The Future Of Wealth Management
The wealth management industry has evolved a great deal over the years. Every time someone has predicted its demise, the industry has reinvented itself and emerged with different ways of serving investors. When commissions were deregulated on May 1, 1975, the industry responded by introducing wrap-fee accounts and shifting toward advisory fees to better align with client interests. When the industry noticed that separately managed accounts had limitations and that advisors found it difficult to get client permission for every trade, the industry introduced discretionary programs that provided scale and efficiency in executing orders across multiple accounts without requiring permission. When the industry noticed that advisors were struggling to integrate multiple wrap accounts, it invented unified managed accounts to capture family holdings more efficiently in a single account.
How will the industry respond to the new set of challenges? A few ways in which the industry may change over the next 10 years include the following:
- Wealth management division spin-offs
- Scale and efficiency at a premium
- All firms offering commission-free trading
- Use of artificial intelligence to target services
It Enables Responsible Investments
ESG investments have become a mainstream strategy and most investment managers have adjusted their investment portfolios accordingly.
ESG investments are playing an increasingly important role in shaping society, which means that the risks and opportunities of investment portfolios that include ESG investments need to be addressed as effectively as possible in the years and decades to come.
From a platform perspective, this means that it is able to retrieve and use ESG analysis data and integrate responsible investments into investment analysis.
In addition, it stands out by providing new and innovative ESG products via these in-house analyses and methodologies. It also provides legible performance indicators, especially in terms of sustainability.
It Uses Blockchain Solutions
Blockchain has the potential to revolutionize the way assets are transferred. The technology allows for end-to-end tracking and verification of all asset movements between parties in a transparent and quantifiable manner.
Managing assets on a Blockchain network helps to resolve disputes and data discrepancies more promptly. The technologys consensual nature means that updates to asset records cannot take place without the agreement of all the parties involved.
The shared Blockchain ledger lays the foundation for transparent, auditable, and reliable business processes, and it is clear that investment management technology platforms use of Blockchain solutions will grow over time.
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Helping To Speed Up Your Connected Journey
The approach is centered on striving to improve the eight connected capabilities across the wealth management enterprise to the level that can provide the greatest value. These connected capabilities map to your organizationâs operating model and can allow you to prioritize, shape and execute your digital transformation. Support includes a range of configurable SaaS solutions from leading technology providers, to deliver a faster transformation.
In Short: Welcome To Investment Management 40
The latest generation of investment management platforms is better equipped to meet the changing needs of investment managers throughout the value chain, and there has never been a better time to leverage this technology to stay competitive through low risk, high profitability, and improved client service.
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Globalization & New Alternative Investment Types
Alternative investments is an ever-evolving industry, and opportunities emerge regularly. The industry is expected to see new opportunities for international investment as well as new types of alternatives to invest in.
Harvard Business School Professor Randolph Cohen, one of three faculty who teaches the online course Alternative Investments, describes in a recent webinarhow new opportunities in the field cause new strategies to emerge, which are eventually accounted for by the market. His advice? Keep looking for emerging opportunities and ways to use old strategies.
Each new market that opens up not only is a place that enables you to look for opportunities, Cohen says, but some of the specific strategies that worked in developed or older markets will work for a while in new markets until theres enough competition from sophisticated funds to drive those out.
The alternative investments industry took root in the United States in 1852 with investments made into the building of the Transcontinental Railroad. In recent years, its branched out into an international market, creating new opportunities to use strategies that have already run their course in the United States. According to research firm Preqin, international alternative investments markets to keep an eye on include Southeast Asia, China, India, and Brazil.
The Future Of Alternative Investments
Looking ahead, the alternative investments industry has huge potential to continue growing but also shift in response to several timely stimuli, ranging from the all-encompassing to the seemingly unrelated . While investors must always be prepared for the unexpected, there are several factors that have already begun impacting the industry that wise investors should factor into future plans.
Heres an exploration of several stimuli expected to impact the alternative investments field in the near future.
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Embrace Open And Modular Architecture
One of the most striking changes compared to previous eras is that organizations today acknowledge that no one solution can serve all their data needs. The fact that so many are again focused on fundamental data capabilities – revisiting and reimagining data initiatives from previous eras – speaks to lessons learned from earlier system implementations. Anecdotally, many of our clients pursuing transformation initiatives today will cite vendor lock-in as one of the prevailing risks they want to avoid. Also, for many software and service providers, offering open and modular architecture that can easily integrate with third party products is becoming a norm. At BNY Mellon, this has been a key underpinning of our software, content and services offerings.
What Is The Internal Rate Of Return Used For
Companies take on various projects to increase their revenues or cut down costs. A great new business idea may require, for example, investing in the development of a new product.
In capital budgeting, senior leaders like to know the estimated return on such investments. The internal rate of return is one method that allows them to compare and rank projects based on their projected yield. The investment with the highest internal rate of return is usually preferred.
