Bain & Company, a global consulting firm, put out a new study this week that predicts customer demand for wealth management services will double over the next eight years, reaching more than $500 billion by 2030. The study also finds that there are three different business models that are best suited to corner that market.
Based in part on research done by Aite-Novarica, the report found that wealth management businesses, with their recurring revenue streams and efficient use of capital, could effectively double the market capitalization of a parent firm. However, the report also pointed out that it’s getting harder to reach growth potential because the industry and its target customers are changing so quickly.
To attract new customers with different needs and wants, new business models and services will be needed. The study found that the market is being changed by four major factors: new clients, new delivery models, new services, and new economic models.
According to the research, about 250 million potential clients born between 1981 and 2012 will have an annual income of more than $100,000 by 2030. Bain also predicts a $90 trillion increase in liquid assets from investors around the world, with about 45 percent of that coming from people with assets between $100,000 and $1 million. The Americas and Pacific Asia are expected to account for most of this growth.
The report found that emerging customers tend to be more self-directed and self-educated. They also like digital interactions more, but when making tough decisions, they still want to talk to a person.
“Overall, these new customers want digital delivery, but when making hard decisions, they want to talk to a person, which requires a high-touch hybrid approach,” said author Markus Habbel, who is in charge of wealth and asset management at Bain.
Brian Seay, who started the small RIA Capital Stewards firm in Madison, Alabama, agreed.
Seay, whose firm has been open for a year and manages about $10 million in assets, said, “Our clients want quality digital experiences and personal expertise.” “They want to move money around. They want to be able to go online, see their investments, and interact in a way that is easy and straightforward, just like they have been doing for a while with their bigger bank. I would even say that they want to go a step further and talk about their financial plan. They want it to be flexible and changeable, and they want it to be done in a digital way.
He said that when big, important things happen in life, it’s important to have a personal advisor who knows the client, the client’s goals, and the client’s situation, even if that advisor talks to the client through Zoom or another digital service.
“Most of our clients are professionals who use Zoom all day and don’t understand why they can’t talk to their financial professional in the same way,” he said. “So, we work with clients by being able to do both digital and personal, and I think that’s where the market is going.”
The Bain study says that with a digitally intensive model, returns on scale are about 35% higher than with traditional models. It also says that if face-to-face interactions are saved for emergencies, one advisor could serve as many as 300 clients.
Bain found that firms will need new services and products as well as new technologies if they want to stay relevant in the coming decade. Emerging parts of the market have new and different priorities, so they will need new and different ways to invest, ways to get into the market, and solutions. In particular, the research showed that younger clients are becoming more interested in planning for retirement, ESG investing, and getting access to digital assets and private markets.
The Bain report says that wealth management firms could do well in the new market economy by following one of three new business models:
The report says that when it comes to integrated platform providers, “large firms with unique skills and knowledge, the ability to make standout products and insights, and access to high-quality investment opportunities will have an edge.” “They should try to reach more wealthy customers by making their services easier for everyone to use with better digital tools and channels;”
Customer acquisition specialists tend to give all-around advice and get customers through “highly productive advisor forces” or complementary businesses. Specialist providers, on the other hand, focus on a specific part of the market and give clients with very specific needs expert advice and solutions.
“If you’re smaller and not acquiring or going to be acquired, I think you have to be in that client acquisition, holistic advice, and niche model to be relevant,” said Seay, noting that his firm gives holistic advice to working professionals.
The report’s authors said that firms can grow big by moving into new regions and offering customised services to a niche market segment there. They also said that all three models require investment in digital technologies and a change in the roles of advisors.
Before using any of Bain’s suggested models, wealth management firms should answer a series of questions, such as how they will get next-generation clients, what technology is needed, if their advisors are trained to give holistic advice, if the firm is in a good position to provide the right solutions, and what special skills or features they have.
The report says that the changing market is unlikely to slow the increase in mergers and acquisitions in the wealth management space. It says that firms will continue to aggressively pursue mergers and acquisitions to solve problems with everything from technology to administrative and investment support to acquiring talent.
The people who wrote the report said, “Material wealth continues to spread around the world.” “Thanks to new technologies, people can be better investors and have more control over their financial futures. But wealth management firms still play an important role. Those who find the right mix of digital tools and human advice for the next generation of investors are likely to make a lot of money for many years.
