Big tech expected to shake up wealth management industry

Open this photo in gallery:

Amazon.com Inc., Alibaba Group and other global technology giants are expected to enter the wealth management sector in the coming years, posing “a serious threat” to established financial advisory companies and offering bespoke new services to investors, a report has found.

The wealth management market will recover successfully from the COVID-19 pandemic, with the world’s stock of personal financial assets returning to 2019 levels as soon as next year, Boston Consulting Group (BCG) predicts in its “Global Wealth 2020” report.

While the rebound may be sluggish in North America, Europe and especially Japan, it will be strong in the rest of Asia, with economic growth powering the expansion of the wealth held by the region’s business families, professionals and others.

The BCG report says big tech groups, including Amazon, Google LLC and Microsoft Corp., were already building the digital infrastructure required by wealth managers. Amazon, Alibaba and some others offer financial products.

“In time, their financial muscle and scale” could allow them to move up the ladder of financial sophistication and provide wealth management services to the affluent, the report says.

These shifts are already happening in China, which has few incumbent wealth management companies.

“We expect similar moves in the U.S., given the size of the market, the ubiquity of digital channels and the more active investment clientele. In these markets, big tech players could make significant inroads over the next two decades and pose a serious threat to unsuccessful wealth management providers,” the report predicts.

“In Europe, fragmented markets and the variety of languages, cultures, and regulations could slow big tech’s moves into wealth management, but they are unlikely to stop it,” it adds.

Both new entrants and established companies will be able to use big data and advanced digital technologies to tailor products to a far broader range of clients than today, when bespoke services are generally limited to top-end customers, the report states.

“With digitized product component libraries, for example, a [relationship manager] can create a clean energy product, denominated in euros and with a 25 per cent concentration in African markets, all within moments of pressing a button,” it says.

In its central forecast, BCG says personal financial assets – including deposits, equities, bonds, insurance policies and other products – would fall to US$215-trillion this year from US$226-trillion at the end of 2019 before rebounding to US$225-trillion next year and growing steadily to US$265-trillion by the end of 2024.

Even in its worst-case “lasting damage” scenario, it predicts growth over time, with the stock of personal financial wealth falling to US$210-trillion this year and reaching US$224-trillion in 2022.

Its “quick rebound” projection foresees assets falling only slightly to US$220-trillion this year and then rising to US$237-trillion in 2022 and growing strongly thereafter at a compound annual rate of 4.5 per cent to the end of 2024.

In every prediction, Asia excluding Japan generates the lion’s share of growth, with assets expanding at a rate of 5.1 to 7.4 per cent annually.

“Wealth is resilient in a crisis,” says Anna Zakrzewski, BCG’s global leader for wealth management, pointing to the positive record of personal financial assets over the past two decades. These assets declined markedly in only one year – 2008, during the global financial crisis. Even then, the record level of 2007 was exceeded by 2010.

BCG says the wealth market will be transformed by digital technology, which will not only help cut costs and speed processes but allow the development of bespoke services for more clients. But human relationship managers will remain vital, especially for the wealthiest customers, and serving more demanding younger clients who want their wealth advisors to move from “dry and staid” to “purposeful and fun.”

The consultancy predicts a fragmented industry will consolidate around the biggest wealth management companies, though there will still be a place for smaller firms with niche services for top-end clients, such as yacht management. Meanwhile, retail banks, often using automated technologies, will “aggressively undercut” traditional managers in the lower reaches of the market.

But all will have to keep an eye on big tech, especially in Asia, where clients are already more familiar with digital technologies than in the west.

Ant Group, Alibaba’s financial services arm, says: “As a global technology provider, we are committed to supporting service providers on our platform, including wealth management companies, to offer users a wide selection of products and services, with efficiency and at scale.”

© The Financial Times Limited 2020. All Rights Reserved. FT and Financial Times are trademarks of the Financial Times Ltd. Not to be redistributed, copied or modified in any way.