COVID-19 provided a stark reminder of financial unpredictability as millions suffered dramatic falls in income. The war in Ukraine has further disrupted already-stretched supply chains, pushing up prices and negatively impacting livelihoods.

Add into the mix underfunded retirement savings, over-reliance on non-financial assets, and individual responsibility for retirement, and it’s clear that financial security is a pressing challenge.

Today’s wealth management providers play a pivotal role in the financial well-being of an increasingly broad range of customers, across age and income groups, beyond the global elite.

To remain effective and relevant, they must shift from selling products to ‘owning’ financial advice, becoming a central part of customers’ lives. This wider calling should not only open up new business and channels, but also offer a greater sense of purpose to prospective new employees with changing values.

In KPMG’s new paper Future of wealth management, we examine the key signals of change for the sector, possible winning business models, and the capabilities to compete effectively.

A changing competitive landscape

Like every sector, wealth management is undergoing huge disruption. Online business has become the norm since the pandemic, with heightened customer expectations of a seamless experience characterized by mobile apps, ‘always-on’ multichannel advice and self-service.

Ambitious younger consumers and entrepreneurs, augmented by intergenerational wealth transfer, seek investment strategies that were historically only available to more affluent clients.

Environmental, social and governance (ESG) is also having a rising impact, reflecting increasing social and investor awareness and activism. Wealth managers must stay attuned to social issues and recognize that customers expect to deal with and invest in organizations that embrace equality, inclusion, sustainability and the circular economy.

Competition has been shaken up, with fintech, online retail and social media companies all vying for market share. These disruptors are equipped with sophisticated digital capabilities and offer speed, personalization and low-cost investment advice to cater for a mass-market audience. The name of the game is customer-centricity, powered by technology.

Economic factors, such as a COVID-19-related recession, weakened consumer confidence, unemployment, rising debt and low growth could reduce customers’ investment pots, and wealth managers may have to consolidate to gain efficiencies. The pandemic has reminded people of the importance of having diversified portfolios and contingent investment plans, to better protect precious personal wealth against systemic shocks.

Regulators are becoming more interventionist to increase competition, improve cyber security, protect data, enhance enterprise resilience, and support vulnerable customers. They are also seeking to enhance customer trust in banking practices in the aftermath of a series of scandals and collapses, by increasing enterprise resilience.

However, heightened intervention also makes it harder to navigate multiple regulatory regimes and carry out the kinds of cross-border transactions that customers demand.

Technology continues to revolutionize customer relationships, enabling greater customer-centricity and reduced operational costs, thanks to automation. There’s considerable pressure on wealth management players to make the right investment calls and partner with fintech innovators. And, as cryptocurrencies go mainstream, wealth managers should understand the associated risks and opportunities for their clients. 

Adapting to disruption with new business models

Today’s diverse, highly fragmented wealth management market is likely to converge into three distinct business models. Each will offer innovative new services, integrating digital and human capabilities to offer self-service products and personalized investment advice.

The financial well-being provider is all about the mass-market, helping price-conscious clients achieve their life goals. This high-volume, low-cost, digital-first model calls for high brand awareness and trust, and a scalable operating platform, to respond swiftly to changing customer needs. Winning firms will combine the best of digital, analytics and the human touch and many of the services will be less complex, including advice on bill payments, money market rates and tax information.

The domestic wealth manager targets relatively sophisticated high- to ultra-high net worth clients, who value strong relationships featuring personalized, high-touch engagement supported by digital capabilities. Players may be stand-alone wealth businesses or wealth franchises of banks or, indeed, private banks, positioning themselves as trusted ‘stewards’ of their clients’ multi-generational wealth. Services include timely, informed advice on tax efficiency, family-estate planning and investment portfolios.

The global investment expert operates at the most sophisticated segment of the wealth-management market, where businesses with established brands and global reach cater to an exclusive client base. Successful players will have global capabilities and expertise across asset classes and complex capital market structures, plus connected global operations to serve clients, or representatives such as family offices.

Offerings include advice on taxation and regulatory changes, real estate, geopolitical issues and money laundering controls. This model has a high barrier to entry, given the need for global scale and reach across financial centers and wealth destinations, along with cross-border capabilities. 

The power of connectivity

The interconnected nature of modern life means that the effects of pandemics, wars, environmental and economic shocks reverberate globally, which can make people’s personal wealth highly vulnerable.

But connectivity also makes us stronger. By connecting with customers, employees, suppliers and business partners, and by connecting front, middle and back offices, wealth management providers can keep in touch with and adapt to evolving customer demands.

And for customers, being connected to regular advice and support, from trusted advisors, helps to build financial resilience to cope with volatility, so they can approach their future with confidence.

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