Wealth Management Ecosystem 2021: Industry trends, stats, and firms undergoing digital transformation

  • The pandemic accelerated incumbent wealth managers’ need to digitize their offerings.
  • Transformation efforts across the front, middle, and back office can help incumbents get their services up to speed.
  • Do you work in the Financial Services industry? Get business insights on the latest tech innovations, market trends, and your competitors with data-driven research.
  • The following is a preview of one Financial Services report, the US Wealth Management Ecosystem. You can purchase this report here.

Millennials’ wallets were stretched thin in 2020, with 56% of them seeing debt grow during the pandemic. And as these economic impacts took effect, social distancing and safety precautions pushed millennials and other consumers to explore digital alternatives to managing their finances.

As a result, traditional wealth managers are being threatened by startups’ tech-forward tools. The share of global customers using fintech platforms for wealth management is expected to grow 7% from 2018 to 2022, while the share using commercial or retail banks will drop by 6% over the same period.

Below, we outline the biggest trends shaping digital wealth management and explore where the industry is headed in the future.

Wealth management industry trends 

As consumers carefully monitored their finances and shifted their focus to wealth management technology amid the pandemic, traditional financial institutions (FIs) began looking for ways to expedite their own digital transformations.

A massive 77% of US- and Canada-based financial advisors reported losing business because they didn’t have the appropriate tools to interact with clients as the pandemic reduced in-person meetings. And now, three-fourths of global wealth managers see digital as a priority.

The most common trend in wealth management moving into 2021 for incumbents is tapping third party competitors and vendors to assist with transformation efforts. Eighty-five percent of business leaders across a range of wealth management firms reported that partnering with third-party providers was important for their company in the next 12 to 18 months.

Partnerships with fintech wealth managers allows incumbents to rebuild outdated tech stacks—the collection of operating systems and software that is used to run an application. Insider Intelligence research finds that revamping tech stacks from top to bottom is a key wealth management strategy, and is crucial for digital transformation success.

US wealth management market stats 

Insider Intelligence’s definition of wealth management encompasses services designed to grow, protect, and pass on a client’s wealth. 

The US wealth management industry was worth $29.1 trillion as of Q3 2020, per Aite Group. And assets under management (AUM) of North American wealth managers is expected to increase to $73.3 trillion by 2025, up 26.4% from $58 trillion in 2020.

As banking and financial regulations continue to pressure incumbents to adopt digital tech, operational costs will keep rising for wealth and asset management. The median spend for non-compensation costs—regulatory expenses, technology, and office space—accounted for nearly one-third of an asset manager’s total budget in 2019. As regulations are poised to multiply, nearly half of asset managers anticipate regulatory spend to increase in the next two years.

Wealth management reinvented after COVID-19 

Scheduling an in-person appointment with a financial advisor seems outdated after consumers took to managing their finances through wealthtech, like mobile apps and chatbot services, amid social distancing and stay-at-home orders.

Key drivers of digital transformation accelerated by the pandemic include:

  • Demographic shifts: By 2030, millennials will hold five times as much wealth as they do today, and 47% of them are prepared to move to wealth management firms with an enhanced digital platform.
  • Fiscal pressures: Fiscal pressures are eating into margins, driving wealth managers to focus on operational efficiencies—a race to the bottom on fees is driving adoption of technology to bring down operational costs.
  • Competitive pressures: Startups’ entrance into the space is making digital transformation necessary for incumbents to meet changing customer expectations. And as consumer willingness to use big tech firms’ financial services grows, so does the competitive threat for incumbents.  

The future of wealth management 

What does the future hold for the digital transformation in wealth management? Incumbent wealth managers’ digital transformation efforts will likely focus on every layer of the tech stack going forward.

Front Office

Fifty-two percent of global wealth managers are concerned about losing clients due to dropouts during their poor onboarding experience. This looming threat is driving wealth managers to smooth onboarding processes and broaden product suites with value-added services.

Middle Office

The middle office will benefit from solutions that streamline repetitive tasks and reduce error-prone processes. Moving forward, wealth managers will likely implement technology that reduces human error and frees up human agents for more complex tasks. 

Back Office

Given that the back office acts as the backbone of any wealth management firm, incumbents will aim to keep their processes up to date by utilizing cloud migrations, enhacinging data storage, and focus on service continuity to mitigate outages.

Want to learn more?

Insider Intelligence’s US Wealth Management Ecosystem further details the drivers of digital transformation within wealth management and dives into how incumbents can overhaul their front, middle, and back offices to upgrade their offerings and meet customer demands. 

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