Redefining Private Wealth Management Amidst Future Uncertainty

Wealth management has been on a significant transformation path in the last two decades prior to 2020, and the reason is not farfetched. Massive adoption of technology has provided opportunities for unlimited wealth creation for clients and wealth managers. For instance, total assets of the North American wealth industry rose from $13trillion in 2000 to $19trillion in 2010 and over $30.5trillion in 2018 (data source: Mckinsey). This exponential growth hit a snag in 2020 due to the impact of COVID-19 on income and wealth creation, economic and business structure, and investors’ confidence, just to mention a few.

The pandemic has clearly redefined how stakeholders (high net worth individuals and private wealth managers) within the value chain of private wealth management see value creation in both the medium and long term. One noticeable event resulting from the global health crisis was the surge in system liquidity, mostly in advanced economies, following the fiscal and monetary support to contain the spread of the virus. Despite the fact that this effort was intended to alleviate concerns about an economic downturn affecting household savings patterns, some skepticism emerged. However, the sustained support has now achieved its intended objectives, as evident by the surge in prices of risky financial assets ranging from cryptocurrencies to stocks.

But the resurgence of the pandemic and renewed restrictions in some countries are creating a nostalgic thought that a near 2020 event could repeat itself.

Inclusiveness and scalability are at the crux of service delivery

From the private wealth management perspective, while the retention of assets is very critical in periods of heightened uncertainties, attendant effort should also be given to ensure a dynamic approach in managing clients’ investments, financial planning, tax planning, and estate planning. Undoubtedly, the fatalities from the pandemic have severally impaired and impacted financial planning, bringing to the fore the importance of comprehensive estate planning and an unfettered process of wealth transfer. Hence, wealth managers would begin to pay greater attention to financial products and services that help their clients seamlessly transfer their wealth by consistently educating clients on transferable wealth (businesses and other assets), how to ensure wealth transfer reflects their desires and sustainable tax planning, especially for aged clients.

On the back of this exemplar shift is the adoption of technology. Clients will look out for wealth managers that can efficiently provide highly personalized services across a wide range of services.

In addition to providing scalable services, inclusivity is even more important. Private wealth managers must aggressively integrate services that cater to the needs of women, minorities, Generation X and millennials. Put differently, a deep understanding of the shift in demography, their behavior, preferences, and appetite must be dynamically assessed to remain at the forefront of the increasing competition in this space.

A synthesis of human wealth and technology

The resulting structural unemployment would not spare many private wealth managers who have keenly focused on traditional wealth management, which involves the mundane process of determining an optimum portfolio. For wealth managers, the new language would be data-driven solutions, deep learning, and artificial intelligence, which would definitely help to gain cutting-edge insights from both structured and unstructured datasets.

Interestingly, Lufax, a Chinese-based peer-to-peer financial service provider, is already positioned for this impending transition. The company has leveraged deep learning and data analytics to provide over 5,000 personalized and scalable investment products and services to its clients through mobile apps. In 2019, Lufax launched a predictive model that partly addresses the hurdles to knowing clients’ intentions and was also awarded by the Cyberspace Administration of China with five blockchain services. Its success story is clearly not unconnected to the adoption of digital solutions.

Ultimately, wealth managers need to think and function like tech firms where customer behavior analysis is granular and real-time without compromising the need to keep operating costs extremely low and competitive. This will not only help to attract and retain clients, but also provide some respite for shareholders that are worried about the prospect of the business and the value of its strategies.