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Embrace new-age competencies, capture opportunity

Despite the global pandemic, its impact on economies and unprecedented government stimulus packages to individuals and businesses, the global high-net-worth-individual (HNWI) population grew 6.3 per cent in 2020.

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The number of HNWIs surpassed 20 million with total wealth growing 7.6 per cent in 2020, nearly reaching $US80 trillion.

"Investment performance will continue to be paramount but firms will also need to focus on delivering value as well as environmental, social and governance options.”

According to Capgemini’s 2021 World Wealth report, after five years of Asian regions leading the HNWI space, North America finally surpassed APAC thanks to rising equity markets and government stimulus, recording the highest total HNWI population (10.9 per cent) and wealth (11.9 per cent).

In Australia, the HNWI population grew 4 per cent to 295,400 while wealth rose 5.9 per cent to $US932 billion. Real gross domestic product (GDP) declined by 2.4 per cent in 2020 and we saw a strong national savings rate of 24.9 per cent of GDP.

Meanwhile in the Asia-Pacific HNWI wealth expanded by 8.4 per cent primarily led by growth in China (13.5 per cent), Hong Kong (12.1 per cent), South Korea (9.2 per cent) and Taiwan (9 per cent).

Hybrid advisory capabilities key to opportunity

Technological breakthroughs, changing social dynamics, new ecosystem players, democratisation of investment management and the rise of digital channels and assets will all impact the success or failure of wealth management firms in the future.

Over the last 25 years, HNWI behaviour has shifted from passive oversight of investments to active involvement and making complex demands of wealth managers. HNWIs embrace hybrid advice models with a mix of digital and direct interaction with wealth management advisors. Interestingly, more than 70 per cent of HNWIs in Asia-Pacific (excluding Japan) prefer to conduct transactions and access information on their own, while 34 per cent of HNWIs globally are actively leveraging wealth-tech services.

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The wealth management industry must push its frontiers to capture customer mindshare for HNWI clients who are accustomed to convenience and personalisation of bigtech.

The industry has seen wealth management firms enhance their capabilities, client reach and market trend responsiveness through partnering with wealth-techs.

Lessons learnt from the crises

As COVID-19 brought about the third global economic upheaval of the 21st century, lessons from the 2002 tech bubble and 2008 global financial crisis (GFC) continue to point to the tendency of HNWIs to self-direct investments in a bullish market but return to advice-seeking during crisis and market volatility.

Notwithstanding digital channels, wealth management was and continues to be a relationship-based business with 60 per cent of HNWIs considering wealth management firm recommendations and following their advice. In the Asia-Pacific, this figure is even higher at 69 per cent while only 15 per cent delegate all investment decisions to their wealth management firm.

Adopting new-age tech skills and reskilling or hiring the right talent will power wealth management metamorphosis.

In the age of disruption, wealth management firms can build resilient and agile operating models by investing in technologies such as Cloud, APIs, and microservices. While the industry’s reputation for expertise and experience remains its primary strength, firms will need to incorporate data-driven insights into their client engagement and investment strategies.

Investment performance will continue to be paramount but firms will also need to focus on delivering value as well as environmental, social and governance (ESG) options. Sustainable investing is now maturing in Asia Pacific, with 56 per cent of ultra-HNWIs and 51 per cent of younger (under 40-years’ old) HNWIs likely to request an ESG score for products offered by their firm.

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With wealth management client profiles rapidly evolving to include millennial and Gen Z, HNWIs, women, non-traditional families and more, firms must train advisors and staff to meet more diverse, segment-specific client expectations and behaviours.

Hiring and digitally empowering a diverse advisor workforce while re-skilling staff to engage with a variety of client segments is the way forward. Nevertheless, 63 per cent of advisors surveyed said they are not satisfied with their wealth management firm’s efforts to provide tools and training to meet changing client needs.

To meet evolving expectations, firms will also need to employ bigtech strategies with hyper-personalisation, lifestyle ecosystem offerings and intuitive embedded interfaces to retain relevance among a diverse client base.

With the current stock market surge, HNWIs are also seeking to diversify their portfolios with alternative investments. Interestingly, 90 per cent of surveyed HNWIs in Asia Pacific said they have invested in cryptocurrencies and 89 per cent in other digital assets such as website domain names or apps.

Special purpose acquisition companies are becoming more popular, while non-fungible tokens are slowly gaining asset-class credibility. In terms of fees, 39 per cent are interested in zero-fee trading but their wealth management firm is yet to oblige.

Market opportunity

The quarter-century edition of the World Wealth Report captured modern-day industry changes and megatrends but the future is already taking shape in the meantime.

New, tech-driven wealth is finding its way to non-typical investments avenues as we see in the Asia Pacific region. Millennial entrepreneurs are reinvesting money gained from exits back to the real economy through new start-ups or creating their own investment funds in collaboration with other young HNWIs.

For wealth management firms, investing in the adequate tools and educational resources in new asset class offerings and investments creates a potentially significant market opportunity.

Elias Ghanem is VP Global Head of Market Intelligence, Financial Services Capgemini and Li Cheng is Senior Director, Financial Services Capgemini A&NZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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