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How wealth managers adapt, innovate, and position themselves for a future where finance meets societal impact
Navigating Changing Investor Expectations: PwC's 2023 Survey Insights
Introduction
In this article, we will be covering the intricate details of PwC's survey analysis., delving into the transformative landscape of wealth management. From a 10% asset drop in 2022 to a projected $147.3 trillion rebound by 2027, we'll navigate the shifting dynamics of passive investments and private markets, driven by transparency and innovation. As technology reshapes strategies and demographics drive change, in this article we will explore how wealth managers adapt, innovate, and position themselves for a future where finance meets societal impact.
Navigating Turbulence: PwC's Insights on Asset Management in 2022 and Beyond
As indicated by the PwC survey data, the wealth management landscape of 2022 was tumultuous, witnessing a significant 10% drop in assets under management (AuM) to $115.1 trillion from the prior $127.5 trillion peak in 2021. Concerns over inflation, market volatility, and interest rate fluctuations kept both investors and wealth managers awake. However, PwC's projections offer hope, foreseeing a rebound by 2027, with AuM potentially reaching $147.3 trillion at a 5% compounded annual growth rate (CAGR). Amid this uncertainty, PwC notes a landscape where novices navigate through economic unpredictability, influenced by high-interest rates and geopolitical unrest. The analysis emphasizes pivotal decisions and strategic investments for enterprises' vitality. Notably, the pursuit of alpha becomes more challenging, while market dynamics prompt shifts towards bonds and money market funds. Passive investments gain traction, driven by transparency and liquidity, and private markets allure investors seeking returns and hedging strategies. In another article written by Arjum Neil Alim for the Financial Times he indicates that the PWC Survey finds 16% of managers will go out of business or be bought up by bigger groups. Therefore active managers may face market share erosion due to shifting dynamics and persistent interest rates. The strategic use of data and predictive analytics emerges as a crucial tool, offering unique investment opportunities beyond mainstream options.
Unveiling the Retail Renaissance: PwC's Perspective on the Emerging Goldmine of Opportunities
Evident in the insights provided by the PwC survey, the retail market emerges as a treasure trove of untapped opportunities, with high-net-worth (HNW) and mass affluent investors seeking distinct products. Fueled by the expansion of private markets and a shift towards ETFs, demand surges. However, retailisation brings complexities, particularly with an impending wealth transfer from baby boomers to millennials. PwC highlights the opening of private markets to individual investors, though mainly benefiting HNW investors with potential assets reaching $139.6 trillion by 2027. The survey identifies a shift in HNW individuals' expectations from wealth managers, fostering a desire for diverse services. Yet, realizing these aspirations faces operational challenges. That said, according to Forbes the silent generation is trying to bypass the baby boomers in the great wealth transfer. This generational wealth change, with millennials inheriting $68 trillion, drives tech-driven service demand and a surge in interest in tech-enabled investments, ESG, and private markets, reshaping wealth management strategies for the future.
Reshaping Investment Landscape: PwC's Insights on ETF Demand and Tech Disruption in wealth Management
The ETF landscape is experiencing a surge in demand, with both individual and institutional investors seeking active and passive ETFs in the next 2-3 years. Around 25% of institutional investors plan to embrace active ETFs within 12-24 months, while mutual fund conversions into ETFs are on the rise. Traditional managers grapple with the challenge of navigating lower fees, necessitating strategies focused on scaling, cost management, and digital distribution. PwC's analysis also highlights technology's transformative impact. In another article from Financial Planning News, 2 of those main disruptive tools are AI and blockchain which according to PWC gain favor among 90% of investors for improved outcomes. While wealth managers embrace technology, meeting investor expectations remains a challenge, particularly in the realm of digital models and direct platforms that attract younger demographics. Personalized indexing is on the rise, with 40% of institutions and half of wealth managers planning its adoption. Notably, by 2027, direct indexed assets under management (AuM) could triple to $1.47 trillion, comprising approximately 1% of the total market.
Tech-Driven Revolution in Investment Landscape: Tokenization, AI, and Robo-Advisors Shape Future Trends
The investment landscape is undergoing a significant technological transformation. This shift reaches into the very core of investment processes, from trading and holding securities to contract settlements. This evolution holds the potential to render parts of the existing industry infrastructure obsolete. One driving force behind this transformation is tokenization, which envisions making markets more accessible and streamlining fund ecosystems. Tokenized securities, utilizing blockchain-enabled smart contracts, create digital tokens representing ownership and rights like dividends. While initially centered on real assets, the concept of tokenization shows promise across a wide range of investments, potentially revolutionizing trade settlement, custodianship, and payment approval processes while significantly reducing time, costs, and administrative burdens. The march toward a more digitized market is bolstered by advancements in AI, with generative AI finding applications in middle and back-office functions and robo-advisors gaining traction in specific markets. PWC projections suggest that robo-advisors could manage assets exceeding $5.9 trillion by 2027, more than doubling from 2022's $2.5 trillion. However, varying adoption rates across markets indicate ongoing efforts are needed to solidify this model's effectiveness. Additionally, AI-powered progress extends from refined trading strategies to generative AI facilitating comprehensive analysis of unstructured data.
