The wealth management trends for the rest of 2024 show new approaches will be needed to thrive in the current climate.
Persistent inflation, economic question marks, and rapid advancements in machine learning are shaking the wealth management industry at its core.
These developments will affect the way wealth managers think, invest, and operate, in addition to other factors. While there will be difficulties, there are opportunities for those who adjust and adapt.
While inflation has eased since its peak, it remains a factor that influences client portfolios… and client sentiments.
In fact, 62% of retail investors are worried about their financial future, a notable jump from 46% the prior year.
Strategies that focus on inflation-hedging assets, companies demonstrating pricing power, and active portfolio management will be essential.
The market was ahead 10.6% year-to-date through April 2024, as concerns over a recession have subsided.
However, inflation remains stubbornly high, prompting the Fed to delay cutting interest rates.
Ongoing geopolitical tensions add to the uncertainty, be it in Ukraine, the Middle East, or the South China Sea. Disruptions via trade disputes, cutting of supply chains, and even hot wars could take back a lot of the gains and progress the markets have made.
“Equities drive long-term growth. Bonds provide stability and security. Alternatives allow for the potential to outperform public markets and access unique opportunities.”
-JPMorgan
Finding safe and reliable investments has been a challenge in the current environment, as inflation still eats into consumer spending and corporate earnings.
Once-hot performers like real estate have shown signs of cooling amidst high interest rates.
There’s no quick and easy win, but there are opportunities out there who do their research.
Gold is on track to hit record highs.
And when investors are concerned about their investments, they typically rush to this precious metal for protection.
Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management, shared his take:
“Our message to investors is to be patient. Also, look to non-stock and bond assets, like gold and the U.S. dollar, to lower risk and potentially increase returns.”
DataTrek’s recommendation to add a little bit of gold to a diversified investment portfolio is common practice among wealth advisors:
“We are neither gold bulls nor bears, but we do have a standing recommendation to consider a 3% to 5% position in a diversified portfolio.”
Defensive stocks are those that tend to provide stable earnings and consistent returns, even in a market downturn.
These stocks would include utilities, consumer staples, and health care.
Because people need food, electricity, and their health, they will make spending cuts in other areas first, not to compromise on the essentials.
Brian Katz, Chief Investment Officer at The Colony Group, further backs up that point:
“Companies that sell essential services and goods, such as food, electricity (and) shelter are generally non-cyclical and less exposed to economic cycle.”
Dividend stocks are also attractive in a down market, adding in a source of stable payouts.
Check out these dividend stocks that can hold up well in a bear market.
Having this liquid asset is valuable to have in a downturn, as there is flexibility to purchase others assets at discounted prices before the markets go up again.
Michelle Griffith, wealth advisor at Citi Global Wealth, supports this view:
“In economic downturns, cash is king. It’s better to be safe than sorry and beef up cash reserves during times of high employment.”
Having a fixed income asset is nice to have, especially when other asset classes aren’t performing as well.
Bonds generally hold up well in times of recession or uncertainty.
Elliott Herman, financial planner and partner at PRW Wealth Management, shared his take and how his firm uses bonds:
“Higher-yielding bonds with shorter maturities are attractive now, and we have kept our fixed income in this area.”
Machine learning for wealth managers is no longer a “tomorrow” thing: it’s now!
9 out of 10 advisors are already making use of AI, and over half have already started 2 years ago.
It would be “crazy” not to incorporate the new technology, as wealth managers can achieve greater efficiencies and satisfy client demands, expecting their wealth advisor to use the advanced systems.
While some fear that AI could replace people, others like Craig Iskowitz, CEO of consultancy firm Ezra Group, shared a different take:
"[End clients] are being inundated with different examples of AI, whether they know it or not. … They're going to start expecting that from their advisory experience as well. And the more firms use AI, the more their employees become engaged. It doesn't disengage employees and cause employees to be laid off. It causes them to be more engaged because they're freed up.
The work that [people are] normally doing manually building spreadsheets, manually exporting data, building reports manually from different systems can be automated in AI. And those employees can then move up the food chain, up the value chain, and provide more value and do things that are of higher value for their clients."
Crypto rose, fell sharply, and rose back.
In light of the Sam Bankman-Fried scandal, this asset class shown it has staying power.
And those investing in the space need to be aware of the risks.
Devon Drew, CEO of AI-based distribution platform Diligence Fund Distributors, shared his view:
“There are financial advisors who do recommend cryptocurrencies as part of a diversified portfolio, as they can provide opportunities for growth and potentially higher returns. However, it's important to note that investing in cryptocurrencies comes with significant risks and should only be done after careful consideration and research.”
With the crypto crash and Sam Bankman-Fried FTX scandal in the backdrop, there’s clearly a need for more regulation of this asset class.
