changes. The report examines in detail key areas such as regulation, customer targeting, and product and service provision, with analysis supported by findings from GlobalDatas propriety surveys of wealth managers and investors.
Regulation, innovation, and intergenerational change will be key items on wealth managers agenda in 2017. Compliance with the Common Reporting Standard and MiFID II will be as crucial as responding to shifting client demographics and changes to the investment landscape, fueled by cryptocurrencies growth and central banks revising monetary policies. In this environment striking the right balance between retaining existing clients and hunting for new ones will be key.
Specifically the report -
- Considers the impact of different regulation (including the Common Reporting Standard, General Data Protection Regulation, and MiFID II) on the industry.
- Analyzes shifts in investors asset allocation preferences and their impact on wealth managers strategies.
- Reveals millennials product and service requirements and considers successful client acquisition and retention activities.
- Discovers key trends in product innovation, exploring areas such as HNW lending, cryptocurrencies, ETFs, impact investing, and innovative fintech products.
- Examines the latest developments in the robo-advice market and future M&A activity in the sector.
- Central banks potentially increasing interest rates in 2018 will affect the asset allocation landscape.
- 64% of wealth managers agree that intergenerational wealth transfers will be a big source of new business in the coming years.
- New investment products such as impact investments and cryptocurrencies will become mainstream.
- The use of automation and technology in general will increase as providers look to reduce costs.
- Robo-advisors will continue to grow, but their share of the overall market will not change drastically.
Reasons to buy
- Understand the key trends impacting the wealth management industry in 2018 and how to respond.
- Discover drivers behind intergenerational change among your clients, and the customer targeting strategies that will help you retain existing clients and engage with new customers.
- Learn about key regulatory developments and how to leverage them to your organizations benefit.
- Stay ahead of your competitors by keeping up to date with product innovation in the industry.
- Discover how HNW asset allocation preferences are set to evolve in 2018, and what this means for your business.
Table of Contents
1. EXECUTIVE SUMMARY 2
1.1. Market summary 2
1.2. Key findings 2
1.3. Critical success factors 2
2. ASSET ALLOCATION TRENDS 9
2.1. Wealth managers need to get ready for quantitative tightening 9
2.1.1. Key wealth markets are normalizing their monetary policies in 2018 9
2.1.2. Wealth managers should discuss the effects of higher rates on the typical HNW portfolio, as HNW investors remain unprepared 9
2.1.3. Amid limited demand for cash products, a reshuffle of the typical bond portfolio is called for 11
2.1.4. In the equity space we will see a focus on financials and consumer staples 13
2.1.5. Rising demand for commodities should be redirected to gold or other precious metals 13
2.1.6. In the offshore space, access to the US markets will be even more important than currently 13
3. REGULATORY TRENDS 15
3.1. All private wealth managers will need to adapt to CRS 15
3.1.1. Offshore wealth managers are directly in the firing line of CRS 16
3.1.2. Automation of CRS compliance will become a competitive advantage 17
3.1.3. Any repeal of FATCA would create a huge competitive advantage for US wealth managers 18
3.1.4. CRS is prompting divestment of certain types of high-risk business in wave one countries 19
3.1.5. Private wealth managers based in Switzerland should benefit from CRS 19
3.2. MiFID II entered into force on January 3, 2018 20
3.2.1. Wealth managers expect MiFID II to encourage price competition 20
3.2.2. Many EU governments are still struggling with MiFID II transposition 20
3.2.3. Research teams will downsize following MiFID II implementation 21
3.2.4. European countries will not be the only ones affected by MiFID II 22
3.3. GDPR and the fiduciary rule will add to the compliance burden 23
3.3.1. Banks will have to roll up their sleeves as the GDPR deadline approaches 23
3.3.2. The US is preparing for implementation of the fiduciary rule 23
3.4. Changes to non-domicile legislation will fuel HNW migration 23
3.4.1. UK long-term non-doms will no longer benefit from special status 23
3.4.2. New rules will impact HNW offshore investments 24
3.4.3. Other European countries willing to reduce non-doms tax bills will compete with the UK 24
4. CUSTOMER TARGETING TRENDS 25
4.1. The new generation of clients require different acquisition strategies 25
4.1.1. Intergenerational wealth transfers are an opportunity for AUM growth 25
4.1.2. The younger generation is also growing its own wealth 26
4.1.3. Millennials are digital-savvy, but they still expect an omni-channel proposition 27
4.1.4. Millennials take word of mouth to the next level 28
4.1.5. Millennials are more likely to use multiple providers to manage their wealth, with their main bank dominating investment share 29
4.1.6. Investor education will be an important factor in millennial retention 30
4.2. Client targeting strategies will differ depending on the providers business model 31
4.2.1. Being part of the investor journey from its very beginning is key 31
4.2.2. Providers with a wide range of products are in a privileged position, and should focus on cross-selling 31
4.2.3. Private banks should reach millennials through their grandparents 31
4.2.4. Challengers should do more than just offer investments 32
4.3. Retention management has to become more important amid increasingly uncertain investment conditions 32
4.3.1. Downward volatility has the potential to cause significant customer churn 33
4.3.2. The importance of the advisor relationship poses a challenges to wealth managers 34
4.3.3. Education will become increasingly important, andinvestors must be made aware of the effects volatility could have on their wealth 35
