10 Game-changing Wealth Management Trends in 2020
Aside from investment risk-return, there are 10 trends in 2020 which affect investors and the wealth management industry.
1. GEOPOLITICAL UNCERTAINTY
2020 has been a tumultuous year. On 31 January, we had Brexit which adversely affected the EU and caused internal political friction. Next, political tension between the US and China escalated with America imposing trade sanctions on multiple countries.
In March, the Covid-19 pandemic struck, throwing global economies off tangent and forcing worldwide lockdowns on cross-border activities, causing devastating impacts across many industries. All eyes will be on the upcoming U.S.presidential elections on 3rd November, where analysts are bracing themselves for impending market volatility
2. GLOBALISATION OF INVESTMENT OPTIONS
Geographical borders have all but disappeared due to globalisation and improvements in technology, making investment options available to anyone, anywhere. The distribution of funds has been redrawn to allow regional and global platforms to dominate.
By 2020, the main regional fund distribution channels in the U.S, Europe and Asia will have regulations to better align interests with end customers. Similar regulations on fee models to be applied to Asia and all major markets would ease the movement of funds across borders and oceans.
3. CHANGING INVESTOR DEMOGRAPHICS
ESG conscious investors
ESG (environmental, social and corporate governance) centric investments have proliferated over the decade, which can be attributed to the rising numbers of professional female investors and wealth managers.
According to a publication by the Boston Consulting Group, a third of the world’s wealth is under women’s control. Each year, female investors add $5 trillion to the wealth pool globally, outpacing the growth of the wealth market overall, and this share is likely to grow.
Research as shown in the BCG Global Wealth 2019 Market Sizing Database, suggests that Asia (exclusive of Japan) will be the fastest-growing hub of wealth creation for women. Asian high-net-worth women have the 3rd highest share of wealth in the world.
They are changing the moral compass of funds, favouring investments which demonstrate environmental, social and corporate governance (ESG) values. Female investors are more likely than men to invest based on values focussed on creating a positive impact, rather than just performance.
As explained by the CEO of Ellevate Network, Kristy Wallace, women tend to be more community centric than men. Apart from leaving a legacy for the next generation, supporting a post-retirement lifestyle and endowing a family business, they are motivated to also develop communities by investing in education, health care and the planet.
Consequently, this has led to the development of new tools and offerings by asset managers to provide investment opportunities in sustainable investments. ESG support is also strong among new age millionaires, especially the millenials.
New age millionaires
By ‘new age’ we mean investors with new thinking patterns, standards and expectations. New age millionaires span across all ages from millennials to baby boomers (who have been influenced by their younger peers). Millennials are becoming a force to be reckoned with in the wealth management industry.
A study was conducted by HSBC Private Banking and Scorpio Partnership on 3,725 millennial business owners across 11 countries, including 270 Singaporeans. Each millennial polled had an average wealth of US$2.52 million.
The latest data showed that 76% considered ESG concerns as important in their planning when millenials set up their business. These young investors also prefer to diversify their investments instead of putting all their eggs in the same basket. About 63% have already been active shareholders in multiple entrepreneurial ventures.
Millenials are known to be tech-savvy but the other generations of new-agers are not far behind either. As a result, they expect to be able to access advice anywhere and at any time through multiple channels and devices. They prefer more control over their financial lives and understand the advice they receive.
New-agers prefer to believe in themselves and their immediate circle of influence, rather than just taking the word of wealth managers. They will not hesitate to seek multiple sources of advice simultaneously.
Newly minted Singaporean millionaires want to have the widest options possible so they won’t restrict themselves to the investment products and strategies offered only by private banks or traditional fund houses. This forces wealth management (WM) firms to think of new ways to give them access to alternative investments and new asset classes.
4. AGING AND RETIREMENT PLANNING
Singapore is an aging population which makes retirement planning more crucial to both investors and advisors as time passes. With longer life expectancies, some clients may worry about outliving their assets.
Retirement income must continue to support their current standard of living, cover the rising cost of medical care, overcome inflation as well as weather any potential black swan events. The geopolitical instability and Covid-19 pandemic throughout 2020 have evidently demonstrated how uncertainty can throw a portfolio off course.
Wealth managers and financial advisors alike face a complex task of predicting all possible factors that could affect portfolio returns. An error in any one of these assumptions or by being overly exposed to highly correlated asset classes could significantly affect a client’s retirement portfolio.
5. USE OF ANALYTICS & BIG DATA
Big data analytics provides a competitive advantage for businesses where enormous data volumes can be processed at great speed. Even some corporations in Financial Services and Wealth Management sectors have either adopted its use as part of their operations, as a product or as a service.
Consequently, big data and analytics have become new service and product industries with great potential, creating a whole niche of businesses for funds to invest in.
What is trending in Big Data?
New concepts are being born and the merger of computer technologies have become prevalent as data volumes continue to grow larger in 2020. Examples include the combination of blockchain with the Internet of Things (IoT) and real-time machine learning analytics with voice responses.
The continuing use of big data will impact the way organizations perceive and use business intelligence. One such example is the increasing popularity of hybrid cloud solutions and multi-cloud strategies.
To date, the WM industry has identified only some of the benefits that these new analytical capabilities could unleash. Nearly all core management processes could be deeply affected and made significantly more efficient and effective.
Leading WM firms are now investing in building more advanced analytics and data management capabilities. Most, however, still use fairly simple analytics based on MIS and reporting systems to deliver key business insights around client segments, advisor books and products.