Internal Rate of Return is widely used in analyzing investments for private equity and venture capital, which involves multiple cash investments over the life of a business and a cash flow at the end through an IPO or sale of the business.
Thorough investment analysis requires an analyst to examine both the net present value and the internal rate of return, along with other indicators, such as the payback period, in order to select the right investment. Since its possible for a very small investment to have a very high rate of return, investors and managers sometimes choose a lower percentage return but higher absolute dollar value opportunity.
Also, its important to have a good understanding of your own risk tolerance, a companys investment needs, risk aversion, and other available options.
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What Are Some Business Models That Might Succeed
- Control the last mile
The media/digital media/advertising industry provides an interesting parallel to look at the transformation of investment management. Like all analogies its not perfect, but an interesting starting point as a thought experiment.
The last mile:
Businesses that have the last mile connection to the client will continue to be valuable. However, composition of providers of that connection may change. In the case of media, from cable providers, the last mile is now increasingly provided by Netflix, Hulu, Amazon, You Tube, etc.
In the case of investment management, there may be a similar shift from the traditional incumbents such as wirehouses or investment consultants to new businesses. In the retail space for example, innovators are building new last mile connections in the 401k and financial advisory space. On the institutional side, advisors that provide insightful portfolio solutions may be preferred by investors over traditional manager selection consultants or large asset managers that offer products without insights.
Content
A lowering of the barrier to entry means that a traditional active management fund house with a large brand and distribution, but poor content is likely to lose out to insightful solutions providers .
This type of transformation is especially likely in the more complacent areas of asset management, such as 401k services or pension solutions.
Scale
Do it yourself
Future Business Models: Three Ways To Play
Todayâs diverse, highly fragmented market is likely to converge into three distinct business models. The B2C and B2B wealth ecosystem is expected to continue to grow while unlocking innovative new services, integrating digital and human capabilities to offer targeted, self-service products and personalized investment advice.
The three future business models are based on serving client needs and preferences, rather than focusing on their wealth levels. Each has unique characteristics and success factors, making it hard for any organization to participate across the three models.
The financial well-being provider
This high-volume and mass-market/affluent model offers convenient, seamless, digital-first customer engagement and âlow-cost, high-valueâ products and services. Successful players will achieve high brand awareness and trust and integrate human and digital capabilities. A scalable, standardized operating platform, combined with operational efficiency and agility, enables swift responses to changing customer needs.
The domestic wealth manager
These firms target 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. Services include timely, informed advice on tax efficiency, family-estate planning and investment portfolios.
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Investment Managements Technology Platform Of The Future
There has never been a better time for investment managers to make strategic technology commitments. Research by Deloitte University shows that investment leaders who invest significantly in technology achieve higher levels of growth and profitability.
Since technology is a major factor in business performance, what criteria should investment managers consider when choosing their investment management platform?
Read on to find out what your future investment management technology platform should look like.
Scale And Efficiency Are At A Premium
The wealth management industry will continue to face fee compression, and successful firms will need to seek scale and efficiency to survive the next 10 years. Squeezed margins mean that wealth management firms will need to change their coverage models, with smaller accounts migrating to automated advice solutions and advisor teams serving larger, more complex relationships. Advisors emphasize capturing a larger slice of the wealth pie to augment falling fees.
Wealth advisors and their offices are the biggest cost components, so firms will disintermediate advisors wherever possible, jettisoning smaller ac-counts to a service center model. Firms will cut operations and administrative support to rein in costs and leverage technology to replace human interactions where they can.
Of course, the trade-off may involve losing wealth advisors to an RIA model and disenfranchising investors who migrate to the lowest-cost solution. The search for efficiency has been underway for the past several years, and growing the client base while shrinking the cost structure will continue to
be a difficult balancing act. Some firms will be able to take market share others may be consolidated into other firms.
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The Rise Of Alternative Investments
The alternative investments industry has grown in popularity and accessibility for the last decade and a half, largely spurred by the global economic downturn in 2008.
When the public markets crashed, individuals who had previously heavily relied on traditional investments saw the value of their investments plummet, leading many to look into the world of alternatives. Alternatives tend to have a low correlation with traditional assets, meaning they trend in opposite directions. This makes them wise additions to the portfolios of investors who are looking to diversify, spread out risk, and increase returns.
After the recession, three trends emerged:
- A shift from indirect investing to direct investing
- A shift of companies from public to private
- A shift from active investing to passive investing
As a new wave of investors entered the alternative investments space, investors increasingly opted for direct rather than indirect investing. This may have been due to the increased sense of control over investments that comes with direct investing.
Additionally, a wave of public companies went private after the recession, perhaps to restructure and rebuild before going public again. This shifted investment opportunities into the private market, making alternatives an attractive option for many who hadnt considered them before.