In fact, financial advisors “want more regulation” of cryptocurrency, according to Matt Hougan, CIO of Bitwise Asset Management.
American voters do, too. Even before the scandals broke out, a majority (58%) of 1,200 US voters surveyed want more cryptocurrency regulations. That number can only be higher now.
Survey respondents want lawmakers to prioritize market stability and fraud detection.
And governing bodies have taken note, especially considering all that has happened the last year and a half for these digital assets.
The SEC has issued an alert to advisors to exercise caution with crypto asset securities.
Meanwhile EU lawmakers have approved the world’s first comprehensive framework for crypto regulation.
Wealth managers understand the importance of diversification and long-term focus for investing.
But if they only recommend public equity and bond investments, they could be falling short of these goals for their clients.
Traditional 60/40 portfolios have only gone so far in the current climate, but portfolios that expanded to include alternative assets such as private credit, private equity and venture capital have performed better.
In fact, private markets have outperformed public equities markets for the past 20 years.
There is certainly a growing demand for alternative assets, and new technologies and services providers have made it possible to lower the barriers to entry.
The reward for wealth managers are there, but clients should know that private investments often require long-term commitments with little or no short-term access to funds.
It’s a two-way street, almost like a symbiotic relationship. Both sides have opportunities to invest in the other.
For starters, private equity investing is no longer just for large institutional investors.
Private equity firms recognize there’s so much capital out there (trillions) left on the table, and more and more PE firms are marketing themselves to attract that capital.
Smaller- and medium-sized wealth managers will have more opportunity to invest in PE, as private investments have outperformed their public counterparts.
Check out one of our posts on the rise in private equity investing for wealth managers.
At the same time, PE firms return the favor and invest in them.
Private equity investing has driven record levels of consolidation in the wealth management industry.
And for wealth managers, private equity ownership means an injection of resources and expertise, which allows them to deliver new products and services to their customers.
Michael Wunderli, managing director for Echelon Partners, shared his take:
"The acquiring [private equity] firms are run by sophisticated management teams that have been designed to increase profitability and drive faster growth for acquisitions."
Just as wealth managers look to alternative investment, the alternative investment firms look to wealth managers.
Private equity investing has driven record levels of consolidation in the wealth management industry, and they continue to come for wealth managers.
For wealth management organizations, private equity ownership means an injection of resources and expertise, which allows them to deliver new products and services to their customers.
Michael Wunderli, managing director for Echelon Partners, shared his take:
"The acquiring [private equity] firms are run by sophisticated management teams that have been designed to increase profitability and drive faster growth for acquisitions."
In recent years, there has been a lot of talk about fee compression.
While it is true that large competitors like BlackRock and Vanguard have cut their fees, and downward pressure on fees had hit record lows, some firms have seen their fees go up.
According to data from consulting firm Cerulli Associates, advisory fees rose on average 2.8 basis points from 2020 to 2021 for all investors. The average account fee in 2021 was 0.69%, up from 0.60% in 2020.
What’s driving the uptick? Simply put, clients are willing to pay for value in wealth planning and expertise. Scott Smith, director of advice at Cerulli Associates, stated:
"We have seen firms offering more and more services to their clients so paying a little more isn’t seen as much of a problem.”
Michael Kitces, a well-known investment industry blogger and head of planning strategy at Buckingham Wealth Partners, never thought fee compression was a substantive issue: "[It] was about doing more to EARN the 1%.”
For the last few years, there has been talk about the “Great Wealth Transfer.”
Year by year, this phenomenon manifests itself more.
The Baby Boomer generation, roughly defined as those born between the mid-1940s and mid-1960s, have already begun to retire, with more on the way.
As they do so, they will pass on wealth to children and grandchildren.
By 2045, up to $84 trillion in wealth will be transferred, according to Cerulli Associates.
Wealth advisors need to think about their older clientele:
Wealth management firms should think about ways to keep the business of the older clients’ beneficiaries.
Just as wealth gets passed down, and as the millennials and Gen Z become a larger market, wealth managers will need to adapt.
They are tech-savvy, and they’ll expect you to be as well. Additionally and generally speaking, they are socially conscious and want to invest in a way that reflects their values.
To maximize revenue and quality of client service, wealth managers should carefully segment their clientele and cater to them accordingly.
This post from eMoney provides great advice on how to segment.
When employees transitioned from office to home in March 2020 at the start of COVID-19, the move had overall been successful. As a PwC report illustrated, more than 70% of financial services employers surveyed found work-from-home to be successful or very successful.
In fact, 96% of financial services professionals would take a pay cut to permanently work from home.
Employees are less tolerant than ever of commuting to and from an office on a daily basis, as shown in many cases the work can be done just as well at home.
