Recent research from Broadridge* predicts the compound annual growth rate in the global Wealth Management industry will more than halve from 3.9% (2012-21) to 1.7% (2022 -3). It could, of course, be even lower if macros worsen. And the predicted shift of net new money to Asia Pacific (mainly China) from Europe/US is similarly striking – APAC is predicted to increase its share of new global flows to 46% 2022-31 from around 26% over the next 10 years. And whilst the pie is still growing, the fact that some 64% of the equivalent growth since 2016 was through fewer than 100 Wealth Management firms globally, suggests that the next decade will be highly competitive amongst incumbents and new faces alike.
Rise in Retail and Private Markets
More than two-thirds of these new funds (69%) are forecast to come from retail investors and be channelled into private markets (the 16% of private markets flows of 2011-2021 could double to 32% by 2031). So the more institutional sources, ‘mainstream’ asset classes and historically strong recipients look set to be treading water in relative terms over the coming years.
And it’s a pattern we recognise. We’re seeing a marked increase in initiatives from clients towards mass retail investors and support for their closest intermediaries: generalist financial advisers. More private markets projects have come through the door in the last year than in any of the previous 10. One or two of those last examples have involved targeting the more direct retail channel, too. Double whammy.
Spiralling end investor risk
Where private markets meet retail investors, we can expect debate. There has been a small flourish of PE platforms opening up to the more affluent of the retail segment – and whilst it is possible to transact ‘direct’ on some, they are more geared to facilitating Wealth Managers in onboarding their more investment-savvy, risk-sophisticated clients. And that’s the point, isn’t it? When less experienced retail investors are led, or stray, off piste into private markets, the risk factor, along with navigation and visibility, becomes a lot more pointy.
Contained between responsible, authorised advisors, regulated platforms and investors with sufficient understanding and capacity, this can all work fine. But switch-out these ingredients for friends and family, finfluencers, trading platforms and overconfident but inexperienced investors with limited capital – and we have a potential car crash.
We’ve unearthed data supporting this pattern. Our annual study, The Investor Index,1 shows increasing propensity for the younger, newer generation of saver/investor/punter to pass up the traditional advice channels, mainstream funds and familiar products of the industry. According to the 2022 study, 69% of younger investors (18-34) are making investment decisions based on the financial influencers they follow online. Wider sources show it’s not only a trend in the UK but in Europe and the US, too.
What’s to be done?
With shrinking flow growth, regional diversion and a shift to alternative, often new and disruptive asset classes, the warning signs to providers and distributors of the ‘mainstream’ industry should be clear. The principles of what needs to be done about them are also clear – providers and advisers need a stronger and more inclusive voice – and tomorrow’s investors need educating earlier.
Collective long-term action
How this is achieved, however, is less obvious. At an industry level, it would be good to see regulatory change allowing adviser qualifications to embrace investment strategies beyond ‘normal’ offers, such as more esoteric alts. At another level, more wealth management firms investing in genuine training and professional career opportunities for younger blood would be good to see. How about AMs contributing to an industry-wide campaign promoting the value of advice for securing the next generation of investors’ financial future? And funding more concerted investment education in schools?
New tech and data-fuelled differentiation
In the meantime, what can providers and advisers do to capitalise on these wider, shape-and-rate of growth forecasts? The Broadridge report argues that investment performance is no longer enough for winning market share. It proposes four routes to a new differentiation. Three of these are indeed newer, tech and data-enabled routes to sales success: Faster product innovation. Stronger distribution. More flexible delivery and access for end-investors.
Better brand building
The fourth is distinctly more familiar but still (with clear and notable exceptions) undervalued by the Asset Management industry at large – Better brand building. As the report says, “A competitive brand will set asset managers apart against the noise of new product capabilities and products, striking a balance between regional norms and global positioning.” There is copious data to evidence the contribution that strong brands make to commercial success, in all sectors and channels, Asset Management and B2B included.
If trust remains key in winning and maintaining engagement with investors – not to mention attracting and retaining the best talent – then brand perceptions must be positive and strong. It’s also vital that quality, authenticity and behaviours reflect them. To that end, there’s also growing evidence that being ‘present’ in bad times as well as good, pays off when markets improve.
Follow your (trained) instincts
Beyond that, it’s the usual mantra in times of turbulence – play what’s in front of you. We can build the best game plans based on our smartest forecasts for what’s coming. But until we’re out there and it’s kicking off, we can’t know how best to respond. Instinct, for better or worse, takes over. For private investors, the more that instinct is grounded in experience and understanding, the more likely it is to be for the better.
If Wealth and Asset Managers don’t want their fortunes to ‘go with the flow’ in the next 10 years, those who’ve not made decisions around tech, data and brand need to make them very soon.
* ‘Fierce competition ahead…’ – Broadridge, 11th October 2022
1 2020-2022 The Investor Index by AML in partnership with The Nursery, among investors with £10,000+ invested.
Head of Strategy.
As featured in Global Banking & Finance Review.