The wealth management industry was well on its way to experiencing significant disruption. Fintech startups, cryptocurrency, and innovations in artificial intelligence (AI) and machine learning (ML) began to rock one of the last traditional markets left standing in the wake of digital disruption.
In 2020, that change was accelerated as a tsunami of new retail investors entered the market. Even though the year was marked with turbulent markets, a new generation of investors that were younger, less wealthy, and more racially diverse than past generations entered the market for the first time, according to research from the FINRA Investor Education Foundation (FINRA Foundation). This new group of investors stands poised to push the wealth management market into a new normal of doing business as they bring a host of expectations, standards, and desires to the table.
The Self-Service Investor
A rising tide lifts all boats, and the younger generation of investors has rapidly changed the wealth management landscape for everyone, including older investors. In Deloitte’s report “10 Disruptive Trends in Wealth Management,” they identify this type of investor as a “re-wired investor.”
This group wants a partnership with their investor that puts them in the driver’s seat. They want to understand the investments they’re making as well as the advice they receive from advisors and use their own research and knowledge to supplement expert opinions. The FINRA Foundation’s study found that 48 percent of investors in their sample who had an account prior to 2020 reported relying on financial professionals when making investment decisions. But, only 23 percent of new investors did so, opting instead to rely on family, friends, and colleagues (38 percent) or data from individual companies they wished to invest in (37 percent).
In order to reach this type of investor, wealth management firms should have client/advisor access through multiple channels, an intuitive, self-directed digital experience, and a variety of advice resources available.
Automation with a Human Touch
Many newer investors eschew the one-size-fits-most in wealth management. Even though younger investors have less net worth, they expect to be given the same options and treated with the same level of personalization as high net worth individuals (HNWI). And fintech and BigTech startups have risen to this challenge by offering a low barrier to entry with an array of value-added services fit for their needs and investment personality.
HNWIs have also found the value in hyper-personalization. According to data from Capgemini, only 26% of wealth management firms see BigTech competition among the top disruptors to the industry. But, “74% of HNWIs report a willingness to consider wealth management offerings from BigTechs.” This is driven by the fact that traditional wealth management firms have yet to seize the opportunity to offer the level of service and personalization that BigTech solutions, like Amazon and Netflix, boast for their clients.
Wealth management firms that can harness data analytics, ML and other analytical tools to deliver tailored solutions and on-demand reporting stand to capture a large market share of new and existing investors.
New investors are zealous and eager for investment opportunities. The FINRA Foundation’s study respondents found that the top three reasons new investors opened accounts were (1) the ability to invest with a small amount of money, (2) wanting to invest for retirement, and (3) the dips in the market that made stocks cheaper. These conditions will continue to draw new investors in 2021 and beyond.
However, the challenge for financial advisory firms will be to recognize the top disruptors driven by new investors that have weaved their way into the expectations and desires for experienced investors and HNWIs. Anticipating these demands to deliver personalized, intelligent, and in-depth client solutions will allow top firms to capitalize on the best that this disruption has to offer.
