The wealth management industry has been undergoing transformation since the financial crisis, and 2017 will be another year marked with changes to business models and the way providers interact with clients. Many trends observed in 2016 will continue over the next 12 months, with regulation and its costs affecting the financial performance of competitors, and market volatility (often fueled by surprising turns in the geopolitical landscape) keeping portfolio managers busy. Yet 2017 will also be a year of opportunity for competitors that embrace the change and succeed in those areas of the market where growth can be achieved.
- As market volatility persists, managing the level of investment portfolio risk and clients expectations in terms of returns will be more important than ever.
- While the European industry is aware of the updated Markets in Financial Instruments Directive (MiFID II), most wealth managers remain uncertain about its effects on the market.
- Regtech solutions are another reason for incumbents to partner with fintech startups. Block chain technology can also be more widely adopted if compliance is ensured.
- Purely digital wealth management is not a proposition that will appeal to all HNW investors, but providers will continue to target carefully selected audiences with new robo-advice platforms.
- Smaller and local providers will gain market share in the global wealth management space.
- M&A activity in mature economies will be driven by competition for the client portfolios of aging independent financial advisors (IFAs) who are approaching retirement.
This report 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 developments across a number of key areas, from regulation, to product and service trends, to asset allocation drivers. Specifically, the report:
- Analyzes the impact of regulatory developments on the industry, looking in particular at MiFID II in Europe and tax amnesties across the world.
- Discovers how wealth managers can benefit from the emerging regtech sector and how this may affect the adoption of block chain.
- Considers the opportunities in targeting internationally active clients, as well as defining the target audience for robo-advisors.
- Assesses the impact that newly developed investment products, such as exchange-traded mutual funds (ETMFs) can have on clients demand for alternative and innovative solutions.
- Examines the potential growth and M&A opportunities offered by aging IFAs, as well as the divestment activity of global players.
- Reviews the latest asset allocation trends and what is driving the growth of equities and alternative investments in particular.
- Draws on our 2016 Global Wealth Managers Survey of 324 executives to provide fact-led insight.
- Understand the key trends impacting the wealth management industry in 2016 and how to respond.
- Get ready for the advent of the OECDs Common Reporting Standard, and find out how your business needs to prepare.
- Discover how HNW asset allocation preferences are set to evolve in 2016 and how to respond.
- Gain an insight into the impact of digital disruption across the wealth management value chain and advice on how technology could help your business.
Table of Contents
2017 will add to the challenges the wealth management industry is facing
Critical success factors
ASSET ALLOCATION TRENDS
Managing portfolio risk is becoming more important than ever
HNW investors are significantly exposed to equity risk
Equities and alternatives will be the clear winners in 2017 despite turbulent market conditions
Global uncertainties will determine asset allocation strategies in 2017
HNW investors globally are looking for cheap buying opportunities in the equity space as volatility continues
HNW investors' varying attitudes towards risks will have an effect on asset allocation strategies
Portfolio diversification benefits will drive demand for alternatives but a certain level of hand holding is required
The industry will be preparing for MiFID II in the EU
New rules are aimed at increasing transparency and investor protection
Competitors differ in terms of how ready they are for the new regime
Fee transparency will have the greatest impact on wealth managers
Ultimately, the new regime should benefit the industry
Local regulations continue to affect the wealth management market
CRM II will enforce fee transparency in Canada
Changes to non-dom regulations will stir up the UK wealth market
A growing number of tax amnesty programs can shake up the offshore industry
The Indonesian tax amnesty will hit Singapore, but may boost the local wealth market
Argentina's tax amnesty may boost the bond market
The success of South Africa's tax amnesty will be subject to the performance of the British pound
Regtech will have a more prevalent role in the wealth management industry
Regulatory compliance is a top priority for financial services providers
Regtech companies will target wealth and asset managers
Regtech will be supported by financial regulators
Regulation is the biggest hurdle for block chain adoption
The failure of The DAO highlights the risks of block chain
Wealth managers will take greater interest in block chain adoption
CUSTOMER TARGETING TRENDS
Internationally active clients will be an attractive target for wealth managers
Chinese HNW investor migration is increasing
Investor visas will encourage partnerships between wealth managers and governments
The Brexit negotiations will determine the UK's future as a wealth hub
The future robo-advisor client is an experienced investor open to alternatives
Robo-advice platforms are no longer developed only by startups
HNW demand for robo-advice platforms will increase
Wealth managers will target experienced investors who value multi-channel guidance
Wealth managers will target customers with niche services
PRODUCT AND SERVICE TRENDS
ETFs have become the standard for passive investments, but active investments are now in investors' sights
ETFs' AUM exceeded $3tn at the start of 2016
Actively managed ETFs will provide real competition for mutual funds, not equities
Factors fueling the rise have been varied and will support actively managed ETF inflows
ETMFs expand the universe of low-cost investments but appeal to investors seeking alpha as well
An aging advisor base will further spur industry consolidation
Motivated sellers with few new advisors to take on practices require industry buyouts
Key IFA markets are seeing a wave of baby boomers about to retire, with insufficient fresh blood
Appetite for wealth management networks has waned, limiting disposal options to big national networks or cash-rich new players
Global wealth managers will feel ongoing pressure from local players
Top wealth managers will continue to lose market share among HNW investors
Competition for client assets will be fierce as HNW investors consider their options
Smaller players show better net new money growth than giants
The giants will not compete for market share at all costs
Abbreviations and acronyms
Independent financial advisor (IFA)
List of Tables
Table 1: Selected tax amnesties launched, 2015-17
Table 2: Top 10 competitors by wealth management AUM ($bn), 2015
Table 3: Euro-US dollar exchange rate, December 31, 2014 and December 31, 2015
List of Figures
Figure 1: Equities constitute an increasingly large share of the typical HNW portfolio
Figure 2: HNW investors are becoming more inclined to seek financial advice
Figure 3: HNW investors are looking for cheap buying opportunities
Figure 4: HNW demand for equities is forecast to rise in the majority of countries surveyed
Figure 5: HNW investors in Asia Pacific are becoming more risk-averse
Figure 6: The typical HNW portfolio in Russia is overweight on bonds and cash
Figure 7: HNW investors are expected to increase their allocations into alternatives
Figure 8: Delio offers a white-label private asset platform to financial institutions
Figure 9: 14.8% of clients in Canada turn to self-direction to avoid management fees and charges
Figure 10: Trulioo offers global identify verification to the financial services market
Figure 11: AQMetrics simplifies risk reporting and compliance for wealth managers
Figure 12: Chinese nationals represent almost half of Canadian expats
Figure 13: More wealth managers expect the demand for automated investment services to increase than execution-only asset management
Figure 14: ETPs have more than doubled in value since 2011
Figure 15: The ETF market is dominated by the US, making regulation there critical for its development
Figure 16: The chief perceived strength of ETFs is access to more markets
Figure 17: ETFs are becoming a staple of the core private banking market
Figure 18: Robo-advisors are a young investor's pursuit
Figure 19: The top wealth managers' AUM growth has been slowing faster than the market