But more and more industry leaders, including JPMorgan’s Jamie Dimon, want their teams back in the office.
While work from home has its benefits, a recent report found that workers in the office spend 25% more time in career-development activities than their remote counterparts.
Adding to that point, the research found that those who came into work devoted about 40 more minutes a week to mentoring others, nearly 25 more in formal training and about 15 additional minutes each week doing professional development and learning activities.
There are benefits to both remote and office work settings, and a hybrid approach should be seen as the best way going forward for wealth managers.
Though some older advisors show no signs of slowing down or retiring, others are calling it a career.
About 40% of financial advisors plan to retire within 10 years, according to CNBC. In fact, there are more certified planners over the age of 70 than there are under 30.
For business owners close to retirement, they should think about succession planning for their business, as well as attracting new talent.
This includes outreach to college students, in particular women and minorities who are currently underrepresented in the investment industry. Expanding and cultivating the talent base is a win for all wealth management firms.
The great wealth management companies know how to tailor the client experience, making optimal use of human capital and technology.
Furthermore, the call for digital adoption among wealth managing firms is nothing new. It’s a message loudly proclaimed even before the pandemic, and now accelerated with AI tools like ChatGPT.
Candice Carlton, senior vice president of adviser education at FiComm Partners, stated it best as quoted in this InvestmentNews article:
“To stay relevant, it is critical that the adviser of today stay connected in a high-touch, digitally enhanced way to drive loyalty, trust and wallet share. Clients now expect their advisers to add value beyond the traditional financial plan and twice a year in-person meeting… advisers need help in learning how to adopt and use modern communication mediums to supercharge their prospect and client experience.”
As wealth management competition intensifies, moving fast in an efficient manner is more than ever.
New technology is making it possible to do more in less time and with fewer resources.
Artificial intelligence (AI) is one of the tools to help. Machine learning can help wealth managers recognize patterns, anticipate future events, create rules, make good decisions, and communicate with others.
AI is big business. The global AI software market is projected to grow rapidly in the coming years, reaching USD $126 billion by 2025.
And this year, 75% of organizations will have shifted from piloting to operationalizing artificial intelligence, according to Gartner.
According to a report from Arizent, parent company of the publication Financial Planning, the report stated:
"Wealth management's ardent approach to the technology is notable given the wide variety of firms small and large reporting for this survey. Participants come from seven types of wealth management firms and hail from companies with assets under management as little as under $100 million to $2 billion or greater."
While AI focuses on the independent learning of machines, Robotic Process Automation (RPA) focuses on performing routine and predictable tasks.
Repeatable steps like downloading statements, storing files, and emailing reports can be done through RPA. In fact, has Empaxis has developed tools to help in these areas, helping investment firms of all kinds.
A Broadridge survey revealed that 57% of financial firms have long-term plans to increase automation through RPA and AI.
We live in a data-driven world.
In an increasingly competitive space, wealth managers need accurate, up-to-date information to allow for faster decision-making.
Having the means to aggregate data and see it in a nice, clean and customizable format is indeed helpful.
And it’s not just for the wealth managers; it’s for their clients, too. Clients across all age ranges are coming to expect modern fintech from their advisors.
Even older clients that generally shunned new technology are now opening to it, given the importance of protecting their health during the pandemic.
Clients should have easy and instant access to their portfolio details, via cloud-based technology.
It’s to a point where these features are no longer just nice additions; they are necessities.
Good data is a significant part of a firm’s credibility. Having the right data management and portfolio management platforms like TAMP1 can help.
Being an expert at everything is not easy, nor is it necessary. Wealth management executives and their staff should focus on what they do best: investing and client servicing.
Admin and operational work are important, but they’re not the main reasons for going into business. For anything that is non-core and a cost of doing business, it can be outsourced.
A Fidelity survey on outsourcing for wealth managers shows just the value that can be had from leveraging third parties. In short, those who outsourced were more likely to report a growth in clients and larger AUM.
The recent wealth management trends show opportunities and challenges facing the industry, and firms should look at the trends to develop a strategy around an investing, operations, technology, client servicing, etc.
The fight against inflation and a market uncertainty will continue having a significant impact on the way the wealth managers run their businesses, and their strategies should take into account the memories and lessons learned from the past, wherever and whenever appropriate. Adapting to and managing new technologies are also important.
Despite the challenges, there is opportunity out there for wealth managers; they just have to prepare and position themselves accordingly.
Empaxis is a leading provider of operational and technology solutions for wealth managers, helping them increase efficiency and scale while cutting costs. Looking to improve your organization? We can help.
Our monthly newsletter features helpful resources, articles, and tips to implement at your investment firm. Enter your email below to subscribe:
