How can wealth managers stay relevant?

Wealth managers’ clientele is also changing. A new generation of investors, whose lives have been irreversibly transformed by digitalization and the shared experience of living through Covid-19, are joining the ranks of the wealthy.

According to a study conducted by Deloitte, we are in the midst of the “largest wealth transfer in history”, with around $30,000,000,000 expected to change generations between 2017 and 2060, mostly from baby boomers to Gen Z. 90% of heirs, wealth managers are presented with both an opportunity and a threat.

Above all, they must fight to keep up with industry disruptors if they are to continue to play a role in the financial well-being of their customer base; Fintech, robo and DIY offerings, equipped with sophisticated digital capabilities and low-cost investment advice, are all competing for market share.

It seems to me that it is now more important than ever to really try to understand what customers are looking for and what their investment priorities are.

What are customers looking for?

This question is, and certainly should be, at the heart of wealth management. At the very least, clients want to see strong portfolio performance and safe custody of their assets, and at a reasonable cost. If they want to “pay” for a DFM service, they should also expect excellent, personal and personalized customer service.

Indeed, consumer research has shown that clients are increasingly concerned about whether their advisor “understands” them. Deloitte talks about the generation of “reconnected” investors, those who want to stay in control of their finances and fully understand the advice they receive. This comes with a “just me” approach, to be treated as unique with specific goals and preferences.

Young clients seeking wealth management services are likely to seek managers who share similar values ​​and worldviews, another reason why diversity in the industry is so important. Clients want to find advisors they can resonate with, and it’s easier to build empathy and build stronger relationships if you share beliefs and experiences.

It is therefore an exciting time to embark on a career in the industry: the world has seen great changes in recent decades, especially with regard to globalization and technology. Growing through it gives perspective on how quickly things can change, making you more aware of the possibilities but also the risks, especially when it comes to financial markets.

What are the clients’ investment priorities?

ESG is certainly the buzzword of our generation, and many see the pandemic as a global wake-up call that allows us to “build back better”. Clients are increasingly concerned about how their money is being used and want to see that their wealth managers are considering investments that have real impact.

For years, and in the wake of COP26, much attention has been given to ‘E’ issues, particularly in relation to climate change impacts and risks. ‘G’, too, gets a lot of attention. Significant progress has been made on both fronts, not least because they are easy to measure, define and understand.

The more subjective ‘S’ has historically been somewhat left behind, but, in the wake of Covid, with the Black Lives Matter and #MeToo movements, this is moved to the forefront of customers’ agendas. Issues such as workplace equality, homelessness and the cost of living crisis are gaining momentum, and new investment vehicles dedicated to addressing these issues are coming to market.

Wealth industry misses $230 billion opportunity in lower HNW and affluent segments

A typical example is Home REIT, launched in 2020 to provide housing for the homeless. It is raising a further £150m after 222,000 people – almost the equivalent of the City of Westminster’s population – lost their homes in the pandemic. For social income investors, this offers an exciting opportunity to make a material difference in local communities.

The trust leases properties to charities on long-term inflation-linked contracts (caps and collars). With a structural imbalance of supply and demand in the area and a steady stream of government backed revenue (rents are backed by the Homelessness Reduction Act which places a legal obligation on local authorities to house the homeless), it’s easy to see why the manager expects the trust to grow to £1billion in the next three to five years.

In a potentially more favorable post-pandemic world, clients want to hold investments that benefit the planet and its people, and social impact investing allows them to do this, but not at the expense of financial return.

It’s easy to feel cynical about ESG investing and see it as a marketing ploy, but beyond that, ESG can’t be limited to morals and principles. In 2020, Larry Fink, director of Blackrock, argued that “a fundamental shift in capitalism was underway that businesses and investors must respond to if they were to prosper.” He suggested that thoughtful investing was neither ideological nor “woke”, but the best way to get long-term rewards from companies. Given the long investment horizons of today’s next generation investors, social investing seems like a good place to start.

Georgia Barham is Deputy Chief Investment Officer at Tyndall Investment Management

Dolores W. Simon