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Six Areas Where Wealth Managers Can Transform Their Business This Year

The global coronavirus pandemic disrupted the financial advisory industry. Here’s what that means in 2021.

Despite the unprecedented challenges presented by COVID-19, wealth managers adapted to effectively serve clients while navigating an uncertain economic and financial market environment. Stable fee-based revenue combined with an increased demand for advice during the pandemic underscored the value proposition of a modern wealth approach.

Following a severe, albeit short recession, emerging trends quickly accelerated as financial advisors needed to embrace a digital engagement model to serve the clients’ evolving needs in a multichannel ecosystem.

In the wake of the pandemic, firms will continue to grapple with headwinds, including a slowing economy, turbulent markets, shifting regulatory environment and managing their balance sheets as they adapt to the new normal. Here’s a look at how wealth managers have demonstrated resiliency in 2020 and key strategic considerations for firms to transform their business in 2021.

  1. Prioritize Digital Client and Advisor Experience

Delivery model digitization efforts accelerated this year as firms were forced to reimagine how financial advisors connect with clients and deliver advice. According to the J.D. Power 2020 U.S. Wealth Management Mobile App Satisfaction Study, customer satisfaction lags other financial apps such as retail banking and credit cards despite increased utilization during the pandemic. The mobile app is the cornerstone of the digital client experience, representing the entryway for many clients to the firm or advisor. In response to the accelerated digital transformation and underwhelming study results, wealth managers should consider the value in a redesigned platform that addresses client needs and creates a seamless experience.

Similarly, less than half of advisors surveyed say the core financial planning technology their firm provides is “very valuable,” suggesting a disconnect between wealth firms’ technology capabilities and value. As clients increasingly prefer digital engagement methods, firms should prioritize enhancing their digital infrastructure, thus enabling advisors to serve clients at scale efficiently. Firms that create a fully integrated client/advisor experience will win wallet share.

  1. The Intersection of Banking and Wealth Management

Traditional banking, characterized by low-interest rates, unnecessary fees and antiquated technology, is ripe for disruption. Enter Wealthfront and its new service, Autopilot, to automate a client’s savings and investment strategy. Launched in September 2020, this represents the first iteration of Wealthfront’s longer-term vision of Self-Driving Money. Self-Driving Money will leverage software to optimize every dollar a client earns and automatically take the most appropriate next-best action based on their unique situation. Similar to no-cost trading, robo advisors are again challenging incumbents to innovate.

Alternatively, banks are establishing wealth management offerings driven by robust growth potential and stickiness of advisory-based relationships. According to Cerulli, 49% of wealthy clients say they would prefer a single financial institution to serve most of their financial needs, yet only one-third of clients are engaging a firm in this manner. The gap between client interest and execution presents a major opportunity for wealth managers and banks to consolidate existing client assets.

With financial wellness increasingly at the core of all client relationships, wealth managers and banks that can develop a holistic digital offering will meet clients’ growing hyper-personalization expectations and be well positioned to consolidate client assets.

  1. Increase High-Net-Worth-Client Engagement

Wealth managers should prioritize efforts to engage and deepen relationships better with high-net-worth clients, accounting for more than 43% of total U.S. investable assets. The impact of COVID-19 has shifted the needs of HNW investors, focusing on prioritizing capital preservation, tax optimization, and environmental, social and governance and socially responsible investing in addition to tailored goals–based planning solutions.

According to Cerulli, registered investment advisors and multifamily offices are winning market share in the client segment from traditional wirehouses and private banks. RIAs and MFOs have done this by focusing on personalized financial and superior technology, catering to the evolving investment preferences of HNW individuals. To combat the attrition of client assets, incumbents should connect with emerging HNW clients—particularly within households they currently serve—early in their wealth accumulation years.

With millennial and Gen X investors set to inherit approximately $53 trillion over the next 20 years, firms that build relationships with clients’ potential inheritors, leverage client insights, and understand trends to inform product and service offerings will stand to benefit in the current environment.

  1. Leverage Diversity and Inclusion as a Competitive Advantage

The wealth management industry has largely underserved women and people of color related to the employee workforce, particularly financial advisors. Due to increased stakeholder interest, diversity and inclusion has taken center stage and wealth managers have an opportunity to turn their commitment to change into a key differentiator. With nearly 40% of advisors set to retire in the next decade, according to Cerulli Associates, the new cohort of advisors should more closely reflect the client demographics they serve. In order to attract and retain next-gen clients, firms should consider doubling down on short-term strategies while balancing longer-term initiatives to reap the benefits of diversity that drive improved business performance. Merrill Lynch is striving to be the industry leader in D&I and became one of the first firms to release data on advisor diversity. Similar to Bank of America, Merrill is looking to provide transparency and establish a robust training program to increase diverse representation in the advisor role. As firms are being required to diversify representation among advisory boards and senior leadership teams, focusing on the industry’s future leaders can create a stronger talent pipeline.

  1. Retirement Service Providers Shift Focus to Legislation

Retirement services providers turned their attention to the CARES Act when the coronavirus pandemic hit but will focus again on initiatives, including implementing SECURE Act provisions in 2021. The refocus will include educating plan sponsors on financial wellness and innovation via automation. Additionally, service providers will need to grapple with implications for defined contribution product development and distribution initiatives. Furthermore, the defined contribution plan managers will need to manage potential regulation from the Department of Labor, which would decrease the adoption of ESG products.

  1. Regulatory Implications in New Political Landscape

Under the Biden administration, the regulatory landscape brings Regulation Best Interest and the DOL fiduciary rule back in focus. Potential changes to the fiduciary standard, new rules governing advice in retirement accounts, and higher taxes for the wealthy demand wealth managers and advisors’ attention. Wealth managers should prioritize educating advisors on estate planning, tax planning and charitable donations to navigate the potentially changing tax code while revisiting business models to assess readiness to manage potential conflicts of interests.

Rob Norris is a managing principal and Michael Daly is a senior management consultant at Capco, a global management and technology consultancy dedicated to the financial services and energy industries.

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