Francis Menassa, JAR Capital: Wealth 2.0 - will technology overhaul the wealth management industry

No industry is immune to disruption and technology has already had a large impact on the wealth management industry. This is quite clear from the rapid growth of ‘robo-advisers’ in recent years, as well as the rise of new digital communication channels that now play an important role within the industry.

However, within wealth management, technology is unlikely to replace humans completely as trust is paramount. Ultimately, wealth management is all about people – no algorithm can replace face-to-face communication.

Demographic shifts

There is no doubt that wealth managers today are facing changes. The combination of more competition from FinTech players, more stringent regulatory rules, ultra-low interest rates, and a greater focus on socially responsible investing (SRI) is creating challenges for traditional wealth managers.

However, the single biggest shift I am seeing at present is actually related to demographics; we are on the cusp of the biggest wealth transfer in history. Indeed, according to research by Cerulli Associates, nearly $70 trillion in wealth will be transferred to younger generations and charity in the US alone over the course of the next 25 years. According to CBInsights, Millennials will control $20 trillion of assets globally by 2030, while baby boomers across North America will pass down another $30 trillion by 2050.

This generational shift in wealth is likely to impact the wealth management industry significantly over the next 25 years, since the younger generation’s approach to wealth management is very different to that of older investors. Having grown up with digital technology, Millennials are hyperconnected, and as a result, they demand more communication and transparency from wealth managers, expecting them to be available at all times. They also do things very differently to the older generation. For example, while older clients often communicate by telephone and want everything written down on paper, their children communicate via WhatsApp and use cloud storage.

The growth of robo-advisors

In addition, the Millennials live in a very competitive economic landscape, and this means that they are more price-sensitive than their elders. This has significant implications for the wealth management industry; Deloitte estimates that by 2025, over $16.0 trillion of assets could be managed with the support of robo-advisory services.

This is one area where wealth management is likely to see substantial change as the development of digital analytics is likely to transform the sector in the years ahead. For example, real-time information can now be collected from a variety of sources and platforms, and then analysed to continually and automatically rebalance portfolios. Artificial Intelligence (AI) can also be of great assistance in risk management, as it can automate data analysis, and reduce the administrative burden, allowing humans to focus on higher value-add activities. While robo-advisory technology is still in its early days, a 2017 survey by EY and Finantix found that 71 percent of wealth managers believe that clients are ready to take advice from robo-advisors.

The importance of a client-centric approach

However, do not expect younger clients to relinquish traditional forms of communication such as face-to-face meetings. According to research by Deloitte, 82 percent of younger clients say that they would appreciate more personal meetings with their investment advisers, which suggests that technology is not a substitute for personal interactions.

Another key feature of the Millennial generation is that they are very serious about ethics. According to research from Deloitte, 75 percent of Millennials refuse to compromise family or personal values and want to remain ‘authentic.’ Moreover, nearly 70% of this generation feel obliged to have a positive impact on the world, which suggests that SRI has a bright future ahead. Wealth managers can add value to the investment process here.

Another positive development for wealth managers is that the number of high-net-worth individuals is likely to increase substantially in the years ahead. According to EY’s 2018 Wealth Management Outlook, the global wealth of high-net-worth individuals will increase to around $70 trillion by 2021, driven by wealth expansion across the US, China, Russia, Brazil and India.

As wealth is redistributed in the years ahead and passed on to younger generations, there will be many opportunities for the wealth management industry. Technology will undoubtedly play a role. However, technology is just one part of the overall picture. Human interaction is likely to remain a fundamental aspect of the industry.

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JAR Capital is an investment management company that offers wealth and asset management, direct investment, and advisory services for enterprises in the United Kingdom, Switzerland, and Gibraltar. The company has three international offices: JAR Capital Limited (UK), JAR Geneva SA (Switzerland), and JAR (Gibraltar) Limited. JAR Capital was founded by entrepreneur Francis Menassa in 2014 with headquarters in London, UK.

This release was published on openPR.