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A review of long-term wealth trends and digitisation

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This is a sponsored article from SS&C Advent.

As we near the end of 2022, the wealth management industry is in the middle of its biggest transformation in recent decades. This period of economic uncertainty brings with it a set of new realities. The wealth sector is becoming more digitalised to support intergenerational wealth transfer, ESG, and an increased appetite for alternative investments. All while learning to operate in the post-COVID-19 pandemic environment.

In a highly competitive industry where fees are shrinking while clients are becoming more demanding, profitability hinges on the ability to bring costs down while growing and operating at scale. The only way to achieve this is by investing in a strong technological base.

Let us use a common investment theme to illustrate the importance of technology for success in the industry—environmental, social, and corporate governance (ESG) investing. As more wealth created by one generation in Asia is being transferred to the next generation, there has been a surge of interest by younger Asians in ESG investing.

However, wealth managers cannot adequately support an ESG-based product and cater to individual clients’ specific needs without an efficient digital operating model incorporating ESG data. The model will depend on the level of maturity of the market invested in. Unsurprisingly, highly digitalised economies are more likely to provide the required levels of ESG information and will thus be in the best position to inform ESG strategies. At SS&C, we strongly believe technology plays a critical role in the success of ESG investing and delivering a better customer experience.

The aforementioned economic uncertainty and the volatility in equity markets have made achieving a return for clients more challenging, which has led to the active management of alternatives becoming more common in client portfolios. In other words, wealth managers are considering alternative asset classes to preserve and grow client wealth.

Since the retail side of the market does not possess the capacity or expertise to invest directly in the private markets, the only way to offer that asset-class coverage is through funds. We, therefore, expect significant growth in the range of funds focusing on private markets, funds of hedge funds and derivative products. On the other hand, the top end of the market — family offices (FOs) and UHNWIs — can directly invest in private markets. Because FOs act a little more like asset managers, they have far more complex needs than the retail side.

The trends will majorly impact the technology wealth managers use, how they operate and the staff they employ. For example, private market investments on behalf of wealth clients will have to consider the client’s liquidity requirements. The complexity behind liquidity, cash flows and liabilities will need to be embedded in wealth managers’ operating models; it is no longer just about client returns, it is also about when those returns can actually be realised.

Perhaps the most holistic change in today’s wealth industry is the evolving profile of Asian clients as wealth is passed on to the next generation. Older investors tend to be more conservative and traditional in their demands, allowing wealth managers to use a standard operating model.

As wealth moves down the generations, younger clients are less concerned about having a strong relationship with their wealth manager, particularly at the top end. Instead, they tend to be more focused on services, impact investing and the level of information they receive. They want to feel, see and access the information they want on their chosen device at any moment. Wealth managers need to become more adaptable to these demands to maintain and attract this emerging clientele.

Overall, wealth management firms have responded to these fundamental changes by becoming more agile and more focused on the value they add. Wealth managers want their tech and service partners to take on more standard processes, such as managed services.

Wealth managers must embrace the speed of change and reflect on their client’s needs to understand the need to adjust and serve their clients better. Part of that agility stems from outsourcing with the scale and capability to handle tasks of a non-competitive nature.

If you are interested to find out more about the latest APAC wealth management trends, please check out the latest report from SS&C Advent here.

This is a sponsored article from SS&C Advent.

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