Five Shifts that Define the Future of Wealth Management

Five massive foundational shifts are impacting financial service providers of all types, and they are impacting those that serve affluent clients in especially unique ways. 

According to a study by KPMG conducted in June 2012, 9 out of 10 banks are considering a serious overhaul of their strategy, and 40% say that wealth management and asset management will be an important part of their strategy going forward. But many of the strategies, skills and behaviors that enabled success in the past are now ineffective at best, and completely irrelevant in some cases.

An entire generation of wealth management advisors and leaders spent most of their careers in an era primarily focused on the accumulation of wealth for clients, and the accumulation of clients by firms. There were cyclical adjustment to be sure, but for most of the period from 1982 to 2008, advisors largely served 76 million Baby Boomers through in an era of increasing deregulation, falling interest rates, and a generally healthy stock market.

Managing through this next era is likely to look quite a bit different, starting with economic shifts. The global financial crisis begun in 2008 is still having a long-term impact on the creation, growth and preservation of wealth. Today's advisors have to be able to help their clients navigate the realities of the new economy, especially as swells of Baby Boomer retire and seek more stable returns. Firms too, will have to contend with a low yield environment for some time, and will not be able to count on rising portfolio values to increase revenues.

Demographic changes will also have a major impact. A projected $41 Trillion of financial wealth will be passing down from the Traditionalist and Baby Boomer generations to their Generation X and Generation Y children and grandchildren over the next several years. This is a huge threat for those advisors and firms who don't adapt to the differences in the generations. And it is a massive opportunity for those that do.

This new era is already being impacted by a shift to reregulation. Central banks and regulators all over the world are in the process of redefining the rules and regulations that today's financial advisors will likely have to live by for the rest of their careers. Some revenue streams of the past have been curtailed or eliminated. According to the law firm Davis Polk, the 848-page Dodd-Frank bill has produced 8,843 pages of new rules so far, and the process is barely one-third complete.

The competitive landscape will also continue to shift. Consolidation will continue, and likely accelerate, and it is more important than ever for banks to differentiate themselves in ways that are really relevant to customers. Simply being “the bank” of “yourtown” is no longer enough. At the same time, competition from non-banks will continue ramp up to threaten nearly every source of revenue.

Finally technological shifts will partially pose threats in the form of fast moving bank and non-bank competitors, but will also offer an opportunity for banks and wealth advisors. The rapid adoption of the iPad and other tablets gives bankers the opportunity to change the dynamics of the across-the-desk transaction into the shoulder-to-shoulder collaboration that really engages the client. Big data and analytics give firms the power to understand client behaviors and preferences better than ever, and social media opens up whole new avenues of client contact (though a round of more intense rulemaking is commencing).

Banks serving affluent clients will have to adapt to these new realities to be successful in this new era. The future will not look much like the past.