5. PRODUCT AND SERVICE TRENDS 38
5.1. With fee income growth constrained due to competition revenue sources will diversify, and HNW lending will become more important 38
5.1.1. US securities-based lending innovation has made it a common service among even small advisors 38
5.1.2. Recent innovation aims to provide lending facilities to even small-scale investment advisors 39
5.2. Wealth managers have long prioritized managing both sides of the client balance sheet 41
5.2.1. Many private wealth managers have prioritized growing the earning asset base in the aftermath of the global financial crisis 41
5.2.2. UK-based private wealth managers have focused on using loans to tie in investment clients 41
5.2.3. Swiss private banks have used securities-based lending to appeal to entrepreneurs 41
5.3. New investment products will become mainstream 41
5.3.1. Tighter regulation and higher returns will tempt more investors into new alternatives 41
5.4. For millennials investments are personal, which creates room for impact investment growth 42
5.4.1. Offering impact investment services will become more important as the next generation takes over the reins 42
5.4.2. Credit Suisse and UBS are strongly positioned to benefit from rising demand for impact investments 44
5.4.3. Impact investing will eventually experience greater demand than traditional philanthropy 45
5.4.4. Impact investment demand will be further supported by government incentives 46
5.5. Alternative finance opens opportunities for those seeking high returns, with P2P lending a particular standout 47
5.5.1. P2P lending platforms can help wealth managers expand their target client base - and HNW investors will also want in 47
5.6. Recent regulatory tightening will result in more investors seeing cryptocurrencies as an investment rather than a speculation 48
5.6.1. Short of outright bans, regulatory tightening will add respectability to the market 48
5.6.2. The value of bitcoin and ethereum mean traditional wealth managers can no longer ignore them entirely 49
5.6.3. Wealth managers should capitalize on cryptocurrency demand before first-mover advantage is lost 50
5.6.4. Wealth managers need to ensure their clients can quickly access and pay using cryptocurrencies 51
5.6.5. Funds and investment vehicles with cryptocurrency themes can be useful alternatives to direct investing 51
5.6.6. Wealth managers must acknowledge the speculative bubble without discounting the entire sector 51
5.7. ETFs are forecast to reach $7.6bn in value by 2020, with younger investors driving growth 52
5.7.1. Younger consumers have driven ETF interest but retiring baby boomers also see value, suggesting growth will continue to be rapid 53
5.7.2. The portfolio implications are varied, but wealth managers can benefit 54
5.8. Fintech will lead product innovation 55
5.8.1. Traditional investments can evolve into new opportunities for securities investing 56
5.8.2. Other illiquid assets could effectively be converted into securities by enterprising wealth managers 56
6. COMPETITIVE TRENDS 58
6.1. Wealth managers will continue to buy stakes in fintechs 58
6.1.1. Robo-advisors need to expand their propositions to keep their clients 58
6.1.2. Robo-advisors will not be able to afford outflow of clients 59
6.1.3. Incumbents are entering the robo space through acquisitions 59
6.1.4. The future of financial advice leaves room for different providers, although more acquisitions are likely 59
6.1.5. Robo-advisors and traditional players will continue to co-exist, with the latters dominant position unchallenged 60
7. APPENDIX 61
7.1. Abbreviations and acronyms 61
7.2. Definitions 61
7.2.1. Baby boomers 61
7.2.2. Generation X 61
7.2.3. HNW 62
7.2.4. Mass affluent 62
7.2.5. Millennials 62
7.3. Methodology 62
7.3.1. 2017 Global Wealth Managers Survey 62
7.3.2. 2016-17 Mass Affluent Investor Surveys 63
7.3.3. Exchange rates 63
7.4. Bibliography 64
7.5. Further reading 67
List of Figures
Figure 1: Equities account for the largest share, and are set for growth over the next 12 months 10
Figure 2: HNW investors only hold a bare minimum in cash products to ensure liquidity 11
Figure 3: US Bank educates its client base about the effects of rising rates 12
Figure 4: Equity investments dominate the typical HNW offshore portfolio 14
Figure 5: Tax efficiency and privacy may come into conflict among offshore investors 17
Figure 6: Reducing compliance burdens will see the most growth in investment from wealth managers in 2018 18
Figure 7: European wealth managers believe MiFID II will increase price competition 20
Figure 8: Only 11 countries have fully completed MiFID II transposition requirements 21
Figure 9: Wealth managers consider intergenerational transfer of wealth an opportunity to grow business 26
Figure 10: Millennials use multiple communication channels 28
Figure 11: Millennials are most likely to work with their main bank to arrange investments 30
Figure 12: Market volatility has the potential to cause higher churn rates 34
Figure 13: Longstanding advisor relationships reduce the risk of churn 35
Figure 14: Political uncertainty is driving asset allocation decisions in the HNW space 36
Figure 15: Political risk is particularly pronounced in China, France, the Philippines, and Turkey 37
Figure 16: Morgan Stanley has ramped up its lending through its wealth management division 39
Figure 17: GS Select brings securities-based lending to small advisors 40
Figure 18: There is a significant gap between supply of and demand for impact investments 44
Figure 19: Demand for philanthropy and impact investments is expected to rise in 2018 46
Figure 20: Although there have been bumps, the rise in value of blockchain investments has been dramatic 50
Figure 21: ETFs have routinely grown AUM 52
Figure 22: Younger investors drive ETF uptake, but older segments are showing increased interest 54
Figure 23: Only superior returns will counter the liquidity and cost attractions of ETFs, leaving the fund portfolio dominated by beta returns 55
Figure 24: BrickX offers a unique method of investing in property 57
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