Four key trends driving personalization in wealth management
1. Market volatility
Market volatility and complexity are significantly affecting investors’ requirements and behaviors, leading 40% of clients to think that managing their wealth has become more complex over the last two years.1 While high-growth sectors have provided investors with lucrative opportunities in the past few years, the new environment of higher inflation and interest rates, and geopolitical uncertainty means some clients remain uncomfortable taking on more investment risk.
In times of volatility and uncertainty, there tends to be increased demand for total portfolio offerings such as model portfolios and outsourced CIO-like services.2 New demands of portfolio construction—including integrating illiquid private-markets strategies at a significant scale and incorporating environmental, social, and governance (ESG) criteria—have created new areas of client need.2
With volatility expected to continue, the demand for personalized client experiences has increased as investors not only seek guidance on navigating complex financial impacts, but also want more control over their portfolios.
As a result, clients across the demographic spectrum are searching for more guidance and investment tactics from their advisors and are more open to working with new providers.
2. New, underserved client segments
Advisors’ efforts to gain the trust of different client segments are driving more emphasis on personalization. The winners in the wealth industry will hone their strategies and offerings to effectively serve the needs of a more diverse range of clients—from women and mass-affluent to high net-worth (HNW) and younger investors—simultaneously.
Increasingly, women are becoming part of the HNW segment. Today, women represent more than 40% of HNW individuals globally, and the share is expected to grow strongly over the next decade.3 Their total wealth in the U.S. and Canada grew at a pace that was 180% faster than men’s between 2016 and 2021, yet invested 22% less of their wealth in financial instruments compared to their male counterparts—leaving up to $14 billion in additional fee revenues on the table.4
$14B
in additional fee revenues on the table as women’s total wealth in the U.S. and Canada grew at a pace that was 180% faster than men’s but invested 22% less than men.4
$45B
in new revenue can be won from the affluent and low HNW client segments, and account for about 60% of the total wealth management revenue pool by 2026.3
Advisors shouldn’t ignore other opportunities to serve other potentially underserved client segments. For example, a new report by Merrill Lynch Wealth Management said that the Asia American and Pacific Islanders (AAPI) community is 25% more likely than the general affluent population to consider inheritance and passing down wealth as part of a financial plan.2
While first-time investors with low assets is set for continued growth over the next decade, the affluent and low HNW client segments with between $300,000 and $5 million in wealth represent the largest revenue growth opportunity in the industry.3 This segment could create roughly $45 billion in new revenue and account for about 60% of the total wealth management revenue pool by 2026.3 Historically, this particular group has not received adequate attention from both wealth management firms and retail banks, primarily because of financial difficulties or a lack of necessary capabilities.
3. Generational wealth transfer
Advisors reluctant to target next-gen investors could leave huge sums of money on the table. With total bequeaths projected to exceed $84 trillion among U.S. residents by 2045, only 26% of future bequestors believe they have provided enough information to their heirs for them to be deemed “very well informed,” with an additional 41% rising to the level of “somewhat informed.”3
Establishing relationships with heirs now could produce greater returns—since individuals under 40 are investing earlier than their elders, seeking advice for the long haul, and are willing to pay for it.5 They’re also three times more likely to give referrals, prefer to consolidate their business with a single firm, and expect more personalization, services, investment options, and more technology.7
In addition, 37% of millennials hold value-aligned investments and 34% have thematic investments, compared to 7% and 4% for baby boomers and older generations, respectively.8
4. The desire for tax savings
A recent Raymond James study revealed that more than 9 in 10 investors said tax efficiency is essential in the transfer of their wealth, but 37% do not have a plan to do this.9 However, those working with an advisor are more likely to have a documented wealth transfer plan (84% vs. 66%) and to have tax-efficient strategies included in their plan (68% vs. 50%).9
Among the most significant ways advisors can provide value to their clients’ portfolios is by creating tax alpha and reducing their tax bills at the end of the year through tax-loss harvesting and capital gains budgeting. The potential benefits of tax-loss harvesting can be further prolonged by enabling clients to add cash to their accounts, gift appreciated securities to a donor-advised fund, and regularly rebalance their portfolios to create fresh tax lots.
In addition, advisors can help their clients navigate the tax and estate implications of The SECURE 2.0 Act of 2022. By rebalancing at least quarterly, advisors can harvest their clients’ material losses during the year, avoid material capital gains distributions, and adjust the location of assets in retirement accounts for maximum tax benefit.
1 2023 EY Global Wealth Research Report
2 The Great Reset: North American asset management in 2022, McKinsey & Company, Oct. 28, 2022.
3 Ten Trends for Wealth Management in 2023, Oliver Wyman
4 Wealth Management: Building a Winning Client Experience for Women, Simon-Kucher & Partners, October 25, 2022.
5 Asian Americans and Pacific Islanders: Lifelong learners when it comes to their finances, Merrill, 2022.
6 Inheritance Discussions Are Worth the Effort for Advisors, Cerulli, Feb. 13, 2023.
7 It’s time to change Your Mind About Young Investors, Fidelity Institutional Insights, 2023.
8 Study: 77% of Millennials have made an impact investment, but only 53% of advisors understand the concept well, Fidelity Charitable, September 18, 2019.
9 What clients want you to know about transferring wealth to their heirs, InvestmentNews, August 25, 2023.