More progressive WM firms have developed their own brand of algorithmic analytics which support investment decisions in real time. Yet not all WM firms will invest sufficiently to develop these new capabilities, as such projects require deep pockets and expertise.
Those which do not only create a potential competitive advantage for their firms but offer better products and solutions to their clients will benefit all stakeholders – advisors, management teams, clients and regulators.
Salzworth foresaw this trend which was predicted and reported by Deloitte in 2015. That is why Salzworth’s FX Team invested in the creation of its proprietary algorithmic trading software a decade ago. It is now being run for one of its funds called the Salzworth Global Currency Fund.
6. MIGRATION TOWARDS AUTOMATED INVESTMENTS
Robo-advisors such as Endowus, Syfe, StashAway and Kristal. Artificial Intelligence has grown in popularity over the years and gained traction in the marketplace with still room to grow in Singapore and Asia.
Not to be confused with Artificial Intelligence, robo-advisors function as automated asset allocators where they charge a fee to allocate investors’ funds into pre-defined allocations according to their risk profile determined by a questionnaire.
Investors who are tech-savvy, especially the millenials, have more confidence in the use of automated investment tools than their older counterparts. Akin to autonomous versions of algorithmic trading platforms, some firms deem robo-advisors as market disruptors as they threaten to make human intervention obsolete.
Although it is unlikely for robo-advisors to dis-intermediate human financial advisors at this point, this AI tool will likely be used more extensively as generational demographics move towards millenials and away from the Gen X or baby boomers.
7. GROWING FINTECH INFLUENCE
The financial services (FS) industry, and the technology, media and telecommunications (TMT) industries used to be very much separate from each other in the past. Now the lines are being blurred as Financial Technology (Fintech) transforms them.
According to the Global Fintech Report 2019 by PwC, 48% of FS firms have embedded fintech fully into their strategic operating model. 44% of TMT and 37% of FS organisations have incorporated emerging technologies into the products and services they sell.
The merging of FS and TMT industries provide for better operational efficiency, lower costs, improved customer experience and more appeal of their products and services. It also carves out new commercial possibilities such as digital-only banks and fully customised robo-advice.
According to the report, consumers are currently ready for this digital trend disruption. The question is no longer whether fintech will transform FS, but whether the firms will apply to emerge as leaders. Those which do not may run the risk of being left behind.
The same goes without saying for WM firms which disregard fintech as part of their investment portfolios. A variety of investment fund types are now available in Singapore because of the Fintech industry. To name a few: AI funds, quant funds, algo funds, crypto currency fund, utility token fund, tokenized securities fund and tokenized fund.
8. HIGHER ALLOCATION FOR ALTERNATIVES
Alternative asset classes and investment funds have become more mainstream now where passive assets form the core and ETFs proliferate. Galvanised by the democratisation and globalisation of investment options, this extremely broad asset class has become even more vast now, offering investors a sea of options to diversify their portfolio. In some parts of the world, alternatives may move into the mainstream so much so that it may no longer be deemed “alternative”.
9. THE 3 LOWS AND 2 HIGHS
The 2008 financial crisis changed the environment for wealth managers and investors in several ways. Although the global economic situation managed to recover over the next decade, recent events in 2019 and 2020 as mentioned in Section 1 on Geopolitical Uncertainty have introduced new headwinds and caused further market uncertainty Investors are now plagued by three lows and two highs:
- Low interest rates make it challenging for investors to generate returns on their deposits and other short-duration investments
- Low inflation rates for the foreseeable future (with deflationary risk) have forced investors to rethink past assumptions about financial and real assets appreciation
- Low rates of economic growth around the world make it more challenging to find satisfactory returns without taking on extraordinary risk
- High volatility across financial markets has altered investment strategies of going long only
- High levels of financial leverage by individual investors and pressure to de-lever personal balance sheets will force many to scale down their bets
This climate of uncertainty and complexity has given rise to sophisticated research and modeling capabilities, new product offerings and new investment strategies that would perform well in a deflationary environment or protect client portfolios. Hedging and risk management will be at a premium with capital markets capabilities including FX and interest rate swaps.
10. INCREASED COMPLIANCE AND RISKS
The unfortunate 1MDB incident has caused compliance requirements to be heightened on a global scale, more so in some countries than others. It has also resulted in WM businesses of several global banks attracting significant regulatory action and monitoring from the US government.
This experience highlights the risks that WM firms must manage – not just financial but reputational risks. The cost of these risks is especially high for HNW businesses such as private banks and their parent companies because of the breadth of their product offerings and sensitive nature.
We expect these trends to drive a further increase in the intensity of competition across most WM markets and client segments. Investors across all wealth tiers have never had as many options as they do today. Their Catch-22 is having to choose the right ones to form a customised portfolio, and that is where an asset management firm like Salzworth can assist.
Co-Founder, Chief Executive Officer
Haruhito was the Executive Director of Marcuard Heritage Singapore Pte Ltd, a Swiss multi family office. He was instrumental in building up their European and Asian clientele base which comprised of a global network of asset managers, distribution partners, and legal & tax specialists. Prior to that, he held various positions for 10 years in Deutsche Bank where he gained extensive experience in various Asian markets.
Haruhito has been accredited as a Trust and Estate Practitioner (TEP) by STEP, and as a Financial Industry Certified Professional (FICP) by Singapore’s Institute of Banking and Finance. His vision for Salzworth is to steer it to establish multi-asset class portfolios and funds that seek to achieve steady returns for investors.