These three trends continue to persist and set the stage for the industrys future.
Using Technology To Re
Internally, money managers are investing in artificial intelligence and big data capabilities as well as a more seamless integration of front and back-office processes. Externally, leaders are building mobile and tablet apps and expanding their use of social media.
In the future, innovative models, especially in the retail space, will integrate investing with elements of social media, interactive gaming and education. For institutional investors, technology will enable more proactive, fully customizable risk management and governance. Firms like D.E. Shaw, Two Sigma and Renaissance Technologies have validated this quant model in the public markets. We now see firms like Versatile VC, Signalfire and GV using technology to produce better returns in the private markets.
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What Are Alternative Investments
Alternative investments are any investments besides stocks, bonds, and cash, which are considered traditional investments. While this asset class comprises various investment typeseach with its own investment process, risk profile, and potential rewardsthere are a few characteristics most alternatives share. They are:
- Relatively illiquid, or not easily sold or converted into cash due to their long time horizons and the sheer difficulty of selling the assets
- Unregulated by the United States Securities and Exchange Commission
Some of the most popular types of alternative investments include:
- Structured products
Options for investing in alternatives include direct investing, in which the investor invests capital into an asset themselves, or indirect investing, in which the investor goes through an intermediarysuch as a private equity firm or real estate investment trust that pools multiple investors capital and invests on their behalf.
What Are The Catalysts For Change
- Positive impact of regulation: Regulations such as the US Department of Labors proposed Fiduciary rule are increasing scrutiny of investment practices and calling for greater transparency. Over time, this should increase investor awareness and call for better practices
- Exodus of talent: Bogged down by inefficient processes, deleveraging and disappearance of alpha, talented individuals from large banks and asset managers are questioning the old way and trying to develop or participate in new business models.
- Impact of technology on information and distribution:
Information: Broader and more uniform access to the same investment ideas and information reduces the edge that traditional asset managers had in terms of information advantage. It is also becoming easier for investors and advisors to compare a particular fund manager or strategy with other potentially better alternatives.
Distribution: Robo advisors have created a new benchmark in client interface and digital marketing at the retail level. They have opened up a new direct line of communication with the end investor, and defined a new set of expectations in the mind of the investor.
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Staying Ahead In Today’s Market
For today’s investor it’s all about gaining access and staying ahead of the competition by being better, faster, and smarter and technology is an undeniable component of that. From the explosion of data to advances in artificial intelligence and quantitative strategies how are today’s investors evolving with the digital landscape? What’s the right mix of new versus traditional strategies and research? Are the concerns about technology causing instability and volatility overblown? We’ll gather leaders in the space to look out on the horizon to better understand how investors and the industry are evolving.
Speaker
Sustainability: The Future Of Investing
Sustainable investing was once viewed as a trade-off between value and values. Yet today, its something investors can no longer afford to ignore. What has changed? More granular data, more sophisticated analysis and shifting societal understanding of sustainability as well as growing awareness that certain factors often characterized as environmental, social and governance, or ESG can be tied to a companys long-term growth potential.
BlackRock is increasing its focus on sustainability across the board from our investment processes to the investment solutions we offer. There is growing recognition that the field presents a largely untapped source of information that can potentially identify investment risks and generate excess returns. At the same time, the data are imperfect, scoring methodologies differ, and investors need to gain greater clarity on the pitfalls of this emerging field.
We discuss three key themes driving transformation in sustainable investing: the aim to create sustainable portfolios and strategies that do not compromise financial returns the effort to use innovative research to go beyond headline ESG scores and the integration of sustainability-related issues into traditional investment strategies. Our work fuels our conviction that the future of investing is sustainable.
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Themes That Will Define The Future Of Asset And Wealth Management
J. Pierpont Morgan would be proud that many of the historical tenets of the asset- and wealth-management industry still form the bedrock of how money is managed in modern times. J.P. Morgans first investment fund was started in the late 1800s to serve British financiers wishing to invest in the emerging United States of America. The funds 150-year track record is a testament to our industrys founding principle: While the world may change, clients desire for investment expertise and personalized service wont.
With that in mind, here are 10 key themes that we look forward to helping our clients navigate in the future.
1) Price. Ever since I entered the asset-management industry, skeptics have warned that fee pressure will destroy profitability and detract top talent from the profession. Fees in every industry compress at some point. Successful firms of the future will thrive by either providing commodity-like products at scale for near-zero cost, or delivering hard-to-access insights and exposures that command a premium. Our industry must strive for continuous improvement on both ends of the spectrum.
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In coming years, the industrys winners will remain obsessed about their fiduciary responsibilities. As stewards of capital, the ability to leverage technology and scale to deliver the same extraordinary experience for every investor, with $100 or $100 million, is now within reach.