Navigating the Shifting Landscape: The Impact of Competitive Forces, Investor Expectations, and Industry Dynamics on Fees, Mergers, and Distribution in wealth Management
The financial landscape is undergoing a profound transformation, characterized by a convergence of competitive pressures and investor demands that are consistently driving down fees. Particularly noteworthy is the substantial reduction in total expense ratios (TERs) within the realm of passive funds, signifying the comprehensive cost of fund management. Forecasts indicate that this trend will persist, with active funds expected to experience even more rapid fee declines in the coming years. The survey from PWC paints a clear image of wealth managers projecting sustained fee decreases over the next 12 to 24 months, potentially extending further, with a projection of a 12% TER reduction for active funds and a 9% decrease for passive funds by 2027. This shifting fee landscape aligns harmoniously with the rise of digital solutions in passive investments, often associated with cost-efficiency, reshaping the industry's trajectory. Notably, the driving force behind these fee adjustments is transitioning from investor demands to intrinsic industry dynamics, fueled by major players armed with scale and technological advancements, fostering competitive fee structures and further industry consolidation. Furthermore, the survey highlights a resurgence of mergers and partnerships on the horizon, with 73% of wealth managers actively considering strategic consolidations to penetrate new markets, enhance market share, and mitigate risks, despite potential transaction delays due to valuation uncertainties and financial constraints. The pursuit of efficient distribution management and client relationship nurturing is also driving a trend of vertical integration, as wealth management firms amalgamate proficiencies across client touchpoints, heralding a cohesive approach. This strategic landscape underlines the industry's shift towards internal dynamism, moving beyond external investor pressures.
Reshaping Wealth Management: Navigating Purpose, Diversity, and Innovation - Insights from the PwC Survey
In light of findings from the PwC survey, the significant role played by Wealth Management (WM) in society raises crucial questions about the purpose and relevance of entities operating in this sphere.The survey underscores an emergent trajectory grounded in purpose, encompassing initiatives such as net-zero funding, facilitating credit for SMEs, and embracing the expansion of ESG investments. However, avenues for innovation, broader ESG integration, and reshaping public perceptions persist, enticing fresh investment and talent. Concurrently, the industry's commitment to diversity and inclusion garners prominence, as diversity scores wield influence over investor decisions. Looking forward, a transformative shift looms: WM firms are anticipated to incorporate societal considerations into their performance, aligning with employee and next-gen investor viewpoints. The survey accentuates strides toward augmented ESG transparency, while acknowledging escalating regulatory scrutiny due to potential systemic risks linked to the growing power concentration within WM entities. As the influence of WM extends to sectors like private markets, infrastructure, and social housing, accountability takes center stage. Moving ahead, adaptability to evolving investor demands and technology-centric solutions becomes paramount. Entities adept at harnessing technology, fostering customer engagement, and delivering exceptional experiences are poised to thrive in this swiftly evolving landscape. The survey reaffirms AWM's central position in the global financial ecosystem, poised to navigate long-term growth and facilitate wealth generation for both individuals and institutions.
Conclusion
Embarking on PwC's survey-driven exploration of wealth management's transformative landscape, we navigate from a 10% asset dip in 2022 to a projected $147.3 trillion rebound by 2027, unveiling the pivotal role of transparency, innovation, and technology. Amidst challenges of inflation and market volatility, the analysis highlights strategic decision-making for vitality, prompting shifts toward bonds, money market funds, and the allure of private markets. The emerging retailization trend taps into untapped opportunities, propelled by private markets and ETFs, though adapting to the wealth transfer from baby boomers to millennials is a challenge. The surge in ETF demand, AI-driven disruption, tokenization, and robo-advisors shape a tech-driven investment revolution. Notably, the fee landscape shift and industry-wide vertical integration underline an industry in transformation, driven not only by external pressures but also by internal dynamics and technology. PwC's survey encapsulates an industry navigating a fine balance between tradition and innovation, poised to drive growth while aligning with societal impact.
Zilo Secures £25m in Series A Funding
The funding was spearheaded by Fidelity International Strategic Ventures (FISV) and Portage, with additional contributions from State Street and Citi. According to PitchBook data, the company had previously raised $10.6 million in a seed round in October 2022.
Established in 2020 and headquartered in London, Zilo's mission is to enhance cost efficiency, reduce complexity, and generate sustainable value for global asset and wealth management firms, along with their clientele. Zilo's software facilitates the replacement of outdated legacy systems with a digital, real-time user experience. The platform went live with its inaugural client in July 2023.
The newly secured funds will be channeled towards accelerating product development, fostering user acquisition, and expanding its presence in the market. Additionally, the capital will be allocated to entering new markets and establishing strategic partnerships to diversify its offerings.
Philip Goffin, the founder and CEO of Zilo, commented on the funding, stating, "We are committed to empowering financial service institutions to phase out obsolete legacy technologies and significantly enhance the cost efficiencies of their operations by leveraging Zilo to transition to a modern digital solution that supports existing fund structures, new digital assets, and improves client experiences."
