By Patrick Brusnahan
2022 looks promising for the wealth management industry. Patrick Brusnahan asks Alexandre Duret, product director, wealth, Temenos, on the most significant changes set to shift the private banking sector
What will 2022 bring to wealth management? The question on many lips even as the year rallies on.
Speaking to PBI, Alexandre Duret, product director, wealth, Temenos, says: “Firstly, the global HNWI population keeps growing, in line with bullish equity markets. Secondly, the margins in retail banking, crushed by several years of low interest rates and economic uncertainty, are prompting banks to consider the mass affluent and high net worth segments with renewed attention. Finally, several trends are gaining traction, which firms can convert into opportunities to retain their customers and attract more assets. Let’s take a look at some of these trends.”
“First and foremost, digitisation underwent a considerable push since the first times of the pandemic, when a traditionally high-touch industry had to cope with 100% remote client interactions. While most firms now provide omnichannel capabilities to their clients, the next step will be to combine the best of both worlds into a hybrid advisory approach that enables clients to balance automated self-service and human interactions.
“Whereas the rise of robo-advisers may have been overstated in recent years, the advent of hybrid-advisory could be the industry’s response to empower a new generation. A cohort of clients who expect the same level of experience they get from Big Tech, together with an exclusive relationship with their financial institution.”
“To maintain such an exclusive relationship, firms now seek to offer tailored, “hyper personalised” services based on their deep knowledge of clients. Such services may include bespoke investment strategies built from the ground up for the client or next-best-product recommendations based on their situation, preferences, past choices, or peer group comparison. Invariably hyper-personalisation requires a lot of data but can also consume a lot of time, which is why the leading firms are investing in analytics platforms and AI technologies to augment their advisers and get an edge on the competition.”
“Another way to differentiate is to offer investment opportunities that others don’t. In this respect, digital assets have been receiving much attention lately, including the most traditional private banks. On the one hand, regulators worldwide are progressively setting up frameworks to overcome legal uncertainties.
“On the other hand, overpriced stocks and low-rate bonds prompt investors to diversify their assets. Opportunities (and risks) abound with digital assets, which extend far beyond the well-known Bitcoin. There are hundreds of cryptocurrencies to choose from, such as tokenised securities and now non-fungible tokens (NFTs) that enable investors to own a fraction of real-world assets like art or vintage cars. The good news for private banks is that there is an ecosystem of fintechs they can leverage to build their own offering.”
“In contrast with the volatility and speculative nature of certain cryptocurrencies, sustainable investing or ESG investing represents another prominent trend in the industry. It started as a European regulation but is now seen across the world as a great opportunity to retain and attract customers because it reconciles the client’s financial interest with the values they believe in.
“By screening the companies they invest in based on ethical, social and governance criteria, firms help protect their clients’ investment from future adverse events such as tougher regulations or fines on these companies. Furthermore, by selecting investment instruments according to their sustainability goals, clients are empowered to place their assets where they can make a difference. This is why we believe that 2022 will see the concepts of value-based investing and impact reporting spread across the industry.”
“Finally, Cloud adoption will undoubtedly continue to grow in the coming year, as it is the obvious path for firms of all sizes to adapt their IT costs and protect their margins. While regulatory barriers are falling in many geographies, the Cloud also provides many competitive advantages, from quicker time to market to better scalability and higher security. Building upon these cloud technologies, Software as a Service (SaaS) is a business model which will continue to attract more firms in 2022, levelling the playing field between them and the new entrants, and between the private wealth industry as a whole and the rest of financial services.”
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By Patrick Brusnahan