A Netflix-like environment that provides access to advice that is data-driven, personalized, continuous and preferrably subscription-based, is the future of wealth advice according to McKinsey.
And, says the management consultant in its recent research report On the cusp of change: North American wealth management in 2030, the industry will have to adapt profoundly to changing consumer patterns in another respect: wealth management alone is not enough anymore. A modern financial adviser is a life and wealth coach as well, advising clients on investments, tax and financial matters, as well as on physical and mental health.
Millennials
The management consultant is preparing for this seismic change, as the profile of a typical wealth management client is no longer just a middle-aged white male. An ever larger percentage of wealth will be controlled by women and millennials, just as technological innovation is changing the world of wealth management fundamentally.
Millennials have a distinct preference for digital applications and solutions. In addition, they place high demands on the level of virtual engagement, such as apps and omni-channel services.
Goodbye 60-40 portfolio
At the same time, McKinsey has identified another major transformation: a shift from a risk-based portfolio to a more goal- and outcome-based strategy. McKinsey expects no less than 80% of advisors to provide advice based on pre-defined targets by 2030.
The management believes this goal-based approached is being enhanced by experiences gained outside the financial realm, for example with fitness tracking apps. ‘It shows the psychological power of large, long-term goals that are reduced to smaller achievable goals through a combination of daily monitoring and tracking and feedback,’ say Pooneh Baghai and Renee de la Roche Zhu, partner and consultant at McKinsey in New York who were involved in the study.
According to them, financial services provider can’t afford to turn a blind eye to developments like these: millennials are estimated to control around $20,000 billion of assets by 2030. To satisfy them, wealth managers believe a combination of high-quality technology with a ‘human touch’ is needed.
According to Accenture’s Millennials and Money Report, two-thirds of the target group already use a hybrid wealth management model. Some 60% of them expect to use robo-advice in 2025. This development is partly prompted by the fact that millennials have an increasing need to control and direct their wealth. As many as two-thirds believe that they understand investing just as well as professionals, which means that advisors need to up their game to satisfy these clients by offering a personalised service.
Embrace the future
Consultant EY, based on a study of 2,000 private individuals in 26 countries, also gives asset managers an urgent message: say goodbye to outdated business models and embrace the future. Customers demand individualised products and services on the one hand and straightforward solutions on the other. Particularly during “life changing events” there are opportunities for market players to win new customers, it says.