SOURCE: Fintech Inshorts
Amethis buys majority in CBS
Headquartered in Paris, France, CBS has been delivering banking solutions internationally for the past 25 years. Its prominent offerings include CapitalBanker, a core banking solution, and CapitalPrivate, a wealth management solution tailored for European private banks and wealth management specialists.
CBS, employing over 300 professionals, operates in multiple locations, including France, Monaco, Switzerland, the USA, Morocco, Lebanon, and Ivory Coast.
Amethis, through its investment, aims to support CBS in accelerating organic growth, especially on an international scale. The strategy includes facilitating CBS's external growth through strategic acquisitions, expanding its geographical reach, and reinforcing existing services.
In this transaction, Amethis secures a majority stake, collaborating with CBS's president and CEO, Samer Hanna, COO Michel Tueni, CFO Aziz Akl, and other key executives, all of whom are reinvesting their proceeds. Founded in 2012 and based in Paris, Amethis manages assets exceeding €1 billion, with over 30 investments to date. As a partner member of Edmond de Rothschild Private Equity, Amethis provides growth capital to mid-sized businesses across various sectors through its six offices in Europe and Africa.
SOURCE: Amethis
Ant Group Close to Acquiring MultiSafepay
In its pursuit of global expansion, Ant Group had previously entered the Singaporean market through the acquisition of 2C2P in 2022. Known for operating the cross-border payments platform Alipay alongside its affiliate Alibaba Group, Ant Group has established itself as a key player in the worldwide financial services market.
MultiSafepay, generating an annual revenue of US$50 million, is poised to become a valuable addition to Ant Group's European portfolio. Unlike many companies, MultiSafepay has achieved substantial growth organically, with no external investment, expanding from its native market into Spain and Germany.
Ant Group's latest acquisition involves obtaining 100% ownership of MultiSafepay, a company renowned for providing payments acquiring and processing services to over 18,000 SMEs. Moreover, MultiSafepay collaborates with commercial partners to offer supplementary services to its clients. In 2022, the Dutch firm recorded a net profit of US$1.43 million on gross income totaling US$13.02 million. With this impending deal, MultiSafepay's CEO, Olaf Geurs, is expected to pass the reins to Ant Group.
SOURCE: Fintech Magazine
FirstOntario's Open Banking Readiness with Flinks and Everlink
This partnership is set to provide greater control over financial data to FirstOntario's members, enabling the credit union to deliver a more personalized range of financial services. Lloyd Smith, CEO of FirstOntario, emphasizes the importance of this capability as a "key strategic priority" and underscores the readiness to offer this emerging service once legislatively enabled, given the anticipation surrounding open banking in the marketplace.
Flinks, headquartered in Montreal and majority-owned by the National Bank of Canada, and Everlink, based in Markham, joined forces in March 2023 to spearhead the adoption of consumer-driven banking in Canada. They achieved this by combining Flinks' open banking infrastructure product, Outbound, with Everlink's digital solutions.
This collaboration aligns with the federal government of Canada's initiative, unveiled last November, to implement an open banking framework in its upcoming budget. The framework is slated to be nationally operational in 2025, prompting financial institutions like FirstOntario to establish partnerships with suitable providers in preparation.
Yves-Gabriel Leboeuf, CEO of Flinks, notes the growing momentum for a consumer-driven financial industry, emphasizing that the inclusion of open banking functionality within FirstOntario will "elevate the banking experience" for its members.
As per the federal Department of Finance, approximately 9 million Canadians currently use screen-scraping to share confidential banking credentials with service providers, posing privacy, liability, and security risks. Canada aims to replace this process with open banking, following the lead of countries such as Australia, the European Union, the UK, Japan, and Singapore.
SOURCE: Banking Frontiers
Global Fintech Investment Drops 48% in 2023
The number of funding deals also saw a notable reduction, with capital being distributed across a total of 3,973 deals compared to 6,397 deals recorded in 2022. The United States maintained its position as the leader in fintech funding by a considerable margin, attracting $24 billion across 1,530 deals. The UK secured the second spot with $5.1 billion, followed by India in third place with $2.5 billion. The UK's $5.1 billion in funding for 2023 was distributed across 409 deals, reflecting a 65% decrease from the previous year's $14.6 billion across 592 deals.
Innovate Finance highlights that this decline in funding aligns with trends observed in other major fintech markets, including the US, which experienced a 44% drop from 2022. An exception to this trend was the UAE, where investments surged by an impressive 92% compared to 2022. In the UK, female-led fintech companies attracted $536 million in 2023 across 59 deals, representing 10.5% of the country's total funding. The industry body also points out that "the UK received more investment in fintech than the next 28 European countries combined" throughout the year.
Janine Hirt, CEO of Innovate Finance, notes that despite economic challenges for fintech globally in 2023, the UK sector demonstrated resilience by maintaining its position as a global investment hub, ranking second only to the US and leading in Europe. Hirt sees a "clear opportunity" for UK fintechs to strengthen their presence in Asian markets, which collectively attracted "more combined investment than their European counterparts."
Innovate Finance compiled and summarized its report using data from PitchBook as of December 31, 2023.
SOURCE: Innovate Finance
